Every parent and grandparent want the best for the next generation. For most young people, a college education is an essential foundation for a financially successful life. But your child’s college education could be economically ruinous without proper planning.
Costs of Your Child’s College Education
Forbes has reported that the cost of a college education has risen eight times faster than wages since the 1980s. There is no end in sight for this trend of skyrocketing tuition rates at private and public colleges and universities. A public four-year university costs an average of $19,000 a year. A private university costs an average of $40,000 a year. A student would need to save between $80,000 and $200,000 to be able to pay for college without going into debt. High tuition rates have led to a sharp increase in student loan debts in graduates. Many students with excellent job prospects still find themselves struggling with student loan payments. Students aren’t the only ones struggling however. More and more parents and grandparents are co-signing on student loans, making them financially liable for part of their student’s debt. This can lead to a lowering of credit scores and discretionary income as parents and grandparents approach retirement age.
Student Loans, Grants, and Scholarships
This increase in tuition rates has several downstream effects. It is almost impossible for any young adult to pay cash for their college education if they want to finish a degree in four years. Scholarships and grants have not kept pace with rising tuition rates, meaning students with half-tuition scholarships often still need loans to pay for college. The best way to pay for college is to be prepared to pay the cost of tuition upfront. However, because teen employment rates have collapsed, and low-skilled job wages have stagnated, young adults are rarely able to save enough on their own to pay cash for college by the time they are ready to enroll.
One of the best things parents and grandparents can do for the financial security of themselves and their future college students is to create a college savings plan.
Working with a Wealth Manager to Fund Your Child’s College Education
While every state has its own college savings plan, many of these plans have significant drawbacks. Some only apply to in-school tuition. However, if you make saving for college a part of your wealth management strategy, you have many more options. Your wealth manager can help you structure a variety of different vehicles so that you can pay for some, or all, of your child’s college education once they graduate high school.
Even if you only plan on paying for part of your student’s college expenses, the sooner you start planning, the better off you will be. Having a college fund will allow you to avoid having to co-sign any student loans and will help lower your student’s student debt load. The less debt they graduate with, the more they can start investing in their retirement. Just like any investment goal, the sooner you begin setting money aside for college, the easier it will be to reach your financial goals.
For many students having their parents pay their college tuition is more financially meaningful than leaving the same amount of money to them as an inheritance later in life. Being able to avoid the hefty compound interest of student loans can make a difference of hundreds of thousands of dollars over the lifetime of your student.
Talk to an OmniStar wealth advisor today about the best ways for you to save for your child’s college education.