Paying for College: A Parents’ Guide

By Thomas Broderick

It’s no secret that college tuition increases every year. For example, the cost to attend my alma mater, Vanderbilt University, rose 50% (from $40,000/year to $60,000/year) since I graduated in 2008. At America’s elite private universities, the $60,000/year figure is a common one. Even at public colleges, rising costs have locked out many students whose parents benefited from the same system as young adults. Also, since 2008, the amount of student debt held by Americans has more than doubled to approximately $1.5 trillion. To put that figure in perspective, American student loan debt equals the amount of money necessary to buy everything the United States produces in a single month.

If these trends continue, it is possible that by the end of the 2020s, the United States might have at least one college that charges more than $100,000/year to attend. Even accounting for inflation, the rising costs of college will invalidate many savings plans parents have traditionally used to pay for their children’s college education.

In this article, we’ll discover why paying for college became so expensive before diving into how to best respond depending on your children’s ages. Along the way, we’ll explore how changes in education may dramatically alter your children’s college experience (and save everyone some money in the process).

Up, Up, and Away!

If there’s a story that mirrors the rising cost of a college education, it’s healthcare. Since the 1960s, the federal government began subsidizing health care through programs such as Medicare. More people, especially older Americans, gained access to healthcare, which is great. However, the government does not set rules regarding how much healthcare providers can charge, even though the government is paying. Knowing they’ll get their money no matter what, healthcare providers can increase costs as much as they want.

Now let’s switch out a few words in our story.

Since the 1950s, the federal government began subsidizing college education through authorizing federally backed student loans. Many young Americans, especially those from underprivileged backgrounds, gained access to a college education, which is great. However, the government does not set rules regarding how much colleges and universities can charge, even though the government is paying. Knowing they’ll get their money no matter what, colleges and universities can increase costs as much as they want.

Greed certainly has a lot to do with the rising cost of college. Before you start looking for your torches and pitchforks, however, consider two other reasons that college tuition has skyrocketed over the last half-century.

• Advertising Costs. Once going to college was no longer just for the wealthy, colleges had to learn how to cultivate ‘the best’ student body. In 2016, private colleges paid, on average, $2,232 to attract each member of its incoming class of freshmen. These costs include, but are not limited to sending school ambassadors to events around the nation, and in some cases around the world, to sell their college to high school students. Other costs include traditional advertising techniques such as mailers and a social media presence.
• Colleges have evolved. The very nature of college has changed since the mid 20^th College campuses are not only larger to accommodate more students, but colleges’ financial priorities have shifted from education to research, especially scientific or engineering research that might one day benefit the college’s bottom line.
  • Colleges focusing on research is not necessarily a bad thing. At many colleges and universities, undergraduates can gain valuable research experience, working side by side with professors and graduate students.
    

Paying for College: The Basics

Important Note: As of the publication of this article, the Congress is considering a tax bill that could dramatically change how parents should save for college. As you continue to read, keep in mind the changes that may soon affect your family’s future.

• 529s: A 529 plan is a specialized, tax-free college savings plan offered by the IRS. Since 1996, it has been the preferred method for new parents setting up their children’s college fund.
• Scholarships/Grants: Besides savings, your children may be eligible for a wide range of scholarship and grant opportunities based on their academics, extracurricular activities, and community involvement.
• Loans: The average debt for college graduates in the United States is $16,900. For some, the figure is much higher. For your family, taking out loans may be necessary. You, as a parent, may need to cosign these loans. No matter what, loans have a dramatic impact on people’s lives. That being the case, process with caution and consider loans as a last resort.

Now that we’ve covered the bases, let’s look at what you can do to help your children, no matter their age, financially prepare for college.

If You have High School-Aged Children

If your children are high school aged, college is only a few years away. Even if you created a college savings account the moment your children were born, you might still worry if there is enough money. Let’s explore a few ways to close the financial gap.

• Community college is an option. Your children may have the skills and aspirations to attend an Ivy League, but your family cannot afford the costs. Discuss with your children the possibility of attending community college for the first year or two. This way, they will have to pay little to nothing for their education, save money, and still be able to transfer to a four-year institution at a later date.
• Have your children start saving, too. The benefits of a summer job extend much further than having pocket change. Summer jobs are just as a valuable tool for saving for college.
  • When your children receive their first paychecks, encourage them to put their money in a certificate of deposit (CD). CDs make a bit more interest than traditional savings accounts. Also, your children will not be able to withdraw their money, making it less of a temptation.
• Research relevant scholarships. As early as your children’s freshman year of high school, your family can begin exploring scholarship opportunities. The more scholarships your children earn will reduce the financial pressure on you and open up more possibilities to them.

Lastly, you may be tempted to tell your children not to consider colleges outside your family’s price range. I don’t recommend this. An effect might be your children adopting a defeatist attitude. (“I’m only going to community college, so why should I take APs or try to get As?”) To avoid this reaction, be honest with your children about what your family can afford, but also stress the importance of scholarships and community college as a stepping stone.

If You Have Younger Children

If your children are middle school-aged or younger, it’s impossible to say what the educational landscape will look like when they graduate high school. Until Congress makes up its mind, the tips in the previous section still apply. However, two trends may make college more affordable for everyone.

• MOOCs: Over the past decade, Massive Open Online Courses (MOOCs) have opened up a world-class education to anyone with an internet connection. Many MOOCs are completely free. Notable academic institutions such as Stanford University and Harvard University offer MOOCs through different online platforms.
• Online Degree Programs: Having your children attend college online confers many cost-saving benefits when compared to a traditional college education. Also, as the technology advances over the next few years, the educational experience should improve. However, there is much to keep in mind when considering online education as an option for your children’s college education.

Final Thoughts

Figuring out how to pay for college is a stressful experience for parents and children alike. However, the earlier you start working with your children to find solutions, the better the outcome will be.