Another season of holiday giving has passed. New Year’s resolutions are foremost in our thoughts. With the arrival of our first child in November, my husband and I have resolved to give our child one of the best gifts we can – the opportunity to receive a college education.
Why think about college costs that are 18 years down the road? Because advance planning can ease the burden when it comes time to write checks for tuition, books, room and board, and all the other costs associated with sending your child to college.
Consider that current college costs are approximately $10,000 a year at a public university. Using a conservative estimate of tuition increases at 7 percent a year, the projected cost of a four-year education in 17 years can skyrocket to more than $140,000.
According to Ron Mathews, principal at Lake Highlands High School, 60 percent of the parents he deals with are not financially prepared for college expenses. Some have saved and are prepared to write checks that first year. The majority must depend on student loans to ease the burden.
Starting early is the key. With more time to plan, you can benefit from long-term savings plans and invest more aggressively. Your child’s first birthday is the perfect opportunity.
Set up a separate college savings account to avoid the temptation of using these funds for other purchases. A separate account also will encourage regular investments to the college fund.
For some of us who need a more disciplined approach, arrangements can be made for regular deductions to be made from paychecks or transfers made from checking to savings accounts.
How much needs to be set aside each month? If your child is one year old, and assuming the cost of a four-year education in 17 years is $140,250, you should plan to set aside $552 each month. This is based on a conservative projection of today’s relatively low interest rate of 2.5 percent.
Certainly, if interest rates rise, you may be able to contribute less. Check the accompanying chart for additional college cost projections and suggested monthly funding for children of different ages.
In addition to college savings accounts, many other investment vehicles are available. You can lock in high interest rates with a long-term certificate of deposit. As an alternative, your banker can work with you to target more aggressive investments such as growth stocks, tax-exempt bonds and annuities
Whatever savings or investment plan you choose, investigate tax strategies for each option. Depending on the age of your child, you may want to change your investment strategy to take advantage of tax benefits.
If you are among the 60 percent of Lake Highlands area residents who did not plan early enough for college expenses, don’t despair. Financial aid and student loans are available.
Some parents automatically assume they won’t qualify for financial aid if they earn more than $150,000 annually. Depending on the number of children you have in college at the same time, as well as your other assets and liabilities, you may be eligible even at that income level.
Contact one of the high school counselors to obtain a standardized eligibility form through the College Scholarship Service. Also consider talking to the admissions/financial aid counselor at the college your son or daughter is considering attending. Student loans also are available at area banks. Our loan officers have had many requests for college loans, as well as loans for private schools. New products are being considered and designed for Lake Highlands residents.
While the dramatic rise in college expenses is discouraging, giving your child the gift of a college education is possible with proper planning.
As we enter 1993, join me in making an investment in the future – our children’s future, and most likely, the future leaders of Lake Highlands.