by Scott Christianson, CFP®
Executive Vice President
Portfolio and Wealth Management
In the past 30 years, the cost of your cup of coffee doubled. Medical care costs rose 435%. And college costs? According to a study by J. P. Morgan Asset Management, tuition increased … 822%. For households looking ahead to college, this is probably not a surprise. If your future includes paying for higher education, now is a good time for a reality check.
Colleges are spending more to attract the best students and are hiring more faculty and administrative staff. Although total state and local funding for both two- and four-year colleges has increased since 1988, the funding amount spent per student has dropped as enrollment has grown.
For those families with college-bound students, paying for college will be one of your family’s largest expenses—especially if you have multiple children attending for a full four years or longer. Today, your 18-year-old will need close to $100,000 for a public university and twice that amount for a private institution. Once your newborn is college age, you can expect to pay over half a million dollars to attend a private college, around $200,000 for a public university, according to the nonprofit College Board.
Source: J. P. Morgan Asset Management
Knowing what to expect and how to effectively plan is critical for meeting your child’s education funding needs. We have recently covered some of these topics: “How to Choose a 529 Plan” and “What to Do with Excess 529 Funds.” In our second quarter wealth management publication, an article titled, “Tax-Advantaged Education Savings,” can be found on page four. There are also strategies to drastically cut the total expense—and they may not be what you expect. For instance, students who start at community college and are living at home for their first two years save 39% over a four-year public college.
Source: J. P. Morgan Asset Management
For the 2020-2021 school year, the average tuition, fees and room and board expenses will be about $22,180 at public universities and $50,770 for private institutions, according to College Board.
A common misconception is that these numbers are the “sticker price” and nobody pays sticker price. However, the reality is free grants and scholarships often don’t make much of a dent in total cost and many families won’t qualify. According to Sallie Mae, around half of students receive need-based support and a little more than half get some merit-based help. That leaves a lot of students with little to no financial support.
Students hoping to soften the financial blow via sports should also have realistic expectations. For those 1-to-2% of high school athletes talented enough to play Division II NCAA college sports, athletic scholarships cover only a relatively small portion of college costs, typically $6,000 to $8,000 per year, according to Scholarship Stats.com. When it comes to grants and scholarships, there are few free rides. Finaid reported that only 0.3% of college students receive enough to cover costs..
But, there is some good news too. In the past decade tuition increases have actually slowed, with public tuition remaining relatively flat. A degree typically pays for itself by age 30, when college graduates out-earn high school graduates. On average, over their lifetime, college graduates with a bachelor’s degree will earn roughly twice the amount of money as a high school graduate. Despite the cost, higher education still represents solid value with better job security and higher lifetime earnings.
Source: J. P. Morgan Asset Management
Speaking with your children about an investment in their future and the increased earning power that comes with their degree can also be a way to build their own financial acumen. Our advice is to consider college an investment and look for ways to increase the return on that investment by reducing the cost through smart saving and thoughtful choices about schools based on their total cost and support provided.
Our Wealth Horizon™ forecasting solution can help you address your own financial planning questions and overall goals. Your portfolio manager at Ferguson Wellman or West Bearing can get you started or help you update and revise your plan periodically.
Ferguson Wellman and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.
Disclosures