The costs of attending college are substantial and continue to rise at a faster pace than inflation. In today’s dollars, average annual tuition (plus fees) costs roughly $10,000 for a degree from a four-year in-state college, $25,000 from an out-of-state, and $35,000-plus from a private school. In addition to tuition, there’s living expenses, travel, and other miscellaneous costs which can significantly increase the annual costs of attendance (COA), depending on the university.
Given the substantial expense associated with obtaining higher education and the fact that children from high income families have little chance of qualifying for needs-based aid, there are three important strategies these households should consider as they plan for their children’s college education.
Start Early with Systematic Savings
College will represent one of the largest lifetime expenses for many U.S. households. Therefore, the longer you wait to start saving, the more out of pocket expenses you will end up paying later.
Setting up a systematic savings plan using a 529 plan has several key benefits:
- Saving in advance provides peace of mind knowing you don’t have to risk not having adequate funds to pay out-of-pocket when your child reaches college age.
- By automating contributions (i.e. monthly, quarterly, or annually) to a 529 college savings plan, you won’t risk spending the money on something else.
- Systematic contributions over time will help dollar-cost-average investments and reduce the risk of bad timing.
- Utilizing a 529 plan enables you to invest and earn tax-free income over time on your contributions if the withdrawals are for qualified educational expenses.
- Since changing 529 beneficiaries to other family members can be done without tax consequences, you can start saving for college even before you have a child. Just name yourself or another relative as the beneficiary.
Target Merit-Based Scholarships
While needs-based aid probably isn’t in the cards for children from high-income households, merit-based aid, particularly from private universities, may still be a good possibility. Merit based-aid is school specific, but factors generally impacting the amount of merit-based aid awarded may include the student’s grades, test (ACT/SAT) scores, high school classes taken, level of interest in attending, area of focus, etc. Certain schools are known are known for being more generous when it comes to lowering the sticker price than others. Including one or more of these schools on your target school list increases your chances of getting an award. In addition, since test scores play an important role in determining merit-based aid, investing in tutoring for entrance exams may have a significant pay off if your child gets a sizable reduction in tuition. Here’s a list of schools that provide a significant percent of students with merit-based aid.
Evaluate the ROI
Lastly, parents and students may have to make some tough decisions when it comes down to ultimately deciding on which school to attend. As part of those discussions, comparing the prospective Return on Investment (ROI) for each school should be an integral part of the analysis. This exercise involves comparing the average starting and mid-career pay by major/degree/school against the total cost of attendance (COA) for each school. Consideration should also be given to whether an advanced degree (i.e. medical, legal, etc.) will be required to pursue a chosen career path and what impact a specific undergraduate program may have on getting prepared and ultimately accepted to desirable graduate program.
SMS provides customized college educational planning that takes into consideration each family’s specific needs and objectives. Our approach is aimed at getting parents peace-of-mind while working towards achieving their long term financial goals.