The cost of college tuition concerns parents from all walks of life. While college continues to get more expensive, it remains a worthy investment.
In its 2015-16 “College Planning Essentials” report, J.P. Morgan Asset Management dispelled the growing notion that a college education is not worth the student loan debt many young adults assume to earn their degrees. The report noted that college graduates earn 38 per cent more than high school graduates, even after factoring in student loans. The report also noted that the return on investing in college is nearly $1 million more in lifetime earnings. What’s more, a 2013 report from the Georgetown University Center on Education and Workforce projected a shortage of five million college-educated workers by 2020, suggesting that college graduates will be in high demand by the start of the next decade.
While such figures highlight the importance of a college education, they may do little to ease parents’ concerns about how to finance that education. While saving enough money for college may seem impossible, parents can take steps to decrease the likelihood that their kids will need to take on substantial loans to support their education.
The earlier parents start saving for college, the more money their children will have to finance their educations. Parents may not realize just how much college tuition is rising compared to other expenses. According to the U.S. Bureau of Labor Statistics Consumer Price Index, the cumulative per cent price change of college tuition between 1983 and 2015 dwarfed the price changes of other expenses. For example, while the cumulative price change of housing rose 143 per cent during that period, the cost of college tuition rose 722 per cent over the same period. The earlier parents start saving for college, the more they can take advantage of compound interest that many college savings plans offer.
Schedule automatic monthly contributions to college savings accounts
Parents learn to expect the unexpected soon after their children are born. Unforeseen expenses may tempt parents to reduce or skip their monthly college savings account contributions. Reduced or missed contributions can add up over time, however, potentially reducing the totals in your child’s account by a substantial amount. Set up automatic contributions with your bank or portfolio manager so you are not tempted to use the money you set aside each month for college to finance other expenses.
Increase contributions each year
Increasing your annual college savings contributions each year can help the accounts keep pace with the inflation rate of college tuition costs. While you might not match that rate, increasing contributions each year by as little as 5 per cent won’t greatly affect your overall budget but can have a considerable impact on college savings.
Saving for college can seem like a daunting task. Yet parents of young children can quell their fears about college tuition costs by making a plan now and sticking to it until kids are ready to enroll in a college or university.