Are You Wondering How to Afford to Send Your Kids to College?
If so, you’re not alone. It’s a daunting proposition, and unfortunately, it’s getting harder every year. If you feel like the costs of a college education are exponentially higher now than they were when you went to school, you are absolutely right: between 1970 and 2015, college tuition has seen a 20-times increase in cost.
By comparison, general inflation of goods and services are only about 6-times as expensive. Over the last 10 years alone, college tuition has averaged annual inflation rates roughly 3 percent higher than regular inflation. This has all lead to annual tuitions for the 2015-16 academic year being $9,650, $24,930, and $33,480 for in-state public university, out-of-state public university, and private universities respectively. The pain doesn’t stop there though. Tuition only accounts for approximately 67% of the total cost for private schools and 39% for out-of-state public schools. If these trends remain un-altered, projections have college tuition increasing 150% over the next 18 years, which is enough to leave any parent unable to sleep at night.
Given how expensive it is, what is the value? There are plenty of people who make good careers and establish businesses without a college degree. So is it worth it? It certainly can be, depending on the cost of the education and the caliber of job that comes after the degree. According to statistics from the Department of Education, there’s a substantial difference in earnings between people who have a high school diploma vs. people who have a bachelor’s degree. They calculate that over the course of a lifetime, a worker with a bachelor’s degree will earn 70% more than someone with just a high school education ($59,124 versus $35,256 per year).
What Can I Do to Help?
If you recently had a child, setting aside $3,000 a year in a fairly conservative portfolio should yield enough to comfortably see your child through an in-state public university. The more expensive the school you dream of for your kids, the more you need to set aside every year, with $6,000 and $9,000 being good annual investment targets for out-of-state or private universities, respectively. Another option is what I like to call “The Thirds” plan, which involves saving a third of the cost before your child turns 18, paying for another third out of current income while your child is in school, and allowing your child to get loans for the final third. This shares some of the burden with your children, and is an easier goal to aim for.
A college education can make a tremendous difference in the standard of living your children have, but financial responsibility should influence which acceptance letters you are waiting for.