Helping your children pay for college is one of the biggest and most important challenges that you will face. Currently, a four-year education (tuition, fees, room and board, supplies and personal expenses) can range from almost $100,000 at a public college to over $230,000 at some of the most expensive private institutions such as Boston University and The University of Chicago. With expenses expected to continue to rise at the current rate of 5% per year, the costs could skyrocket to $150,000 for a public college and over $360,000 for a private institution for a student matriculating in 2019. Making matters worse, planning for college gets more complicated each year because of the ever-changing rules, regulations and tax laws. Feeling overwhelmed and confused, many parents fail to develop an effective plan, leading to burdensome debt affecting both parents and students for years to come.
Studies have shown that while most parents feel helping their children pay for college is one of their most important financial objectives, few are financially prepared to do so. Some reasons include underestimating costs and failing to reduce discretionary spending to reach their college-funding goal. Some parents also have unrealistic expectations and make false assumptions regarding the availability of financial aid. Though in many cases parents and students will not be forced to bear the entire cost of the education, most college financial aid administrators agree that parents overestimate the amount of scholarship, grant and other financial aid their children will receive, and have a false sense of security that colleges will help them cover most expenses. Therefore, you should not base your college savings plan on the hope of a generous financial aid or scholarship package that may not come to fruition. The fact is about half of all college students get no such money at all, and instead have to pay the full price of college by borrowing, working, or withdrawing from their savings.
That is the bad news. Now, here is the good news.
First, developing an effective college savings plan is achievable if you keep it simple and are willing to invest the time and effort to stay abreast of the changes in regulations and learn how to use the tax and investment options available to you. Tax-advantaged savings vehicles as well as tax credits and deductions are available to help take the sting out of college costs.
Second, for those of you who start saving early, you have time and the power of compounding on your side. Even small, regular contributions to a college savings plan can go a long way to defraying the costs of the time when your child starts college. Saving early and regularly is the surest way to build a college fund.
One of the most important things you can do as a parent is to help educate your children. Planning, saving diligently, doing your research and applying some good old-fashioned common-sense will allow you to help your children pay for college when the time comes.
John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.