A Brain is a Terrible Thing to Waste
Should your child go to college?
My parents were part of the "greatest generation." Dad was a veteran of WWII (and not happy about it. He was on the verge of being called up from a minor league baseball team to play in the majors when Uncle Sam summoned him instead...) and came home in 1945 to a world finally at peace. In those days, a college education was considered a sure ticket to success. That's not so much the case today. It really depends on your field of study as to what your opportunities will be, and many college graduates come into the workforce only to discover that it's very difficult to find employment using their particular field of study. Many skilled trades pay as much or more as could be earned with a degree. I'm of the opinion that college isn't for everybody, and many are in college who shouldn't be.
Nevertheless, most parents have the hope that their little angel or angel-ette will one day discover the cure for cancer, bring about world peace, or colonize Mars, and to do that, they're going to need to attend college.
And so the next question is: how are we going to pay for it?
The cost of going to college can vary widely depending on such factors as public versus private, in-state or out-of-state tuition, etc. Some colleges are more expensive to operate, while others are better at generating endowments and gifts. The internet can provide a lot of information for the consumer to consider, but it's important that you tweek your calculations based on your personal situation rather than going by the averages. Also, keep in mind that the cost of an education 10-15 years down the road may be difficult to estimate today. The consumer price index (CPI), one benchmark to determine inflation, has averaged about 2.5% over the past ten years. College costs have been inflating at almost 7%! A tuition cost of $10,000 in 2000 would cost over $12,000 today.
The chart below illustrates one way to approach the calculation for the future cost of attending college.
|Years until college begins||14||15||16||17|
|Education Inflation rate||5%||5%||5%||5%|
|Current College Costs||$25,000||$25,000||$25,000||$25,000|
|Estimated Future Costs||$49,499||$51,973||$54,572||$57,300|
In the scenario above the assumption is that your child will begin college in 14 years. Using 5% as an education inflation rate, you would calculate the future value of today's tuition to determine how much you need to save. As you can see, you can expect to spend over $213,000 over the course of a four-year stay in college.
Oh, and there's one more thing that many planners forget to do. Don't forget to factor in the possibility that the parents may die, and consider term life insurance to cover the amount needed.
Get ready...get set...GO
Obviously in the scenario above the costs of college don't all come due at once. BY discounting the cash flows to a certain date it gives the planner a useful target to aim for, then various time-value of money calculations can be used to determine amounts needed to invest or save in order to reach your goals. Other considerations are which type of college savings vehicle is best to achieve your college planning goals in the most tax-friendly manner.
After you have selected your platform for college funding you'll need to determine the investment portfolio to put inside it, and then get to it. Every year of procrastination will make reaching your goal more difficult.
With a little planning and some diligent work on your part, before you know it you'll be attending the graduation ceremony, and eagerly anticipating that cure for cancer. Oh....and by the way....you'll have some money again.
Until next time,
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