Education planning can be one of the more stressful parts of a parent's financial plan. How do you plan to have enough saved when you don't know what that future number is going to look like? Will they go to school or not? Will they need graduate school training? Which school will be the best fit? These are all common questions and ones we are happy to review with our clients.
What is the Future Cost of Schooling
College is increasing in cost rapidly. According to our calculators, many tuition rates are going up as much as 7% per year. That means that if a school costs $40,000 per year today, and you had a 10-year old that you wanted to save for, you would have to put $160,000 aside today (for 4 years), and have the investments grow by 7% each year on average - just to keep up! But not to fear, there are some things to consider that can help you to eat this elephant in bite-sized portions.
College selection is one of the biggest factors in keeping costs manageable. The total cost of the school is just one of those factors; however. Some schools have accelerated programs that allow students to graduate in fewer years which would cut down costs. Some schools have work-study programs built into acceptance that also reduces the financial impact. And some schools are close enough to home that you can eliminate much of the room and board expense and focus on tuition only. Lastly, some colleges have opportunities for scholarships that others do not so you should absolutely take that into consideration.
There are additional ways to cut down on the cost of college, by reducing the number of years a student has to attend. One of the most common ways of doing this is by having students take Advanced Placement (AP) classes. This is when students take a class and then have the ability to take a college-level test and receive a score. If the school they want to attend accepts the score they received, they can receive college credit! The second most common way of reducing the time to get a degree is by taking dual-enrollment classes. This is when high schools allow students to take classes from a local community college, and then those classes can be transferred into a local four-year college. You have to be careful you take classes that will transfer into that future school!
A college that costs $160,000 for four years today can sound like an impossible goal. If you start when a child is born and put just $200 per month aside for school for them, that can be $108,000 by the time they need to go to school if you can average a 9% return each year. That might not get to the full amount, but it will certainly provide a good start on your child's education for the cost of one or two nights of going out a month.