College costs are going through the roof! You’ve seen the headlines. How are you going to pay for college, and what is going to cost you or your kids? A 4-year college costs on average $21,447 for in-state public and $42,224 for private per year for tuition, room, and board. That’s a total of nearly $100,000 for public and $170,000 for private, if the students graduate in 4 years.
If it will be many years before your kids attend, then you will have to plan for much more. We know that college costs increase at an average 7% a year, at least double average inflation. With 7% inflation the costs double every 10 years. Why you might ask? They have to. Have you been on a college campus lately? They are like country clubs, with state of the art exercise facilities and gourmet-like cafeterias if you compare them to the slop they served in the late 70’s when I began college. Large university presidents and coaches are paid many millions of dollars each year, the campuses have huge sports complexes, and many campus buildings have been updated to like-new condition. College professors are paid high salaries with great benefits, which adds to the ever increasing costs. Also, colleges have faced government funding cutbacks. On one hand I love the opportunity the colleges provide students in a wonderful learning environment, but if people don’t plan or know their options, students will graduate with double the debt they need too.
The cost of college is still a good value, as I covered in an earlier article: The Relationship of Education to Poverty.
Some parents have planned well enough, but many kids either have to go at it on their own, or they have to share the costs with their parents. Recession, job loss, stock market decline, too much debt, and health care that doesn’t cover as much as it used to and costs much more now than ever before are all putting more financial pressure on kids, so it is extremely important to consider many alternative ways to pay for college.
I think it is insane to borrow the full college costs. At the very least parents and students should explore and use many options. Last March I wrote an article about College debt already passed $1 trillion in 2011. Avoid contributing to this statistic by employing this college funding priority list:
- If parents have saved for college, have not faced financial setbacks, and desire to pay for college, then stop here. Parents often use 529’s and prepaid tuition. Some parents require certain grades and behavior for their children to stay on the parent plan. I covered the options in an earlier article: What’s an ESA, Coverdell Education IRA, and 529?
- Look for tax savings to help lower the net costs. I touched on many of them in College Education Tax Deductions and Credits and Tax Breaks for Students.
- Choose an in-state public school. This alone will reduce your cost almost 50% in some places.
- The next source is scholarships: for academics or sports, or through special offerings from numerous organizations. Often the latter are small, but every bit helps.
- Grants and non-loan financial aid based on the income or net worth of the student or parent. If you qualify for financial aid or you want to qualify, you should read How Not to Blow it Financial Aid.
- Students working at jobs can help some, and there is nothing wrong with their working. It looks good on their resumes, teaches maturity, and lessens the loan burden.
- Many people lessen the initial cost by getting the basic education requirements out of the way at lower-cost community colleges. Many people already know this, and you probably noticed how much these institutions are growing. In Columbus,Ohio, where I live, Columbus State Community College has grown by leaps and bounds.
- Pay as you go. While working part-time takes longer, you will end up with less debt.
- Commuting and living with parents for a few years will lower out-of-pocket costs, and transportation may be lower than room and board.
- Working for a company that pays part of the tuition for their employees. Again this takes longer, but it is a great benefit that can lower amounts needed from savings, income and borrowing.
- Work/study on-campus employment is in a separate category, since it requires financial qualification.
- Paid internships are a great way to earn income and to help graduates get great jobs.
- Loans are near the bottom of the list, since after doing all the above you minimize how much money you need to borrow. I recommend against parents co-signing loans, since the Bible recommends against it and it is not usually needed if you follow the above suggestions. Some things about student loans changed as reported in the Wall Street Journal last July. Parents can get parent plus loans, but if they want to consider them they should read The Minuses of Parental Plus Loans. If students need loans, then when they start to repay them they should read my articles Federal Student Loan Repayment Options and How Does Obama’s College Loan Program Work?
- Lastly, the Wall Street Journal reported that there are a few non-traditional methods that some parents are now using.
Estimating the costs for your child depends on the child’s current age, the school the child wants to attend, and the annual increase rate. After you have that number, you are then armed to calculate how much money you will need to save and invest for the child. Your financial planner can run the numbers for you, or you can calculate them yourself using eFinPLAN.com online financial planning (which has a college cost estimator) for a small fee. Dinkytown has a good simple cost estimator, but it doesn’t have the costs for each college. The Dave Ramsey Financial Peace University website has a simple calculator you can use if you have enrolled in the personal finance course–Financial Peace University. College Board has some calculators.
What you don’t know is what college actually will cost after grants and financial aid are factored in, since that depends on your income, when the child will attend, the amount of money you have saved, and the amount of money the college has to reward students. Various colleges and universities you might be considering may have calculators. However, caution may be warranted a bit, based on a recent article: Tools That Help Compute Real Price Of Schools Get Mixed Grades So Far.