The American Dream of sending our children to college is just as strong now as it was when we were growing up. Teaching our kids to “dream big” and “reach for the stars” has been ingrained in our culture to a point where a college undergraduate degree is almost as prevalent as the high school diploma of years past. While this isn’t a bad thing, it has emboldened educational institutions to increase tuition and fees at a very high and almost linear rate over the last 30 years. Valuepenguin.com has estimated that the average cost of tuition, fees, and room and board for a public (in-state) college is $20,770. The average all-in cost of a private school is $46,910. If you have a genius living under your roof – and chances are pretty high that you do since you’re smart enough to read this article and the proverbial apple won’t likely fall far from the tree – the cost of a year’s tuition at Harvard is around $78,200! Finaid.org has stated that average tuition costs are increasing at approximately 8% per year. This number is much higher than the recent inflationary numbers of the last decade.
At this point, this information may leave you feeling a little overwhelmed, but what you DON’T need to do is panic. The second step in this process is to discuss with your child your feelings about college, and how much (if any) you are willing to pay for their higher education. Going to college, as of right now, is not a “right” of anyone in America, and you’re definitely not required to save for your child’s college expenses. Determining how much you want to help with the expense of college will allow for you to start the planning process.
Once you know how much you are willing to pay, it is imperative that you start saving early. By starting early, you will have the time value of money on your side and the ability to have your money compound over a long period of time. If you were to save $200 a month from the day your child was born, and those savings earned 6% interest, you would have amassed $45,195 by the time your child was ready for college. If you waited to start that same program until your child turned ten years old, your savings would amount to only $19,585. Starting your savings program sooner will increase your chances of meeting your goals.
By starting to save early, you will have the “time value” of money on your side.
When it comes to implementing a savings plan or strategy, I encourage you to do your homework. There are many different savings vehicles out there, some are state sponsored and offer tax advantages. Multiple colleges have even created their own pre-paid tuition programs. All these plans have very fine details and the tax implications need to be studied to ensure that you are utilizing the appropriate savings vehicle. If you don’t have time or don’t feel qualified to make this type of decision, a financial advisor can definitely help you. They can walk you through the different types of savings structures and suggest which one will be most appropriate for what you are trying to accomplish.
One last thing to consider: there is a line of thinking out there that proposes free college educations for all! Or, as other thinkers may describe, taxpayer-funded college. You will want to make sure that your plan will allow for flexibility in case this policy makes its way into law during a future regime change.
Like anything worth doing, saving for your kid’s future educational expenses requires planning, discipline and grit. Getting started on a plan today will help ease frustration in the future.