The Paper Chase
Without a plan, paying for college is a daunting task
By Dwain Hebda
It used to be said that the single biggest investment a family makes is the purchase of a home, but try telling that to families with more than one child bound for college.
It’s nearly incomprehensible how quickly college costs have escalated. According to the National Center of Education Statistics, the cost to attend college in 1985-86 was under $5,000 a year—that averages public, private, two-year, four-year and includes tuition, fees, room and board, the whole shebang. Fast-forward to 2015-16 and the cost was $22,432, more than 4.5 times the cost 30 years prior.
Private colleges and universities get a lot of the blame for driving up the price, but statistics show public institutions have done more than their share in this department, particularly in the last decade or so. Between 2005–06 and 2015–16, the average cost of attending public institutions grew 34 percent to $19,000 per year, compared with 26 percent growth for private nonprofit schools and a 16 percent decrease in for-profit private institutions. Not that private education is a steal: In 2015-16 a four-year private education set families back nearly $40,000 per year on average, meaning a $200,000 degree isn’t all that uncommon.
“The first thing we tell people is nobody has a blank check for their children anymore,” said Tim Quillin, partner with Aptus Financial. “Philosophically, you just can’t assume that you can pay for whatever college they choose. That’s not an option.”
Quillin also said the days of a plucky college kid paying their way through school by waiting tables is largely gone, too. It’s simple mathematics: No part-time gig is going to pay enough for a full-time college student to come up with more than a sliver of the $90,000 or so it costs to attend a public four-year institution.
Of course, none of this is particularly shocking news to today’s parents, who Quillin said are well-acquainted with the cost of college and the lingering impact of paying for school.
“I think Millennials understand saving is extraordinarily important, as they are often burdened with their own student loan debt,” he said. “Which makes it harder to start saving for your child’s education when you’re still paying for your own education.”
Nevertheless, Quillin said the first two cardinal rules of building that college nest egg are to set a goal and start as early as possible.
“Think about a philosophical goal—do you want to have 50 percent of public college costs saved up before they start? Twenty-five percent? Or do you really want to focus more on paying as you go and making sure your kids have some skin in the game?” he said.
“I think that’s all completely valid, but the point here is between two spouses, you want to get on the same wavelength in terms of how much money you’re willing to spend on your children’s education.”
Quillin recommends 529 plans, which are tax-friendly and flexible enough to be applied under various circumstances.
“In many states, you get a state tax deduction for contributing into the plan,” he said. “In Arkansas, you can also get a deduction for out-of-state 529 plans. The money comes out tax-free as long as you use it for educational purposes.”
“Even if you have the super-high-quality problem of saving too much in a 529, you can change the beneficiary. So, if one kid gets a scholarship and the other one doesn’t, you can change it to whoever needs the money the most. You can use it for first cousins, you can use it for grandchildren, or parents can use it for themselves if they want to go back and take some college courses.”
Other strategies include being creative in structuring a degree. Attending a two-year college to get halfway to a four-year degree is a smart move, as two-year schools are generally much less expensive. Look for concurrent credit programs; some high schools in Arkansas have partnered with local community colleges to provide courses at little to no additional charge while the student is still in high school. This has allowed some kids to earn their high school diploma and associate’s (two-year) degree simultaneously, saving their families thousands.
And, parents shouldn’t automatically dismiss the idea of a skilled education or the value of a gap year, either.
“For kids who don’t necessarily want to go to college but want to pursue a career of some kind, it’s going to make a lot more sense to consider the trades that don’t require a four-year degree,” Quillin said. “A gap year or two focused on service also might not be a bad idea, giving the student a chance to grow and mature and then be ready to put their best effort into college.”