Getting real about financing college
Your mind may have been boggled by the recent headline declaring that the full cost of attaining a four-year degree at a few of the nation’s elite universities is about to surpass $400,000 for the first time.
Of course, few students will actually pay this astronomical sticker price. And higher education costs quite a bit less at the vast majority of schools.
But the reality is: a college degree is expensive anywhere. Especially when you factor in room, board, fees, books, technology, supplies and travel as well as tuition.
According to the Education Data Initiative, the average annual total cost for a student attending a private university is now $58,628 (including $38,768 in tuition).
The average annual cost for an in-state student at a public university is $27,146 (including $9,750 in tuition). For out-of-state students, that average annual cost at a public university rises to $45,708 (including $28,386 in tuition).
That puts the University of Washington above average for both kinds of students. The total annual cost for in-state students is estimated at around $35,000 (including $11,869 in tuition). The total estimated annual cost for out-of-state students runs closer to $66,000 (including $42,105 in tuition).
These costs are not standing still. EDI reports that the price tag for higher education in the United States has doubled since the turn of the century, rising at rate greater than 4% per year. And there’s no sign that this growth is going to slow.
That’s the scary part. But there are many strategies to reduce the cost of higher education. We asked our partners at BECU to help get you started on economizing college. Your dreams of sending your kids to college are not impossible. With some smart saving and savvy planning, you can make it happen.
Start saving early
The best way to ensure you have enough funds for your children’s higher education is to start saving as early as possible. Thinking about higher education expenses when your children are still young may seem unusual. However, the earlier you start, the more time you have to save and plan. Even small contributions can add up over time and make a significant difference in covering the cost of higher education. Here are some education savings strategies to consider:
529 Plans – tax advantaged savings plans designed to save money for approved higher education expenses including tuition, fees, books, supplies and room and board. 529 plans can be used at any public or private college, university or technical school in the United States (and even some foreign colleges). They come in two types:
- 529 education savings plans – investments grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses. Washington state’s 529 education savings plan is called Dream Ahead.
- 529 prepaid tuition plans – allow you to prepay all or part of the costs of a college education to essentially lock in future tuition costs at today’s prices. Washington state’s 529 prepaid tuition plan is called GET (Guaranteed Education Tuition).
Coverdell Education Savings Accounts – also known as an Education Savings Account (ESA), is a tax-deferred account where earnings and distributions are tax-free as long as the funds are used for educational purposes. The maximum annual contribution limit is $2,000 per year per student.
Traditional savings and CD accounts – though they lack tax advantages, the put the power of compound interest to work for you, meaning you’ll earn more money on your savings over time.
Economize college
Cut unnecessary expenses – review your current monthly expenses and identify areas where you could cut back to free up extra cash for your children’s higher education. It could be as simple as eating out less, canceling unused subscriptions, or finding more budget-friendly entertainment options.
Create a budget – a detailed monthly budget can help you track your spending and identify areas where you can save. Make sure to include all your expenses, including groceries, utility bills and other necessary expenditures. Stick to your budget and find ways to save even more each month.
Consider a side hustle – look for creative ways to increase your income. Consider taking on a part-time job or picking up a side hustle. Many people earn extra income through gig economy driving and delivery jobs or by freelancing, selling items online, providing tutoring or pet-sitting services
Calculate the real cost of a degree
Average costs only get you so far in calculating how much money your family is going to have to pay for higher education. Higher education comes with a wide variety of price tags.
Before you get too far into the math, take some time to talk to your student(s) about their educational goals. Do they dream of a bachelor’s degree? Or would a vocational degree better suit their career goals? Do they know what they want to study? Or do they need more time to figure out what they want to major in?
Once you start considering particular schools, it’s important to note that the price a given student or family pays for tuition can vary dramatically based on demonstrated need and merit. Universities determine financial ad packages for each accepted student based on the information in the FAFSA (Free Application for Federal Student Aid). Some private universities also use College Board’s CSS Profile for decisions on need based financial aid awards.
When making decisions, remember to consider the full cost of education. Tuition gets most of the attention, but it’s important to calculate the full cost including fees, on-campus room and board or off-campus housing and food budget, books, computer, supplies, travel and other miscellaneous expenses.
That’s the bad news. The good news is that there are many opportunities for need and merit-based grants and scholarships to also factor into the net cost of education. More on these below.
Got get a realistic picture of what higher ed might put you back, many universities publish their own online cost calculators, in which you can customize your own student’s situation. There also are more general cost estimators available on many financial and government sites such as becu.org and USA.gov.
Explore financial aid options
There are many ways to reduce the cost of higher education, including three primary types of financial aid: loans (which have to be repaid), grants and scholarships (which don’t have be repaid) and work-study employment that lets students earn money and gain job experience while they’re in school.
The amount and type of financial aid offered is based on two factors: merit (scholastic, athletic, musical, etc.) and financial need.
About two-thirds of full-time undergraduate college students receive some sort of financial aid. To find out if you’re eligible, you need to fill out the FAFSA and possibly the CSS Profiles.
Government Loans are borrowed money that have to be repaid with interest. They are generally a better deal than private loans due to a lower fixed interest rate, more flexible repayment terms and potentially deferred payments. Two forms of government loans are:
- Stafford loans – used to supplement personal and family resources, scholarships, grants and work study. They may be subsidized (interest payments are waived while your child is in school) or unsubsidized (interest accrues during school).
- Parent PLUS Loan – can cover more of the cost of education than a Stafford Loan, but they have higher-interest rates and are only available to parents of enrolled students.
Government Grants are awarded by federal, state or local governments. They are often need-based and do not need to be repaid. Examples include the Federal Pell Grant, Federal Supplementary Educational Opportunity and the Teacher Education Assistance for College and Higher Learning (TEACH) Grant.
Scholarships are available through a variety of organizations, including universities, employers, individuals, nonprofits and religious and professional groups. Scholarships can be a good resource for families that have too much income to qualify for federal financial aid, but not enough to pay for school without assistance.
If you have a student in the Seattle Public Schools system, you might consider the Seattle Promise program. Seattle Promise provides graduates of Seattle public high schools tuition-free education at three Seattle Colleges—North Seattle, Seattle Central and South Seattle—for up to two years, 90 college credits or the student’s first degree, whichever comes first. Eligibility for Seattle Promise does not consider GPA, income, ability or country of birth.
Consider alternative pathways
If you are like most families, at some point you will need to involve your children in a reality check. Compare the prices of different schools. Maybe your child dreams of attending an Ivy League school but doesn’t want to be paying off a student loan 25 years from now. Maybe there is a comparable experience to be found at a less expensive private or public school.
It is also important to consider that there may be better options than a traditional four-year college for some young people. For some young people, trade or vocational schools offer specialized training and qualifications that can lead to well-paying jobs and satisfying careers.
Daunting but doable
In conclusion, paying for your children’s higher education can seem daunting, but it is achievable with planning and changes to your spending habits. By starting early, cutting unnecessary expenses, creating a budget, and exploring financial aid options, you can alleviate some of the financial burdens of college. Remember to involve your children and consider alternative pathways if necessary. With these tips, you can help set your children up for a productive and independent future.
Find many more great tools to maximize your financial health at BECU’s Get Money Smart site or blog.