The College Cost Conundrum

Christine and I found ourselves talking college savings as we prepared our taxes this past week. With a freshman in high school, one in middle school and another to follow - it is not surprising that the cost of college takes up many dinner time conversations at our home.

Planning for college is an overwhelming and daunting exercise for parents in the 21st century. As parents, we know that our children will need some kind of education after high school - whether that be a four-year degree, an applied associate degree or certificate - to have a real chance at a livable wage job. On the other hand, we see the headlines about rising tuition and student debt and we have a minor panic attack.  Most of us also don't see how the math works - how can I possibly save enough to put my son or daughter through college?  It is a very real dilemma.

According to the College Board's annual report on college pricing - In-state tuition, fees, room and board at a public four-year college averages around $18,500.00 per year.  Want to go out of state? a public 4-year will cost you about $31,000.00. Daunting, I know.  

What about financial aid? Yes, there is federal aid and state aid in many states for those who financially qualify. Many states have merit based aid for students who meet certain academic requirements. Finally, many institutions have their own financial aid packages.  In many cases, this helps with the cost, but you will still be looking at a substantial investment.  According to the College Board the "net price" - college costs after financial aid and other deductions - for in-state tuition, fees, room and board are about - $12,600.00 a year.

These numbers give you a ballpark to play in - but depending on the institutions you are looking at, the ball park could be Yankee stadium or the Toledo Mud Hens ballpark.  Meaning that there is a wide variation, even for public institutions, depending on their selectivity, size, etc. 

If the story in the New York Times this past week is any indication, your guess on what you can count on in terms of financial aid is as good as mine. The way colleges set a net price for their college can be confusing and overwhelming.  

The whole enterprise makes you want to crawl under your bed and hide.  So where to begin?  I will spend some time writing about some of the options in the coming weeks, but here is a start.  

Step one - Start a 529 Savings account for all your children.  529s are a kind of 401K for college savings - a tax deductible way to save for college.  Most states have a public 529 program available.  You can also go through a bank or an investment firm to get one started.  529s will accumulate investment gains that are much higher than a simple savings account.  Here is a good list of state 529 plans. 

Step two - Set up an automatic withdrawal from your bank account into your 529.  Set aside a minimum amount that comes out of every pay check to get started - whatever you can afford.  If you have not done this yet - change your schedule today and get it done.

Step three - Set two target institutions. Look for an in-state public institution that you would likely want your son or daughter to apply to and a "stretch" college that would be a viable, but financial stretch. Find their tuition, fees, room and board cost to give you a range.  We found this great tool on the Colorado College Invest web site as one resource, it includes in-state and out of state colleges, although it appeared to be list price - not net price. There are many other net price calculators online that you can use. Here is the net price calculator at The College Board and another from the U.S. Department of Education.  These calculators are helpful, but not fool proof.  

Step four - Set a target savings amount.  Most of us won't be able to save for the whole cost - so set a percent goal or other number.  We are shooting to save at least two year's worth of the total price of tuition, fees, room and board (not net price) before he graduates from high school for Ben's top target institution 

Step five - Develop a plan to reach that goal.  Ideally you would save a consistent amount each month. The more you invest now - the greater return you will get down the road.  So challenge yourself a bit. However, you might want to ease into it.  Set a base amount and increase it, maybe every 6 months, to move toward your goal.  

These are some real basic initial steps.  In the coming posts, we will start to explore some more creative options.