I'm almost dreading the day that my future children go to college. Obviously I get exposed to student loans issues more than the average person because of this site, but if you haven't been paying attention to what's going on in college land…you need to be. This $hit is scary.
In a post I wrote earlier this year, I found that college tuition costs rose 275% from 1970-2013 (after adjusting for inflation). Also, according to College Data, a college budget for in-state institutions on average for the 2015-16 school year was $24,061. That's $96,244 over four years without accounting for the inevitable increases in tuition cost.
Generally I don't hit my readers with a million stats at the beginning of posts, but holy crap. College is getting to be unbelievably expensive.
Not only do parents have to worry about their emergency funds, mortgages, consumer debt, and just the daily grind of making a living; they've got the terrifying thought of massive college debt waiting for them after 18 years.
There's a reason my wife and I don't want kids yet. Sorry mom.
Parents ARE actually saving for college
There is some good news thankfully. According to Fidelity Investment's College Savings Indicator Study, the amount of parents actively saving for college is on the rise. Big time.
Here are some of the notable savings stats from the study:
While all of this is absolutely good news, the most interesting part to me is the second line. Parents are saving more in dedicated 529 accounts, which is a killer strategy! The more research I've done on 529's and their benefits, the better they look.
Here are just a few things that make a 529 a [email protected]$$ “saving for college” strategy:
- Earnings grow tax-free and are not taxed if used on approved college expenses
- There is no contribution limit, age limit, or income limit to open an account
- If your kid gets a scholarship, the amount of the award can be withdrawn from the account without the normal 10% penalty (<–THAT is freaking cool)
My wife and I even started one for our niece as a birthday gift, and will be handing those badboys out as gifts to our friend's kids for years to come. Barbies be damned. Actually it will be Barbies plus 529 plans. Still have to be the cool uncle. 🙂
Here's the rub with increased college saving…
It's still not enough. Womp womp. Here's a quote from the study that really stood out to me:
“While families have adopted more active and effective savings habits over the past decade, this year's study still finds that on average, parents are on track to reach just 29 percent of their college funding goal by the time their child heads to campus,” – Keith Bernhardt, vice president of college planning at Fidelity.
The harsh reality of today's college environment is that it's unbelievably hard to pay outright unless you are a high net-worth individual OR your kid receives a ton of grants and/or scholarships. If you don't do anything else in 10 years, GO OVER FAFSA FORMS WITH YOUR KIDS. Seriously. Let me explain why:
High school kids are lazy
I can't tell you how many times I saw my students trying to fill out FAFSA applications by themselves with no help from parents when I was a teacher. Be nosey/pushy about anything that will save you money on college costs when the time comes. I guarantee your kids will forget to bring stuff home or tell you about niche scholarships that will save you thousands of dollars.
As a person that has had to walk 18 year olds down to their teachers to make them turn in homework so they would pass classes…just trust me.
Parents wish they started saving for college earlier
Now for some depressing stuff :/ (but I'll make it fun don't worry). The study found that parents regretted a few things about their savings over the previous ten years. Here are a few examples of things parents had wished they achieved earlier:
- Consider opening a 529 college savings account sooner
- Treat contributing to college savings like a bill you have to pay each month
- Increase savings by one percent or more each year
- Prioritize college savings over impulse purchases
- Open a cash back credit card, with rewards saved to a dedicated college savings account (as a PF blogger that thinks credit cards are a good tool…I think this one is sneakily clever)
So basically, start saving early. College is unbelievably expensive, and it won't get any easier for Millennials.
If you'd like to check out more information from Fidelity's study, you can find it here.