The Importance of Financial Planning For College

When it comes to college savings, you may feel that you’re fighting an impossible battle, but the more you can save and the earlier you start, the more options your kids will have down the road.

Now that we have a baby in the house, starting to save for college has become a big topic of conversation for my husband and me.

Not only do we have to decide what type of plan to go with – we’re batting around doing BOTH a 529 Plan and a Coverdell Educational Savings Plan – but also how much to set aside.

The fact is, the top private colleges are extremely expensive and yearly tuition hikes show no signs of slowing. 

In fact, I read a interesting article recently saying that some schools were boosting their perceived desirability by charging MORE. Admissions actually went up when some schools raised their tuition because students have begun to equate a high price tag with a high quality education.

Can You Save Enough For Your Child’s College Education?

“In the absence of any objective measure of the value of an education, price becomes the default yardstick. The more expensive a college is, the better the education it presumably provides. (After all, if other families were willing to pay this much to send their kids here, it must be worth it.)” – www.Money.CNN.com

No doubt about it, college is getting expensive.  Assuming you wanted to, could you actually afford to send your kids to a private 4-year college? Here’s what you’d have to save:

• Tuition, room & board, books, etc. at a private college may be on average around $142,000 for the whole she-bang.  Using $25,000 for tuition, $7,000 for room and board, and an additional $3,500 or so for books, travel, and entertainment each year, or $35,500/year.
• At a public college with a tuition of closer to $6,500, but the same cost of living expenses, we could expect a yearly bill of $17,000 or $68,000 all together.  I know where I could buy a house for that much money, right now… (Come to think of it, maybe I should just buy that house on a 20-year mortgage and plan to sell it when junior’s ready for college…)

If you think that the cost of education will keep rising, let’s say at an average rate of about 5% a year, you’ll actually need more than this to pay for your child’s costs by the time he’s old enough for college.

Building in this price inflation, you could be looking at:

• Private College Education Costs in 2028: $377,000
• Public College Education Costs in 2028: $180,000

Whew!  That’s a real sting, but it pays to be more realistic and foresighted now, than to be caught flat-footed with fewer options on the table down the road.

Does Your Financial Plan For Your Kids College Let You Start Saving (and Investing) Now?

What all this means is if you want your kids to have the option of the very best education money can buy, and you start saving when they’re born, with a 20-year investment window, let’s see how much you have to put aside each month.  (I’m going to assume an 8% rate of return because we’ll need to invest a little more conservatively since we don’t have as many years for the investment to grow.)

• To save up for the public school education, we’d need to save $3,700/year and we’d end up with $182,825 in 20 years.  That’s setting aside just $308/month per child.
• To save up for the private school education, you’re looking at socking away more like $7,700/year to accumulate $380,474 in 20 years’ time.  That works out to $641/month per child, which is a much heftier chunk of change, especially when you consider the cost of several children. 
• Also, if you start later, say when each child is five years old, you’d have to put away for $525/month for public school and $1,083/month/child for private.

I know most of us aren’t putting away that much for our own retirements (retirement savings should take priority over college savings in your financial plan, by the way) much less saving it up for the kids’ college.  It’s a big undertaking, especially when you consider all the other costs that come along with a new baby.

At a certain point, if you’re not incredibly wealthy, I think you have to just say, “I will save as much as I can reasonably put toward my kids’ college education, and if they want or need more when the time comes, perhaps they can contribute to the costs through their own job or business, through scholarships, and through debt. 

I was fortunate to get a college scholarship myself.  Even though it wasn’t to a fancy-schmancy private school  (rather, it was to a great public university), I decided to take it because it offered a great value.  There are lots of grants and scholarships available for kids who keep their grades up and excel in extra-curriculars.

Keep Your Head Down and Your Chin Up (If You Can Do Both At The Same Time) And Start Saving

It can be frustrating to feel like you’re fighting a no-win battle to save for a college education for your children.  The key is to not get discouraged, but to just make regular, affordable contributions month-in-and-month-out.

You may not be able to save 100% of what your kids will need for college, but remember that this is a gift to them, and everything that you CAN save will relieve them from debt, work, and compromise down the road.  However, although I’m not a big fan of debt.. hard work and compromise aren’t always so bad.

Keep Pluggin’ Away!

Emily

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