The Cost of Higher Education Is Too High. Here’s What You Can Do
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Insights from The Mind Money Spectrum Podcast Episode #25
Higher education remains one of the most significant investments families make, often accompanied by a mix of excitement and financial anxiety. For high-performance professionals like you, planning for college expenses can be overwhelming, especially as tuition and associated costs continue to rise well above typical inflation rates. But while the sticker shock is real, this doesn’t mean you’re powerless. With strategic, flexible financial planning, you can position yourself to fund your children’s education affordably—without sacrificing your own financial security and freedom.
This article is inspired by a detailed conversation on the Mind Money Spectrum podcast (published on June 2, 2020), where we examined college savings through a realistic, practical lens. Below, I’ll summarize key insights and actionable steps for families preparing to face the high cost of college head-on.
How Much Does College Really Cost?
Understanding current costs is the foundation of your plan. For context, consider these ballpark figures (reflecting 2020 data and variable by institution and location):
- In-state Public Universities (e.g., UCLA): ~$35,000 per year including tuition, fees, room, and board.
- Other Public Universities (e.g., California State University campuses): ~$27,000 per year.
- Community Colleges: Roughly $3,000 to $4,000 annually for tuition alone (room and board often not included).
- Private Universities (e.g., Ivy League, Stanford): Approximately $70,000 to $75,000 per year.
It’s important to remember these amounts will almost certainly increase over the next 15 to 20 years due to inflation, often outpacing the general Consumer Price Index (CPI). Historically, college costs have risen roughly 4% to 5% annually, whereas CPI tends to hover around 2% to 3%. This gap is a big reason why many parents begin saving early.
Factor in Inflation and Investment Growth
When projecting future costs, two critical assumptions drive your planning:
- College Inflation Rate: The annual rate at which college costs are expected to increase. Conservative planning often assumes 5% because college inflation has historically exceeded general inflation.
- Investment Rate of Return: The expected annual growth rate of your investments. A moderate figure would be 7% for a diversified portfolio of stocks and bonds over the long term.
Assuming a newborn today plans to attend a public university like UCLA in about 18 years, saving roughly $700 per month or a lump sum of around $95,000 could fully cover four years of education—assuming a 5% inflation rate on costs and 7% investment return. For a private university, the savings target can easily double, often reaching $1,300 to $1,400 per month.
529 Plans: Your Best Ally in College Savings
The 529 college savings plan stands out as the most effective savings vehicle designed specifically for education, and here’s why:
- Tax Advantages: Although contributions are made with after-tax dollars (with some states offering tax deductions on contributions), the growth in your 529 plan is tax-free when used for qualified education expenses, which include tuition, fees, books, supplies, and even room and board.
- Flexible Beneficiaries: You can change the beneficiary of your 529 plan to another family member if, for example, your older child decides not to attend college or accepts scholarships. This flexibility is highly valuable when planning for multiple children.
- Parental Control: Unlike custodial accounts, the account holder (usually a parent) maintains control of the funds—including withdrawals and investment decisions—until the money is disbursed.
- Age-Based Investment Strategies: Most 529 plans offer age-based portfolios that automatically become more conservative as your child nears college age, protecting your savings from market volatility as the time to spend nears.
- Higher Contribution Limits: You can contribute substantial sums, including “super-funding” by prepaying up to five years’ worth of gifts in one year (up to $75,000 per contributor in 2020), providing significant front-loading flexibility.
Additional Considerations and Strategies
1. Start Early but Don’t Panic if You’re Behind
The power of compounding growth cannot be overstated. The earlier you start, the easier it is to reach your target with manageable monthly contributions. However, if you’re starting later in your child’s life, focus on consistent investing and consider a balanced but growth-oriented mix.
2. Retirement Comes First
Your own retirement security must always be your primary financial priority. Unlike college, there’s no scholarship or loan program to cover retirement. It’s better to pay for college with a combination of savings, scholarships, and loans than risk your future financial independence.
3. Keep an Open Dialogue—and Be Prepared to Pivot
Trying to predict your child’s future college choices when they are an infant is nearly impossible. Your child might choose a community college, earn scholarships, attend graduate school, or even skip college. It’s important to maintain flexibility by not overcommitting all your financial resources to college savings alone.
4. Consider Taxable Investment Accounts for Added Flexibility
If you anticipate the possibility of your child not needing all the funds earmarked for college, or if you want more flexibility in how money can be used, opening a taxable investment account with a long-term, diversified portfolio may be a smart complement to your 529 plan savings. This allows you easy access and use of the funds—without tax penalties—if education costs change.
5. Use Your Earning Potential to Your Advantage
Many high-performance professionals experience income growth throughout their careers, particularly in their 40s and 50s. If you keep lifestyle inflation in check, you might be able to cover unexpected college expenses out of current cash flow rather than relying entirely on savings.
6. Scholarship and Financial Aid Could Help Reduce the Burden
Research and encourage your child to pursue scholarships and grants. Some schools even have initiatives offering free tuition for families below certain income thresholds. Factoring these potential benefits into your plan can reduce the overall amount you’ll need to save.
7. Evaluate Prepaid Tuition Plans—With Caution
Some states offer prepaid tuition plans where you lock in today’s tuition rates for future attendance at in-state public colleges. While these can protect against tuition inflation risk, they often have restrictions on flexibility and move with you if you relocate; changes can be costly. Evaluate carefully before committing.
Why I Don’t Recommend Alternative Investments for College Savings
As a fiduciary, my role is to recommend investments aligned with your goals, risk tolerance, and timelines. For college savings, I favor stocks and bonds within tax-advantaged accounts like 529 plans because of their proven growth, liquidity, and regulation transparency. Alternative investments often come with higher complexity, fees, and illiquidity, making them less suitable for a goal with a defined timeline and spending requirement like college funding.
Key Takeaway: Balance, Flexibility, and Perspective
The cost of higher education is daunting and likely to rise faster than inflation, but with prudent planning and disciplined saving strategies, funding your child’s college education is achievable without jeopardizing your own financial future.
Some final points to remember:
- Start with realistic cost projections. Use conservative assumptions, but revisit them periodically to adjust your savings plan.
- Utilize 529 plans for tax-efficient growth and control.
- Make your retirement plans a priority. There will be other ways to fund college besides risking your financial independence.
- Maintain communication and flexibility. Your child’s path may change, so your plan should be able to adapt.
- Leverage scholarships, grants, and financial aid. They are powerful tools that can ease your saving requirements.
Ultimately, saving for college is a marathon, not a sprint. Thoughtful planning today—combined with disciplined investing and a balanced approach—will give you the financial freedom you seek for you and your family.
If you’d like to discuss how to build a smart, flexible college savings plan customized for your family’s unique situation, feel free to reach out for a fiduciary consultation tailored to your goals.
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Need More Help?
If you’re ever in need of guidance, these blog posts may be of help. But be sure to contact a financial, tax, or legal professional for guidance and information specific to your individual situation. And as always you can reach out to me directly here with questions or concerns about your personal situation.