How will we pay for Ellsley’s college?

This is Ellsley, our daughter who is about to turn two.

Like most young parents, we hope and expect that Ellsley will go to college in roughly 16 years so she can broaden her horizons, learn to work with others and possibly find a field of study she loves. My wife and I were very fortunate and received significant financial assistance from our families for college and left with very little debt (which I then added to for graduate school). Since we had received such generous assistance, it has been a long time goal of ours to help our children pay for college.

For the 2011-2012 academic year, total average tuition and fees at CU Boulder for in-state tuition were between $22,000 and $27,000 (including room and board).  For simplicity’s sake let’s call that $25,000.  For the 2012-2013 school year, average national in-state costs rose by 3.8%. If this trend continues, four year current tuition would be $105,845. Over the past ten years, in-state tuition has grown 104%, or annual growth of 7.39%. This trend would put four year costs (today) at $111,641.

Via CNN Money

Ellsley will be 18 in 2029, 16 years from now. At the 3.8% growth rate, four years of tuition will cost $192,233. A family with a newborn would have to save almost $500 a month to save $192,000 in 18 years if their investments earn 6%. At the 7.39% growth rate, four year costs grow to $402,877.  A family would need to save over $1,000 a month for 18 years to save $400,000 at a 6% annual return.

Most families aren’t saving $500 or $1000 a month for retirement, let alone putting that amount away per child, per month to pay for their college expenses. As a family, we are doing what we can to help with the future cost of Ellsley’s college. According to these calculations, it’s unlikely to be enough to pay for four years of public in-state tuition and fees for her.

As a financial planning professional, planning for college funding is a struggle.  While there are excellent vehicles available for saving (such as commission free 529 plans), it is not realistic for most families to find an extra $1,000 in the monthly budget to set aside for college (and most families probably need to put that money away for retirement).

Change in the landscape of higher education is certainly possible.  Of late there has been news of falling admissions to law schools across the US. Could this turn into a broader trend of college admissions? Alternative college scenarios are also popping up:

  • The University of Wisconsin is rolling out a “no class time” degree program that will require students to have a knowledge base to pass tests to earn credits.  This may outsource some of the hands-on learning but still hold students to high standard of knowledge.
  • Treehouse is a monthly-subscription online learning model. Online students learn practical, hands on skills for today’s technology driven workforce, including web and computer programming, business basics, and Android and iOS app development. It can be considered an online trade school for tech workers.
  • There are already alternatives to four year degree programs for people to consider, including community colleges, online learning and trade schools.
  • Of course, there is a growing school of thought that a four year degree may be a waste of time for self-motivated, entrepreneurial individuals. In an economy with falling barriers to entry to small business owners and ever-improving technology to help get businesses off the ground, going your own way is becoming easier.

While “save what you can and let’s watch what unfolds” is not the most confident financial advice one can receive, it may be the reality faced by many. Parents should address their specific needs with an advisor and map out a practical road map for college savings.

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