Kids are expensive. And when it comes to expenses, college is one of the largest that parents encounter.

The good news regarding college planning is that parents have 18 years to save; however, this blessing is also a bit of a curse. How do I plan for such a large expense that seems to grow so quickly?

Inevitably, the answers to these questions will become more clear as families get closer to that date; however, here are a few considerations that are helpful to take into account no matter where you are in your college saving timeline: 

College saving via a 529

529s are tax-advantaged savings accounts that invest in stocks and bonds. As long as withdrawals are used for qualified educational expenses (tuition, room and board, textbooks) they are exempt from federal income tax. If you are looking for a convenient way to earmark funds for your child’s education, you would be hard-pressed to find a better vehicle. 

Relationship between institutions and price

College expenses can vary drastically between institutions, with the most expensive topping out around $80,000 once room and board are taken into account. Additionally, parents and kids need to weigh the relative benefits of public vs. private institutions as well as in-state vs. out-of-state tuition. According to U.S. News, in 2021 in-state public schools cost 73% less than private universities. 

How fast do we expect expenses to grow? 

According to U.S. News between 2002 and 2022 the average tuition and fees at private National Universities have jumped 144%. Out-of-state tuition and fees at public National Universities rose 171% and in-state tuition and fees at public National Universities have grown the most, increasing 211%. Given these trends, it is reasonable to expect today’s college expenses to more than double within the next two decades.

The components above are great starting points to begin thinking about saving for college. We do detailed financial planning for clients who are looking to save for their children’s education planning. If you’d like to discuss further, feel free to send me an email at [email protected].