I remember my college planning days very well. It was twenty years ago, but the memory will forever be burned into my brain. Part of the reason is because of the enormous weight of the decision. If I didn't know any better, I would’ve thought Dumbo was sitting on my chest.
The other reason the memory is so stark is because I had to do math – my worst subject. Had I scored better on the math portion of the SAT, maybe I wouldn’t be struggling so much with my decision, but that's another story!
Calculating the Costs
You may be thinking, “There’s math involved in college planning?” Heck yes! There are computations, financial planning, mileage calculations to figure out the distance you’ll drive for real food… there are numbers at every turn. In fact, current trends in tuition costs threaten to cause calculator meltdowns.
The sheer fear of entering the work world in a $50,000 hole is enough to make anyone want to run off and join the circus where they can ride atop elephants instead of the other way around.
College Planning 101
In order to help us understand the real costs of college and what we can do to prepare for one of the biggest financial steps in life, PlumbTalk Women spoke with financial planner, Stas Politis.
Stas has run his own businesses in South Africa and the United States, and currently resides with the National Planning Corporation as an expert in his field. Stas works with business owners and individuals to help them plan for comfortable retirement.
Get an Early Start to Long-term Planning
Stas told me that planning for college is a lot like planning for retirement. You won’t have as much time, but in the end, the concept is the same. Put money away as early and as often as you can.
Before we get into the types of options available, let’s start by taking a walk through the Twilight Zone of college costs. Over the last twenty years, the average annual tuition cost has jumped 645 percent, by far the largest jump of all major sectors. To put that into perspective, healthcare costs have risen 326 percent over the same period. This trend shows no signs of slowing, and it certainly won’t be reversed.
Future Costs of College
- If your child started college in 2012, for example, the first year’s tab probably tallied around $18,000 with room and board. This is for a public university in their home state.
- If they chose a private institution, the cost was more like $39,000 (1).
- For parents of newborns, they can look forward to sending their kid off to a public college for the price of $41,000 per year or just over $185,000 by the time they receive their diploma.
- Want to know what private universities will be asking for eighteen years from now? $410,000 (if they can finish in four years)(2) .
I know what parents of young kids are thinking. “But my son is the next Tim Tebow. No need for us to worry about those crazy, escalating costs.” Here’s the reality. Less than 1 percent of all college-bound students get a full ride (3). Plan ahead so you and your child don’t have to consider ruling out college because of the hefty price tag.
Lower Out-of-Pocket Costs for College
This brings me back to the advice that Stas gave us: have a saver’s mentality. As Stas says,
It really starts there. Formulate a plan of how you’re going to save, and then manage it, and make adjustments if necessary. There are many different plans, and they vary by state. At the end of this article, we’ll list some handy websites that delve into the minutia.
The ultimate question remains, how do you find a way to pay?
Tapping into Additional Resources
Beyond savings and investments, there are other ways to help. Grants (need-based) and scholarships (merit-based) are gifts, and they come from a variety of sources. Schools have funds to grant needy students money, so parents and students should talk to financial aid departments at prospective colleges.
In general, schools that have higher costs have better financial aid programs because of their endowments; don't automatically rule them out. Also, consider looking into non-profit organizations. The Rotary Club, for example, offers scholarships to students with a proclivity toward service.
When to Borrow
After exhausting these options, it may be appropriate to seek out low interest bank loans. When doing so, it is ideal to borrow as little as possible. Having a college funding plan that combines savings, grants and scholarships, it becomes possible to pay back student loans quickly.
Sometimes you can collect scholarships, grants, and loans and still come up short. That’s why it’s so crucial to have a savings fund. It’s important that parents think about it while their child is still in diapers. Stas suggests asking family members to donate cash to the college fund instead of buying gifts that will end up at Goodwill someday.
Advice from the Expert
A final bit of sage advice from Stas has to do with your own retirement fund; do not dip into it to pay for college. This is a bad idea because chances are you won’t get the money back, and then you’ll be asking your well-educated son or daughter to loan you money as you enter your golden years. If this happens to be the case, you better hope they’re not still paying off student loans.
You want to help your student pay for college – this is nice but it is not necessary. Therefore, when chipping away at the monumental task, avoid drastically decreasing your quality of life to afford exorbitant tuition costs.
Before confronting the stress of college planning, take a deep breath. This journey requires research and wise counsel. Equip yourself to make smart financial decisions and let your child know what he or she can do to help. This may not make college planning a breeze, but it will keep Dumbo off your chest.
For more information please feel free to contact Stas Politis at: [email protected].
Or, continue exploring college planning with the websites listed below. They were used to shape this article.