How to Prepare for the Exorbitant Cost of College

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We no longer live in an age where students can subsidize their education with a part-time job, a small loan or scholarship, and a little bit of help from their parents.

Here are the current average sticker prices of college, courtesy of The College Board:

  • In-State Public University: $27,330
  • Out-of-State Public University: $44, 150
  • Private University: $55,800
  • Elite Private/Ivy: $70,000+

From 1980 to 2019, we have seen a 180% increase in the total cost of four-year institutions. And from 1989 to 2016, the average cost to attend university rose by more than EIGHT TIMES the average annual growth of wages.

One could write a whole book on the various reasons for and mechanisms of these abhorrent increases, but this post will be about solutions and planning given the current situation.

What can you do NOW?

Learn the Little Known Secrets of Paying for College by Watching Brock Jolly’s Workshop for Educational Connections

Tips for Early-Stage College Cost Planning

If your kids are still young, you possess an incredible luxury: time. The best thing you can do is to start laying the groundwork as early as possible. It may seem absurd to think about college when your kids are tiny, but that bill is going to come due sooner than you think…and it’s not going to be pleasant. It’s crucial to get a head start, so that future bill doesn’t generate full-blown panic.

Here are some suggestions to get started:

1. Open a 529 Savings Plan.

You’ve probably heard this one before, but it’s always worth reiterating. These plans are federally tax-deferred and may even offer a state tax deduction. If you use the money for qualified education expenses, it comes out tax-free. They can be easily moved between beneficiaries, so it’s not a huge problem if one of your kids does not attend college. You can learn more about 529 Plans here.

2. Set up auto-funding of your 529 Savings Plan and/or other tax-advantaged accounts.

This may seem like a tall task with so many bills to pay and mouths to feed. But you don’t have to start out with some exorbitant sum. Even if you start with something as small as a $50 monthly contribution, you’ve taken your first giant steps on the right path.

Make sure to stay consistent with your contributions if possible and consider reallocating money when it becomes available. What do we mean by this? Say your child has graduated from diapers & daycare—can you put some of that money toward their college savings?

3. Ask family and friends for help

You might think it weird to ask for college support so early, but it’s actually a great way to bolster your college savings. Think about all the baby showers, birthdays, accomplishments, and other life events that merit gifts from friends and extended family. What if you just asked for a simple contribution to your 529 plan? You are now saving them the headache of finding a gift and the guilty feeling of just giving “cash.”

Together, your auto-saving and others’ contributions can help create the seed for “the most powerful force in the universe,” as Einstein called it, to start performing its miracles.

See the power of compound interest below, assuming you have saved $25 per week starting when your child is born versus starting to save when they are nine years old:

Paying for College
Source: Vanguard

4. Don’t let your guard down. The 529 Savings Plan is not a silver bullet.

A great tool in your college funding tool chest, the 529 Plan is not by itself a comprehensive strategy to pay for higher education.

Below, we’ve provided a list of other tools and funding vehicles to research and discuss with your financial advisor.

  • Roth IRA
  • Series I/Series EE Bonds
  • Cash-Value Life Insurance
  • UGMA/UTMA
  • Educational IRA’s (Coverdell)
  • Loans, Grants, and Scholarships
  • Section 127 Employer Assistance
  • Real Estate
  • Post 9/11 GI Bill

Our coaches often get asked about the best products or vehicles for college savings. While this is a completely valid question, the answer is going to be different for every family based on the family’s finances, needs, and goals.

5. Set a target for how much you aim to contribute to each child’s college.

This may change over time, but we know the act of setting a realistic goal is very helpful in the planning process.

For example, create a projection of college costs when your first child turns 18 and aim for 1/3 of that in savings and income. Of course, this target also depends on your values! Some parents tell their kids early, “if you want to go to college, you’ve gotta find a way to pay for it.” Others promise to cover the full cost.

Either way, it has hopefully occurred to you by now that planning for college cannot and should not be done by in a vacuum. Why? Because you have a more important expense to cover: retirement.

At the end of the day, you cannot borrow or find free money for retirement like you can for college.

6. Make sure you have the money conversation with your kids & draw a line in the sand – they need to know this so that their dreams are not dashed, and you both get put in a prickly situation.

7. Talk to a financial planner who understands BOTH college funding and retirement planning.

Late-Stage College Funding Tips

Perhaps your kids are a bit older. Instead of saving as early as possible, you are now saving as soon as possible.

This does not necessarily change the principles of college saving, but some of the tactics might be different. These would depend on your unique financial situation and should be discussed

with a college funding expert who understands not only financial planning but also the financial aid system.

If your kids are starting to get close to college and you are behind in saving, the early tips mentioned before this still apply (and vice versa), but your time horizons have changed, you have less flexibility, and you will have to take a much more proactive role in cutting costs.

Here’s a list of some late-stage college funding tips:

1. Never, NEVER, utter the words, “we’ll find some way to make it work,” after your child gets into a college you cannot afford.

This can create a perilous journey of debt for both parent and student. Keep this in mind when helping your child create their college list.

2. Make a concerted effort to understand college pricing models and the financial aid system

The sticker prices of most colleges can be intimidating, and establishing what you will actually pay is a murky ordeal.

Make sure to compare colleges based on net price and not the advertised “sticker” price. Net price is the college’s sticker price minus the grants and scholarships awarded by the college. Colleges must have net price calculators on their websites, but unfortunately, many of these are not updated or are inaccurate.

As part of your homework, run an EFC calculator, such as our free college money report, to estimate your Expected Family Contribution. This is not the number you will pay for college. Instead, the federal government and colleges themselves will calculate this number to determine your eligible need when you submit the FAFSA and CSS Profile.

Cost of Attendance – EFC = Need-Based Aid Eligibility

The kicker is that most colleges do not cover this amount in full. You also must understand that “need” includes work-study and student loans, and each package will vary by school.

3. Find the right financial fit

The two biggest traps families run into when prospecting for colleges are the following:

  1. Only focusing on brand-name schools (the prestige complex).
  2. Focusing on academic and social fit at the expense of financial fit.

There are plenty of affordable schools out there that will help your kid thrive academically, emotionally, and socially. You just have to cast a wide net and glance away from that very arbitrary and very limited list of college rankings that may be guiding your decisions at the beginning.

Make sure to get a sense of whether you’ll qualify for any need in the first place. If you will, there are legal and ethical ways to maximize need-based aid that involve some financial maneuvering.

Generally, the schools that meet the most percentage of need are private and selective. The few public schools that do so are also selective.

If you will not qualify for any substantial amount of need, you may think that the in-state public is the way to go. But you’d be surprised how many private and out-of-state schools are known for substantial merit aid & tuition discounting.

By researching these schools, you can build a more balanced college list, and ultimately even leverage your award offers!

4. Consider alternatives to the “traditional four-year university” path.

  • Community college & transfer
  • Live with parents and commute to college. Or arrange a housing deal with extended family or good family friends who live near the college
  • Consider apprenticeships, gap years, and trade school
  • Can you graduate in three years instead of four?
  • Have you thought about federal service academies or ROTC?

5. Remember, you’re saving THROUGH college, not to college. You have more time than you think. This is where you can really get creative with the help of a college funding expert.


About our Guest Author:

Brock Jolly, CFP® Founder of The College Funding Coach

The College Funding Coach is a national organization of passionate experts with one collective goal: to ensure that families can pay for college with efficient dollars while never compromising on retirement goals.