Degrees of Difficulty

[Tara Crooks]

by Armin Brott

My oldest daughter just graduated from college. Of course, I'm incredibly proud and happy for her. But I confess that a little bit of my joy comes from getting a reprieve from the sky-high tuition bills.

I've been writing an advice column for parents for more than a decade, and the number of college tuition-related questions I receive rises and falls with the economy. Over the past few years I've received more than ever. Many are from parents who suddenly realized that they haven't saved anywhere near enough money to send their high school-aged children to the colleges of their dreams.

Despite that, the vast majority of parents see college education as an investment in their children's future,¹ and they expect their children to get one.²

Unfortunately, most of these parents have expectations that are often out of whack with reality. For example, nearly 80 percent say they don't want their kids to graduate with a lot of debt. But on average, young grads leave college owing more than $35,000 — a sum that comes as quite a jolt to students and parents alike.³

In addition, parents expect that their children's first post-college job will pay more than $70,000 per year — 58 percent higher than the actual average of $44,442 per year.⁴

Overall, just 31 percent of parents with kids headed to college have fully thought through how much it'll cost, how much debt their children will have to carry, and how students' choice of school and major will affect their ability to get a job (and pay their bills) in the future.⁵

Of the parents who have considered all these factors, most have completely overhauled their (and their children's) plans. Fifty-nine percent of parents expect their children to work part-time while taking classes, and 48 percent expect their children to live at home and commute to a local college to save on room and board.⁶ Thirty-eight percent have gone with less-expensive colleges, 28 percent say they're counting on getting more financial aid, and 16 percent have leaned on their children to change majors so they can get a better job.⁷ So if you haven't had the 21st Century version of "the talk" with your children yet, you really need to. Not every dream may be possible to attain — at least in the way it's originally dreamed.

So what should you do to get your family ready to enter the dizzying world of college finances?

• Get your facts right. Average cost including room and board to attend a four-year public college is $17,860 per year. At four-year private institutions, it's $39,518.⁸ (Sounds like a deal to me. At my daughter's college, full tuition for 2013-14 is $59,232.⁹) Fortunately, most people don't pay the sticker price.¹⁰ Students at public four-year colleges get an average of $5,750 in grants and tax benefits, while those in private four-year colleges get $15,680.¹¹
• Put together a budget. How much do you want to have saved by the time your children start college? How much will you have to put aside every year/month/week to make that happen? Be conservative. Half of all families aren't saving anything at all.¹² And those who are, put away only half of what they'll need, according to Sallie Mae.¹³
• Start saving for college early and set up an automatic investment plan to help keep you on track. Generally speaking, money that you put into certain college savings plans grows tax free as long as withdrawals are used to pay for eligible expenses. This may sound like a minor detail, but simply having the right plan in place can make a big difference. Studies have shown that people with established plans in place are more likely to have more funds available when the time comes than those without an established plan. Since several different types of college savings plans exist — and their rules and tax implications can be tricky — I suggest you visit with your financial advisor to see which plan is best for you and your family.
• Get some good advice. Sixty-five percent of families with a financial advisor (you can find one through USAA) had saved more than $5,000 versus only 34 percent of those without a financial advisor.¹⁴
  

  Armin Brott lives in Oakland, California, where he's frantically saving money for his youngest children's college education. Visit him at mrdad.com and facebook.com/mrdad, and follow him on Twitter, @mrdad.

  Notes
  ¹Ibid, Page 7 (Decline in Savings section, "eight in ten parents agree").
  ²Ibid, Page 7, 1st paragraph.
  ³Student Debt Levels — Now Averaging More Than $35,000 — Surprise To Half Of 2013 College Grads, 2nd paragraph.
  ⁴ Fidelity College Savings Indicator 2012.
  ⁵ Fidelity College Savings Indicator 2012, 1st paragraph.
  ⁶ Fidelity College Savings Indicator 2011.
  ⁷ Ibid, 2nd paragraph.
  ⁸ College Board Report, Page 3. Public college: $8,655 in tuition and fees, $9,205 room, and board. Private: $29,056 tuition, $10,462 room and board.
  ⁹ Bard website screen capture. $45,730 for tuition, $13,502 for room and board.
  ¹⁰ Condition of Education, National Center for Education Statistics
  ¹¹ College Board, Page 4.
  ¹² Sallie Mae, Page 8.
  ¹³ Sallie Mae, Figure 4, Page 11.
  ¹⁴ Ibid, Page 8.