The cost of higher education has become one of the greatest financial burdens facing parents and students today, not only because of escalating annual tuition but also due to the increasing number of years of undergraduate, graduate, and professional school education required for many careers.
As both the cost of education and the importance of obtaining a college degree increase in today’s society, planning ahead for this financial goal has never been more vital. However, before putting aside any funds for either your children, grandchildren, or other dependents, it is essential that you ask yourself the following questions:
- How much is it going to cost?
- How much am I willing to pay for?
- For how many years am I willing to provide financial support?
- How many years are between now and my child’s first year of college?
- Can I budget for consistent savings without jeopardizing my personal retirement goals?
Answering these questions may be overwhelming at first, but defining the context within which you are both willing and able to fund future education costs is the key to making better decisions. The context is defined by the age of the student; the cost of education; your financial needs, aspirations, and obligations; your resources and limitations; and unique issues related to your individual circumstances.
The better you can understand these issues, the better you can define an appropriate and successful strategy.
How Much Is It Going to Cost?
The first step in the process is to understand the costs involved. It’s important to realize that expenses during one’s college years extend well beyond the traditional cost of tuition and books, and the cost of tuition and housing can vary dramatically depending on location. That said, expenses can generally be grouped into five areas:
- Tuition: The cost of education and access to institutional facilities and services. These costs will differ among colleges, most notably between in-state public universities, out-of-state public universities, and private institutions.
- Room and Board: The cost of housing and food. If living on campus, fees are divided between the cost of a residence hall and a meal plan. If living off campus, traditional housing costs such as rent, groceries, utilities, cable, and internet need to be considered.
- Books and Supplies: The cost of books and supplies the student will be required to purchase.
- Transportation: Transportation can be a significant expense, whether commuting to campus or returning home occasionally for the holidays. Consideration should be given to airfare, public transportation costs, or, if the student will have a car, the cost of gas, maintenance, and insurance.
- Personal Living Expense: These costs will be similar among schools and relate more to lifestyle than location. Expenses include a cell phone, laundry, grooming, personal care items, entertainment, and extracurricular activities.
Common Strategies for Establishing College Savings
Today, most parents and students are well aware of the fact that college education cost increases have been outpacing average daily cost of living increases for years.
Given these ever-increasing costs, there has never been greater incentive to start funding your child’s college education early if you are able. The earlier you take advantage of college funding vehicles, such as Section 529 Plans, Coverdell ESAs, UTMAs, UGMAs, etc., the greater the value each of your dollars will provide.
However, before choosing an investment vehicle for your child’s future college needs, it’s imperative to understand which investment best suits your needs. There are many investment vehicles available for college savings these days, and, as with all investment options, not all strategies are created equal.
These are the most common strategies for establishing college savings:
- Coverdell Education Savings Accounts
- UTMAs and UGMAs
- 529 College Savings Plans
Which is right for you will depend on a host of factors, and what’s right for you won’t be right for everyone. That’s why it’s important to consult an experienced financial professional who can help you to select a plan and determine which investments are most appropriate for you.
If you’re already a client, call your Senior Wealth Advisor today; he or she will be happy to walk you through the process. If you’re not yet a client, now’s a great time to give us a call to discuss the many benefits we provide to all RFA clients at no additional cost.
Download Our Free Guide
This free guide is designed to teach you about common strategies for establishing college savings, as well as their pros and cons.
Among other things, this guide will cover…
• Section 529 plans, including both college savings plans and prepaid tuition plans
• Custodial accounts and how the Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) apply to them
• Coverdell Education Savings Accounts (ESAs)