College tuition keeps rising, with inflation rates averaging about 6% to 8% yearly. The average annual cost for a public university is $27,940, and for a private school, it is $57,750. It's not cheap!
What are your options for paying tuition or reducing your college costs? Let's review a few ideas.
Save and invest. The best way to pay for college is to save for it once your child is born. If you have a child today, you know in about 18 years, they may attend college. When my daughter was born, I opened an investment account and started saving anything I could - $5, $25, $50 – and bought as much stock as possible. I created a spreadsheet with several colleges and calculated her future tuition payments. It was a simple calculation because I knew the inputs – years, inflation rate, and tuition costs. If your child is five and will attend a private university, then we can calculate the potential cost and monthly savings. For example, in thirteen years, a degree could cost $425,000, requiring a monthly investment of $1,450.
Scholarships. Can you rely on scholarships? According to the National Center for Education Statistics, approximately 30% of students receive a scholarship or grant, and about 1.5% of high school students get a full ride.
Student Loans. In 2014, students borrowed $100 billion to finance college. Student loan debt currently tops $1.5 trillion; the average federal student debt level is $37,338 per borrower. The cost of borrowing will only go higher as interest rates continue to rise.
Junior College. Spending two years at a junior college before transferring to a 4-year university can pay dividends. The annual tuition rate at Austin Community College is about $6,600, while SMU charges approximately $80,000.
I recommend budgeting and saving for college. A budget can help you identify opportunities for saving money and investing wisely. The more you invest today, the less you need to borrow tomorrow.
During my college years and touring schools with my daughter, I noticed the smaller schools with better landscaping had higher tuition rates, so pay attention to manicured lawns and beautifully trimmed hedges.
I learned law so well the day I graduated, I sued the college, won the case, and got my tuition back. ~ Fred Allen
August 16, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor. Prices and yields are for today only and are subject to change without notice.