College Education – How Much Should You Save?

It’s no secret that the cost of college education has risen drastically throughout this century.

According to a study from the Georgetown University Center on Education and the Workforce, the average price of tuition, fees, and room and board increased 169% from 1980 – 2020. Yikes! As a parent with multiple children, it’s something that my wife Jamie and I often discuss. What do we about college?
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Let’s first approach this discussion from a financial planning perspective. When it comes to saving for your child’s education, there are a few factors that we want checked off first.

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1. Emergency fund needs to be established.

• Assets that have been saved in an account for education do us little to no good if we have an emergency and need immediate liquidity.

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2. No consumer debt!

• Prior to saving for education, we want to be free of all consumer debt. Ridding ourselves of this debt saves on interest, increases our monthly cash flow, and provides enormous peace of mind.

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3. Proper savings rate for retirement.

• Why does it make sense for us to prioritize retirement over education? The main reason is that there are multiple funding sources that may exist for education, while there’s only one or two for funding retirement (and the bulk of retirement funding is going to be based on your savings). When it comes to funding education, there are four major funding sources:
  1. Federal or state student aid
  2. Scholarships
  3. Savings
  4. Student loans

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While it’s ideal to take on no student debt, these loans can meet the important debt criteria that we’ve established in the past. As long as the student loans are used to achieve a degree and career that will enable the borrower to pay them off in short order, they can be an acceptable funding source. At the same time, we don’t want our children to be riddled with student loans.

Scholarships can be attained by being a well-rounded student. There are thousands of scholarships available, from small, local scholarships to full-ride scholarships offered by universities. It’s important to do your research and apply for any scholarship that your student may be eligible for. Even small scholarships can add up and make a difference!

Federal student aid can be achieved by filling out the FAFSA form. This portal is open now as of October 1st! There will be some changes to the FAFSA program in upcoming years.

So, how much should we save? The answer, ultimately, is up to you! Some parents choose to save for nearly all of their children’s education, while others choose to save for a specific percentage (such as 25% or 50% of the projected cost). Many parents want their children to have “skin-in-the-game” and will match savings that their children set aside. The most important key is to communicate your intentions and create a plan to turn them into a reality.

If you reach the point where you’re able and ready to begin saving for education, there are different types of accounts that can be funded. Read more about those in our next post! As always, feel free to schedule a time with one of our planners to discuss education savings.