3 Big Ideas for College Savings
1. Wake Up
By that I mean, are you aware that college prices have skyrocketed the past 20 years?
If my three kids went to the University of Iowa for four years beginning next year, the total cost would be roughly $500,000!
Unfortunately, many parents have their heads in the sand until their child starts the college search process and that makes for a rude awakening.
What some Universities are charging in 2011 (keep in mind these increased by around 8 percent last year) for IL residents:
|College||2011 Annual Cost for Tuition + Room & Board|
|U. of Illinois||$24.500|
|U. of Iowa||$39,200|
|U. of Wisconsin||$40,900|
|Miami of Ohio||$51,000|
|College of DuPage||$10,000|
In 2011, 123 colleges charged over $50,000 for tuition, room & board!
It’s no wonder that student loan debt is estimated to be over $1 trillion today!
Today’s parents went to college before all these loan programs were part of the system. Student debt was usually only part of the equation for people who went for advanced degrees in law, medicine or a master’s degree. Now the ease and availability of student loans make it possible for colleges to raise their prices significantly.
2. Get Going Now
How else will you be able to pay the tuition bills? Email me if you want to find out how much you should be saving toward this goal.
There is no time like the present to begin or ratchet up your savings program if you plan on paying for some or all of your kid’s college costs. You can save in a taxable investment account, but I prefer 529 College Savings Plans. General information on 529 plans
Illinois offers two plans, one in called Bright Start and the other is Bright Directions. Full disclosure: My kid’s college savings money is all in the Bright Directions 529 Plan. The first $20,000 per year you invest in either of these plans is IL state tax-deductible so that a $20,000 investment saves 5% as an income tax deduction or $1,000 in actual taxes.
The investment climate has not been kind to most investments lately and these plans are no exception, but in some cases they have done ok.
Joe Hurley, founder of SavingforCollege.com, investors should take solace in the funds’ strong long-term performance: For the past five years, the S&P is basically flat, while the average 529 plan has returned 4.6%.
The problem, of course, is that over the same time period, tuition and fees are up 38% for in-state, public college students and up 30% for private college students.
3. Finish Strong, it’s worth it.
While college students and parents might fear that the cost of college is outpacing the value, studies find that’s not the case. Students who attend institutions of higher education obtain a wide range of personal, financial and other lifelong benefits.
For most people, a college degree “pays off very well,” said Sandy Baum, an independent higher education policy analyst who led the College Board study, published in September. “On average, the rate of return is very high, and it is continuing to rise over time.”
The cost of attending can vary greatly from college to college and takes into account books, supplies, room and board and transportation as well as tuition. With all that factored in, the College Board estimates a student’s average yearly cost is between $3,438 and $14,054 for a two-year college, $18,326 to $29,193 for a four-year public college or university, and about $37,000 for a four-year private institution.
The median figure for what bachelor’s degree recipients earned working full-time in 2008 in the United States was $55,700 – meaning half of all the degree holders made more than that, and half made less. That median was $21,900 more than the median earnings of high school graduates, Baum found.
The study also suggests it takes just over a decade to earn back the money spent on college. Based on median salaries, the research determined that after 11 years of employment, a college graduate’s higher earnings compensate for not only the four years spent in school rather than in the work force, but also the average tuition and fees at a public four-year university funded fully by student loans at 6.8 percent interest.
A college degree is still a solid ticket to the workforce:
Unemployment rates as of 9/2011:
Less than High School Diploma 14%
With High School Degree 9.7%
With College Degree: 4.2%
Bureau of Labor Statistics
The clock is ticking, contact me if you have any questions about your college savings plan.