Graduation time is here again, and once again parents of younger children realize that they are that much closer to having to come up with tens of thousands of dollars to help pay for their kids’ higher education expenses.
To alleviate some of the understandable stress experienced by these families, we’ll spend the next few weeks on the topic of how you, too, can actually afford to send your kid to college.
First we need to agree on a prospective price. According to the College Board, for the 2014-2015 academic year the average annual published cost of tuition, room and board, and fees for a four-year public university was $18,943.
Two-year public schools were $11,052. Out-of-state public schools cost $32,762, and if you have to ask what the cost of a year of school at a four-year private school, you can’t afford it (but if you must know, it was $42,419).
Since the majority of students who go on to school after graduating from high school attend four-year public universities, we’ll use that figure. And to make things easier, we’ll round the current cost up to an even $20,000 per year.
To illustrate that it is indeed possible to pay that amount, let’s assume a family was fortunate enough to have their child graduate this month from a school that cost $20,000 per year for four years, or $80,000.
Here’s how they could have afforded to pay for it, in four equal parts.
The family could have set aside $7,000 at the child’s birth earning a hypothetical 6% per year, and reached $20,000 by the time the kid turned 18. Or, they could have saved about fifty bucks per month in to the same account.
2. Parent income
The next $20,000 comes from the money the parents earn while the child is in school. $20,000 over four years works out to about $416 per month.
That amount might seem like a lot, but keep in mind that since the kid isn’t living at home, they don’t have to spend anything on food, etc.
For the parents of some high schoolers, spending $416 per month on college would be significantly less than what they are used to spending on food.
3. Student income
There’s usually no harm in the child working to pay some of his school expenses. To come up with $20,000 ($5,000 per year) he could work twelve hours per week year-round at eight dollars per hour, or work full-time during the summer at about the same rate to earn that amount.
And an industrious young adult could do both, and make $40,000 over four years.
. Student loans
The final $20,000 can be obtained by taking out student loans—a necessary evil, but not quite as disastrous as the uninitiated may believe.
Say the $20,000 in loans cost 6% annual interest, and are to be repaid within ten years after the kid gets her degree. In that scenario the payments would be about $222 per month, or about $1.32 per hour for someone with a full-time job.
Feel better yet?
Of course, the family could have used more or less of each of these ways to pay to meet their specific situation. And we still haven’t discussed other viable ways to generate money for higher education expenses, including gifts from other family members, grants, scholarships, and loans taken out by parents.
However, appropriately-paranoid parents will point out that although the portrayal above may have been possible in the past, it may be more difficult in the future.
Especially if they have more than one child, and more than one financial need beyond just paying for college (including paying off their own student loans!).
Last but not least, they are probably most concerned about one of the most important components of the aforementioned affordable college plan: the “savings” part.
So next week we will discuss when, how, how much, and how to prioritize saving money for college.