by 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- If your kid gets a scholarship, the amount of the award can be withdrawn from the account without the normal 10% penalty (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.
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.
Comments
The Green Swan
We opened a 529 for our son shortly after his birth and have been aggressively funding it. We haven’t ultimately decided how much we’ll pay for our ask him to work for yet, but we are preparing for continued increases in education costs. I actually wrote a fairly detailed post of our estimates a few weeks ago if you care to check it out. Thanks!
Millennial Money Man
Congrats! That’s such an awesome decision. 🙂 Tweet the article to me and I’ll check it out/RT it.
Isabella
Great summary here! Boy, I really agreed with being completely engaged in your child’s application process on the FAFSA and college and scholarship applications (along with the saving part!). Seventeen and eighteen-year-olds will procrastinate or do nothing! My husband and I went over everything together with our kids. As a mother of four college-bound students, I made sure to stay on top of everything. I did a lot of research myself on scholarships too. You would be surprised how many local ones there are for deserving students, regardless of financial need or not.
Also, I cannot stress how important it is to create a home environment conducive to studying and achieving good grades. Yes, it’s important. Starting in 9th grade, your child will be laying the groundwork for his/her future. Scholarships based on academic merit are out there. And it’s more than just the grades. Your child will be establishing study and work habits to make their college years successful and that will also carry them through life. If your are a family that makes too much for good financial aid, these merit scholarships can be a great help.
Millennial Money Man
Thanks Isabella! You’re one of the parents that I would really like haha. I guess I have a unique perspective because I was a high school teacher, but it is crazy how many times parents just leave kids out on their own for college stuff.
Good grades and an environment of success is freaking vital if you want your kid to succeed in high school. It is unbelievably competitive to be in the top 10% of your class now. And yes, you DO still have to do stuff for your kids even when they are 17 or 18! People that truly consider them adults at that age have no idea how lazy they can actually be 🙂
Isabella
Yes, my parents were never involved. Benign neglect! I worked so hard in high school and was in the top 10% of 750 graduates, and my twin sister was number 6 in the class. However, we had NO idea that there were scholarships out there! Neither my parents (who were never engaged in our educations) or a single teacher pointed us in that direction. Plus, we came from a large family with a very modest income. I wonder how much we left untapped! I figured I would just pay my own way through college, which I did. I vowed that with my children it would be different.
Millennial Money Man
Unfortunately your story isn’t a whole lot different from most of my experiences. I had a ton of kids that were super high achievers with little guidance. I felt like I was the only crazy person telling them anything about college costs or pushing them to look for aid and keep costs down!
Jon @ Be Net Worthy
This is an important issue and I will wholeheartedly agree that you cannot start saving early enough. We opened up a 529 account for each of our two kids when they were born and started adding to those accounts monthly. At this point, we have a tidy sum set aside although they’ll still have to fund a portion themselves, depending on scholarships and other factors. They are in 9th and 11th grades now, so I will be learning A LOT about the whole financial aid process very soon!
Millennial Money Man
Nice Jon, congrats on getting started! Woah 9th and 11th, that’s a fun age for the freshman and scary for the junior haha. Get ready for ultimate laziness the senior year and some “I’m an adult” talking back! 🙂
David
Ladies and gentlemen: As a Military veteran, I took care of this problem by transferring my post-9/11 GI Bill education benefits to my son.
Millennial Money Man
Nice!!! Congrats!
Work.Life.Finance.
Thank you for this great post! Our daughter is 9 months old and she has had a 529 account through Fidelity since basically Day 1 (maybe Day 30 once we got past the initial month-long shock of bringing a newborn home). The account proved extremely useful for her baptism gifts, and I imagine it will continue to be for things like birthdays, holidays, first communion, etc. Admittedly it took me a few months to get the ball rolling on my end, but I now contribute a relatively modest sum each month. You also mentioned credit cards – we have the Fidelity Rewards Visa that earns 2% cash back and is set up to automatically direct cash rewards into the 529. It’s an awesome perk and I would highly recommend both the 529 and Visa through Fidelity.
The money in the 529 is invested in a “target date” fund whose asset allocation will shift from aggressive to more conservative as she reaches college age (2033 seems like a long time from now, yet we need all the years we can get to save up). There are a couple options for the funds, one of which is an index fund that has a much lower expense ratio than the more traditional, actively-managed fund option. And the awesome part about compounding is that even if I set my contributions at a (very modest) $75/month and never change it, and assume a 7% annual return in the fund, by college age she will have around $40k in the account! By no means is that enough to cover 4 years of tuition, housing, books, etc. but this shows the power of starting early and staying consistent.
Millennial Money Man
No problem! That is such a cool idea with the credit cards, super creative…I’ll have to make a note to write about that someday. Hey – $40k is a freaking awesome amount. I’m sure you will outpace that with extra contributions and gifts over the years!
Millennial Moola
Probably would try to save a lot in a 529. If one of the kids didnt need it because of scholarships or whatever we could apply it to the next one, or transfer it for use in graduate school. Absolute worst case is you help a friend or family member’s kid out in an unexpected way. The prepaid tuition plans are excellent if you plan on sending your kid in-state.
Millennial Money Man
Totally agree – in today’s college climate I would discourage my kid from going out of state. I’m sure that’s easier said than done, but the tuition rates are unbelievable if you go out of state!
Christa Szabo
My fiance and I are definitely planning on doing 529s for however many kids we have. I would REALLY like to open one before even having kids, but I haven’t done enough research to see if that’s even possible. Maybe I’ll use my Roth IRA and roll it over into a 529? I’m not sure
Nevertheless, I’m planning on trying to push my kids to take college credit classes in high school. They now transfer to any community college and university in the state and are way cheaper than paying the university. I’m also going to let them know that community college is an option. I’ve had better educational experiences at community colleges than at the two 4 year universities I’ve attended. All community colleges transfer to universities in hat state and the cost is by far cheaper, so suggest taking those gen eds at a local college. I’m also a big fan of the vocational training juniors and seniors can do, especially since they’ve expanded into culinary arts, EMT training and even nursing. This let’s them graduate high school with a trade they can immediately work in, therefore allowing them to work and save for college and explore the outside world to see what they’re truly interested in. With one EMT course, you can work as an ER tech where the base pay in this country is $30,000 a year!! All for one class at a community college for about $1,500 or even cheaper if done in high school.
I also feel letting them take longer to graduate and working more while going to school will help them learn more responsibility sooner and find out what they truly want to do with their life so they don’t have to go back to school 3 times just to find something they lie that will actually pay (like me). This last bit might be a bit naïve and things very well could change, but I figured knowing what you want your children to learn is a good place to start and if the plan changes, it changes. Thanks for the great article! I’m posting it so all my friends with kids can read it!
Millennial Money Man
Hey Christa! Yes you can set up a 529 at any time, doesn’t have to be after a child is born.
It’s interesting, the district I worked in actually had a vocational training school – a LOT of the kids elected to go there and learn trades/take college courses instead of attending the high school I worked at.
The issue is that the logistics are a nightmare. Usually those schools are too small to support their own band, choir, etc. Parents want their kids to have access to those programs, so the schools are forced to bus kids all over the place. It made it a nightmare in the first few years with kids missing rehearsals and having massive scheduling conflicts all the time. I think I’m still a little bitter haha!
Christa Szabo
Haha, I totally get it. My mom’s a high school math teacher in a school so small, their graduating classes are never over 40 kids. My mom’s the only high school math teacher and there’s only one English teacher and there’s only one teacher per elementary grade. They only have one art teacher K-12. Scheduling can kind of be a nightmare, but I know that for lots of those kids if it weren’t for those vo-tech classes, they wouldn’t have any sort of higher education
I think it just depends where in the country you are. The kids at my mom’s school that do vo-tech aren’t the same kids that are going to college. So they’re able to have the junior and senior extracurriculars in the afternoon when they can take them
Millennial Money Man
Yeah you’re totally right, it does depend on where you are! That is a tiny tiny school by the way haha
Anonymous
This!! Community colleges make sense.
Millennial Money Man
Yeah I agree! I always recommended it to my students (as well as living at home and commuting), but the 4-year college brainwashing was too strong by then.
MattJAllDay
There’s something to be said for living at home through college and also finishing ON TIME! Haha, sorry I realize people change their majors or other issues come up. The amount of people I know who took extra semesters due to poor course load planning or having to retake classes they didn’t pass really surprised me. And each additional semester you pay for just lines their pockets with more money. Also by living at home I was able to save on housing and food plans over my 4 years of college. It worked out pretty well for me!
Millennial Money Man
DUDE YES. I tried so freaking hard to get my students to do that! Congrats on making that decision, I’m sure it cut down on almost half of your college expenses.
Taylor O Harris
This is so funny because I still haven’t done my fasfa for the school year. (It’s ok though, because I’m able to pay for school completely on my own this year without going broke.)
Millennial Money Man
Haha I was wondering if any of my students actually read the site! Fill out your damn forms Taylor (congrats on being able to pay). 🙂
The Financial Panther
I don’t have any children yet (that’s way down the line!), but because I’m an tinkerer and like to figure things out, I decided to open up a 529 in my own name and throw in a tiny $25 per month into it. I don’t notice $25 going out the door each month, its really nothing in my eyes. But it’s at least given me a tiny head start for when I do have kids and I at least know how a 529 works now, rather than down the line when I do have kids.
So my advice, if you can, just open up a 529 in your own name, before you even have kids and throw in the minimum amount into it (assuming its a really low minimum like the 529 plan I signed up – New York 529 in case anyone wants to know).
Consider it the cost to learn about the 529 in advance, before you actually need to start saving into it. It pays to learn about this stuff before you need it. That’s my thought anyway. And if something happens, you’re only out the minimum you put in anyway.
Millennial Money Man
Good tip!
Finance Solver
It’s ludicrous how college tuition increases faster than inflation or real income. It’s a recession proof business too because in bad times, people will further their education to hopefully differentiate themselves once they get out. Online education hopefully will kill that and I can’t wait.
I’m long-shot hoping Amazon is going to get in the education business because their motto is always to offer the lowest price to consumers.
Millennial Money Man
College is a really good business to be in.
Mystery Money Man
Bobby, great post! One thought to add….I think parents can do a better job of encouraging their kids to contribute to their own college savings at an earlier age. Setting even small amounts aside when kids get their first part time job in high school will not only enhance their college fund down the road, but provides an opportunity to take greater ownership over their future education earlier on.
Millennial Money Man
Thanks! That’s a great point, I had a few high school students that started saving very early!
Pamela
Post-secondary education is becoming ridiculously expensive and sometimes I wonder all of it really prepares our kids for the working world. I think getting an education is important but more focus needs to be on providing the kids with real world knowledge. My husband and I amassed $110k in debt between the two of us and worked our butts off to pay it off in 2.5 years. I hope to never do that to my kids. My parents are stil in the old way of thinking university is the only way to go and the more recognized the school (translates to higher fees), the more likely you will get a good paying job afterwards. I think this could not be further from the truth.
This was a great read!
Ten Factorial Rocks
Yes, this parent is saving but it feels like a moving target! I hope somebody does a major hack on higher education. Cost trajectory is not sustainable, it’s going nuts! If my kid is to have any decent start in life, graduating with little to no debt would be the place to start so that’s the goal I hope I can help him achieve.
Kate
Yes, college costs are ridiculous! We have a 529 for both our kids. In addition, we are really hoping that my husband will work at a college by the time they’re old enough, if schools have decent discounts for faculty kids! These kids will definitely do their research to find affordable schools and work part-time to pay part of the cost! Even so, it’s a scary future expense.
Steve Degener
Your article is very negative and does represent all families. Our daughter is going to a UC and we are fully funded to pay for all of it. We did not even complete an application for financial aid. Our son who is 13 has about 85% in his account. We have 5 years to “top it off”…saving for college, like anything else, just needs to be a priority. Our goal is that neither kids will graduate with student loan debt. We made that happen. Steve
Millennial Money Man
I absolutely disagree with you – the study findings were very positive and I made note of that. If you are talking about my negativity towards high school kids…I don’t know what to say. The majority are lazy at that age, especially when “Senioritis” hits. 🙂
I’m glad you were able to save for college, that’s a great accomplishment that you should be proud of. Such a great gift to your kids.
M
We have a multi tiered approach to college for baby.
1. Regularly tell her she is paying for college….we will help but ultimately her responsibility and future (I know we are mean)!
2. Small automatic monthly deposits plus holiday/bday/etc gifts to a 529 from very early on.
3. Let her know she’s part of the family. When we are lucky enough to have a month with money left over for extra savings some goes into the family fund, some goes into mom and dads retirement and some goes into her college. We will explain it all When she’s old enough to get it!
4. When she’s old enough to earn either from household chores or a job outside the house a portion of what she earns will go into it too. Also this will help when, she get her first real paycheck and sees taxes/social security etc taken out! She won’t be surprised by the fact that the amount of money you make isn’t actually the amount of money you make!
The most important part of all of this in my opinion is age appropriate education about her personal finance as she grows up….even more important than the head start we will give her towards her higher education
Millennial Money Man
Great strategy! The fact that you have a plan puts you ahead of most people 🙂
Kamantha
Can money from a 529 be used in a school overseas?
Millennial Money Man
Hey there! Here is a list of international schools that 529 funds can be used for: https://ifap.ed.gov/fedschcodelist/attachments/1213FedSchoolCodeList.pdf
Beau
I did all of my core classes over the summers and Christmas break at community colleges. I really only did the classes for my major at the university. It sucked driving and busting my ass over the summers and breaks while working at various jobs, but IT PAID OFF for sure!
No student loans here, and the best part is… Most of the community college classes I took were awesome and I loved going there. I had one teacher with a doctorate and 2 masters in her field…. awesome class!….cost like $175 for a semester! Some classes were bad, but very few, and I got the credits for cheap!
Dee Fuller
1. We have 529 accounts for both our boys and will save heartily in taxable investments as well
2. I work at a very good community college that’s less than 20 minutes from home; both boys will start their educations there. If I’m working full time, tuition for them will be free.
3. Scholarships, scholarships, scholarships
4. They will be required to have part time jobs
5. We do not use my income for living expenses, so we should be able to cash flow a good portion of their education if needed.