Whether or not you plan to pay for any of your child’s college, you should still prepare yourself and your child for the costs of attending college. By knowing what to expect and making a budget that can help you save for your child’s college expenses, you can increase your odd’s of success.
Here are some of the things that you should consider when planning for a college education.
Know the Cost of Colleges
College tuition and living expenses have quite frankly gotten out of control. I thought they were outrageous twenty years ago but they have continued to grow at a rate of twice the average cost of living, making education relatively more expensive for each generation of students. The biggest driver of cost for schooling is whether it is an in-state public school or an out of state public school or a private university or college. Private schools are multiples more expensive than public schools. And in-state public universities are much cheaper than the out of state public schools.
According to SavingForCollege.com, the average tution price has been rising much faster than the rate of inflation
According to The College Board®, the average 2010-2011 tuition increase was 4.5 percent at private colleges, and 7.9 percent at public universities. The ten-year historical rate of increase is approximately 6 percent. These figures are substantially higher than the general inflation rate. They are also higher than the average increase in personal incomes.
You can read the rest of this at the real cost of higher education.
And according to the National Center For Education Statistics, the average cost of one year’s tuition and fees for 2008 (latest year compiled) is $12,000 for a two year school, $18,000 for a four year public university, and $35,000 for a private four year university. While that may not sound like much, if you adjust it to today’s rates, which are 25% higher, and add in the cost of room and board, you’re looking at total costs that are huge. A two year degree would be over $30,000 without room and board. A four year public college would cost $90,000 without room and board. And a private four year degree without room and board would be $175,000. Add in room and board and the costs could be substantially higher.
Now, think about if your child was just born. That would mean he or she would start school in about 18 years. Historically, tuition prices have risen at 6 percent (see above). That means that in 18 years they will be 185% higher than what they are today!!!! That means that if your child that was born today were to go to a private university, it could cost them about $325,000, without room and board! These numbers are just staggering in my mind!
Of course, there are a lot of grants and scholarships that can help reduce the tuition costs. We suggest you use this information to help your child pick a school down the road. Right now, we’ll just focus on the total costs.
Now that you know the costs of what college might be for your child, you need to come up with a plan to help them.
Make a Financial Plan to Save For College
Start by estimating how much college will cost for your child (see above). Now, you need to work backwards to help you come up with a financial plan. Let’s say that you expect your child to go to a four year public in-state school, and that they will go to school in about 18 years. From above, we know that your child will need about $166,000 in tuition and fees, and probably another $35,000 in room and board. Basically, your child will need about $200,000 for school.
Once you know that, you can work out your plan. Do you want to pay half? Do you want to pay a quarter, all of it, four years worth, etc? You can probably expect to get some financial aid to help but this seems to go away with the more you save, so you can’t always count on it.
Let’s say that your child’s school will cost $200,000 and you’d like to pay for half. That means you’ll need to save $100,000 over the next 18 years. Working backward and using a financial calculator to do this, you can estimate that you will need to save $270 a month to save $100,000 in 18 years. If you want to run your own calculation, you can download our budgeting for college calculator in excel.
Whatever amount of money you need to save, you should make a plan with exactly how to get there.
Share the Costs With Your Child When They Are In Their Teens
As your child reaches their teens, you’ll want to start making them aware of the differences in college costs. Basically, you’ll want to walk them through the differences between going to college in-state, at a public school, and at a private university. Show them the different costs and show them the amount of debts they will take on at each college. Also, you’ll want to discuss how financial aid works with them, so that when they are searching for schools, they can take that information into account.
Teaching your kids about college costs is an important way to help them help you reduce them.
Use any Tax Advantaged Accounts That Are Available
Finally, make sure that you take advantage of any tax advantaged college savings accounts that you can. I won’t get into it here but there are many savings funds, 529s and other tax friendly accounts that you can help lower the costs of college and often save more each month because of less taxes. Make sure that you check with people in your area to make sure you are taking full advantage of these.
In my opinion, these are the best ways to budget for your child’s college tuition and other expenses.
Do you have any ideas or experiences that you can share on this idea?