It’s time to talk about everyone’s favorite subject: student loans (yay!).
You might think that since your college days are in the past, you no longer have to worry about the rising cost of education. But if you have young children or are thinking about starting a family sometime soon, the ol’ college talk could be coming back sooner than you think – and it’s probably worse than you remember.
As of 2021, the average debt tied to a bachelor’s degree at a public university was more than $28,000. Mind you, that’s not the total cost, just the amount that students couldn’t otherwise cover via scholarships, family help or other means.
At private colleges, that number jumps to nearly $40,000. The statistics also show that those loans are tough to shake, with the average borrower needing 20 years to totally pay off their student loan debt.
How much do parents usually contribute to their children’s college costs? According to at least one recent study, parents have recently passed the threshold of covering half of all costs related to tuition, room and board, textbooks, and other educational expenses.
Of course, you want to give your children the world – and that includes the education of their dreams. In order to reach that finish line, you’ll need an accurate estimate of what that sticker price could look like decades down the road.
The Rising Cost of College
Remember when you entered college and couldn’t believe how expensive it was? Unfortunately, that’s nothing compared to how much it will be for your kids to attend.
While Covid-19 has thrown the entire world for a loop these past few years, prior research shows that college costs have been rising at about 5% per year. If your child enters college in 10 years, that would send the price of a 4-year degree at a public school to over $150,000 in total, compared to roughly $88,000 today (did your head explode a little there? Don’t worry – ours did too).
With that in mind, it’s a good idea to overestimate in these scenarios rather than underestimate. If you save more than your child needs, you’ll end up with a nice chunk of savings you can use to go visit them more often. If you don’t save enough, there’s not much you can do.
Public vs. Private vs. Community College
One of the best ways to accurately nail down a goal number for your college savings account is to talk to your child about their goals as they grow older. There’s a big difference between the sticker price on a community college and a private school – so getting an idea for where their head is can help you narrow down your number.
At the lowest price tier, you’ll find in-state community colleges. These institutions normally offer two-year degrees, but it’s becoming increasingly common for community colleges to offer bachelor’s degrees. As of 2021, the price of a bachelor’s degree at an in-district community college came to just $7,460.
To estimate the cost your child can expect from a community college in the future, try an online college costs calculator.
The next tier in college pricing is public universities. For a four-year degree in today’s world, the average price sits at a cool $25,487.
Chances are there’s at least one public college near you, but for public schools located outside your state of residence, you can usually expect a rise in tuition fees.
In many cases, public universities offer the same majors and life experiences as a private college at about half the cost.
Lastly, a four-year degree from a private college or university comes in at the highest price. In 2022, the average cost of a bachelor’s degree from a private college is $53,217.
To come up with your golden savings number, talk to your child about which type of school most interests them. Then, use an online calculator to calculate your savings goal.
How to Save for Your Child’s Future Education
Whether your child is leaning more toward community college or a private college experience, chances are you’ll need to save up some big dough to avoid those dreaded student loans. Here are three college-savings tips you can use to get started:
1. Research Your Options
There are several tax-advantaged accounts you can use to save up for your child’s college education. The most common of these accounts is called a 529 plan. With a 529, any capital gains your investments incur can be used tax-free for education expenses.
2. Give it Time to Grow
One of the best tips we can give new or expecting parents is to begin saving early. If your child is 18 years away from entering college, that gives you 18 years to invest and grow your savings fund. The sooner you begin, the more opportunities you’ll likely have to grow those savings.
3. Shop Around for Financial Aid
If your child is closer to leaving the nest, it’s a good idea to shop around for the best financial aid package.
This is a great way to narrow down schools Little Timmy is interested in. For example, if School A has an overall higher price than School B, but it also offers a better financial aid package, School A might end up being the cheaper option.
There are many factors your family will need to consider when it comes to your child’s higher education – luckily, you’ve got the tools to succeed.
Plan for the Future with Lasso
Growing your family can be both time-consuming and cost-heavy – Lasso can help. Download the (completely free!) app today to start building your goals and saving for the future.