As summer comes to an end, back-to-school season begins. And while this time of year is filled with excitement and anticipation, it's also a reminder for parents of the financial burden that comes with ensuring their children receive a quality education. The ever-increasing cost of college education can feel like an uphill battle, but with strategic planning, families can take steps to alleviate the financial strain and secure a brighter future for their children.
According to data from the College Board, the average annual cost of tuition and fees for a public four-year college in the United States has more than tripled since the early 1980s, and private college costs have risen even more dramatically. In 2022, the average amount families spent on college reached $25,313. Interestingly, family savings and income covered 54 percent of this amount, highlighting the importance of diligent financial preparation. Scholarships and grants accounted for 26 percent, while student borrowing constituted 18 percent.1 In 2023 the projected average household cost for back-to-college shopping is $1,367, while back-to-school shopping may average $890 per household. 2
While the cost of college may seem insurmountable, proactive financial planning can help parents prepare for the financial demands of schooling. Here are some effective strategies to consider:
Start Early: The power of compounding cannot be underestimated. Begin saving for your child's education as soon as possible. Even modest contributions made consistently over a long period of time can accumulate into a substantial fund.
529 Plans: These tax-advantaged savings plans are designed specifically for education expenses. The money invested grows tax-free and can be withdrawn tax-free when used for qualified education expenses. Different states offer different plans, so research the options available to you.
Regular Contributions: Set up automatic monthly contributions to your education savings fund. Treating it like any other monthly bill ensures that saving for education becomes a priority.
Leverage Scholarships and Grants: Encourage your child to excel academically and engage in extracurricular activities. Merit-based scholarships and grants can significantly reduce the financial burden of higher education.
Consider Community College: Starting at a community college before transferring to a four-year institution can save a substantial amount on tuition while still providing a quality education.
Explore Education Loan Options: If loans are necessary, research and compare different loan options to secure the most favorable terms.
Professional Financial Advice: Consulting a fiduciary financial planner can help you create a tailored plan that aligns with your family's financial goals and circumstances.
The rising costs of a college education can be daunting, but with careful planning and disciplined saving, parents can take control of their financial futures and ensure their children receive the education they deserve. By starting early, taking advantage of tax-advantaged accounts, and exploring all available options, families can make informed decisions that lay the groundwork for a brighter educational path and a more secure financial future.
Sources:
- SallieMae, 2022, How America Pays for College
- NRF.com, 2022