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Want To Send Your Child To College? Better Start Saving

Funding Your Child’s College Education


Fort Worth, TX. - According to a recent College Board Annual Survey of Colleges, the price tag on a college education is rising faster than the price of groceries and health care. In the last ten years, in-state tuition and fees for public four-year colleges increased 5.6% annually on top of a CPI growth of 2%. The average estimated total cost for most public in-state four-year students (varies by state) vary between $65,000 to $90,000. Tax expert and CPA, Manjula Modi, explains further.
“It means that if you were blessed with the birth of a child recently, you will need to save $430 monthly to pay for in-state college tuition, fees, room and board. Double this too, to cover the full costs of an average private institution. This does not even include money for a cell phone, dorm decor or other things college students deem necessary,” Modi stated.
Now it’s true: most students don’t pay full price for college. In 2011-12, undergraduate students received an average of $12,894 in financial aid, split almost equally between loans and grants. Grants are the most attractive because students are not saddled with a repayment plan after college. Federal grants make up 26% of total aid. Institutional college grants account for 17%, state grants for 6% and private and employer grants (scholarships) for 4%.
But that hasn’t stopped the fact that students are graduating with larger debt loads than they were 10 years ago. Public four-year college borrowers graduate with an average of $19,800 in debt; their nonprofit private college counterparts graduate owing $26,100. This private college debt is 17% more than it was 10 years earlier, even after accounting for inflation. In addition, a growing percentage of all college debt is unsubsidized and begins accruing interest immediately.
So, students will have to make smarter education choices. Today’s global marketplace puts more value on hard skills such as engineering, computer technology, teaching and finance. Technical degrees and certificate programs will become commonplace. A liberal arts education will likely diminish in popularity and become more focused at the elite institutions. More students are likely to begin their education at lower-cost community colleges, and complete a four-year degree at schools that specialize in their concentration.
“Parents may feel overwhelmed about the amount they need to save for college. But college education is one of the two lifetime investments for which we approve borrowing money (the other is a home mortgage). Students should plan to graduate with a debt load no higher than half of what they can reasonably expect from their first year’s salary. For example, those with a starting salary of $40,000 should keep their debt at or below $20,000. Thus graduates can dedicate 10% of their annual salary to school debt and pay it off in five years,” Modi advised. “New parents who are able should immediately begin saving $430 a month for college. Alternatively, a one-time $50,000 investment should cover tuition, fees, room and board at an in-state college 18 years from now. Yes, this is pretty scary. But there are other options…”
Giving a child the gift of a college education and a debt-free start to adulthood is one choice. Other parents believe their children should participate in financing their college education and can apply the 50/50 savings approach. Parents commit to saving half of the money needed, and their children commit to the other half. Students participate by working hard in high school, applying for scholarships, taking summer jobs, seeking out work-study opportunities and accepting reasonable loan levels.
The support of grandparents can help tremendously. The vast majority of the college accounts that I’ve seen are owned and funded by grandparents. Instead of buying the latest gadgets for their grandchildren, they make annual contributions to a college savings account. If the grandparents own the account, it has the added advantage of not being included as a resource on the student’s financial aid forms — and that is a beautiful advantage.
“One last thing,” Modi added. “I’m not a stocks advisor, but strictly from a planner’s perspective--I do NOT recommend to our clients that they invest their education savings in prepaid college tuition plans. At best, these tend to match college inflation, and if used at an out-of-state institution, returns are based on money market rates, which are abysmally low right now.
Manjula P. Modi, CPA offers tax services to individuals and small businesses. She enjoys helping individuals and families save money on taxes. Give her a call 817-741-2383, email or visit her website


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