Back to school time is hectic. New routines, new teachers, new friends and trying to figure out how to get everyone were they need to be when they need to be there, without hiring a fleet of UBER drivers. I for one will be typing my blog posts from my daughter’s ballet studio for the foreseeable future...
We eventually settle in to a routine and then for many, the reality sets in – the kiddos are one year closer to college and those over-sized payments for tuition, room and board are one year closer too. Panic. Denial. Procrastination. How about we plan our next family vacation instead?!?!?
After some mindless web surfing to distract us, some article, blog post or research report snaps us back to reality. How on earth are we going to afford to pay for college?
It's a question I hear often and it's a real problem for almost every family in America.
It's estimated that only 50% of families are even saving for college and of those that are, the average balance is roughly $10,000. And unfortunately, that won't go very far.
Tuition, room and board costs will vary wildly, but for an in-state school, tuition, room and board and basic expenses are likely to run $35,000 - $40,000 per year. It will be more for out of state and private schools, less for community college. So let's say it's $160,000 all in for four years.
It's going to be very hard to fully save that much. If you start saving the day your child is born, and can somehow figure out how to squeeze an extra $500 out of the monthly budget and put it towards college and then assume a 4.5% annual return, you have a realistic chance of saving enough for college. Have two kids? That'll be $1,000 per month. Decide to make it a 4-pack? $2000 per month. And if you don't start until they are 9? Then you'll need to save $1,200 per month to get comfortably close. That's just not realistic for most.
So what do you do? Three simple things:
1) First, I recommend ignoring the big, ugly numbers from tools, calculators and blog posts like this until your kids get much closer to college. You don't have a money tree, so the most important thing you can do is start saving now (or save even more) and save in a low cost, tax advantaged 529 plan. Even if you only get 25% or 50% of the way there, it can make a big difference. Don't be discouraged by the fact that you won't fully make it. There are lots of options and things change. A financial advisor, financial planner or investment advisor can help you evaluate your specific and unique circumstances, but 529 plans make sense for many. Bonus Tip: If you choose a Fidelity Investments Plan, you can goose your savings with a 2% cash back credit card.
2) Next, spend some time with your kids on PayScale.com. Have a discussion. Evaluate the salary ranges for the degree they are thinking about and potentially more important, the skills those graduates will be expected to have. Do they have or are they willing to acquire those skills? Do they realistically need a graduate degree to get a job? They might not be as interested in a particular degree if it isn't a match for their personality or if they need to move to a different city for the best opportunities.
3) Finally, start researching and applying for scholarships. Many are available to High School students and even grade school students. It will help prepare them for college, help them feel invested in the process and maybe inspire them in a particular direction.
Then as you get to the college precipice, consider working with a college specialist, such as my colleague Jack Wang, who can help those that are closing in on college deadlines navigate the FAFSA form submission process and overall funding process. For some, financial aid may be available and for many, different types of student loans are available. It can be hard to sort out, and someone like Jack can help make a difference.
There are no easy answers to college funding, or other difficult conversations about the right approach to college and making choices in college that pay off in the long run. We can help provide a strategy and a plan as a first step.
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