Tips for Reducing College Costs

Thursday, January 18, 2018

           
            The cost of attending college isn't getting cheaper. In fact, according to recent information provided by the College Board, the average cost of attending an in-state public university during the 2017-2018 academic year is slightly more than $25,000, while the cost is double that for one year at a private school. Thirty years ago, attending college was an affordable way to better one’s life and improve their financial outlook, but today’s students are graduating with an unprecedented amount of debt. Those loans often leave them struggling to find answers and stay current on their payments.
            As a result of rising tuition costs and the need for more loans to cover those amounts, student loan debt in the U.S. is hovering near $1.4 trillion. To put that into perspective, according to statistics from the Federal Reserve Bank of New York student loan debt is currently higher than auto loan debt ($1.19 trillion) and credit card debt ($784 billion), but still trails far behind the $8.69 trillion Americans hold in mortgages. In addition, the average 2016 college graduate is holding more than $37,000 in debt, leaving them in a precarious position when it comes to achieving other life milestones, including buying a home, purchasing a car or saving for retirement.

How We Got Here and What It Means

            Student loan debt is nothing new in the U.S., as there are more than 44 million borrowers currently paying off their loans. But the question of how we’ve ended up in this position still remains. Over the past 30 years, tuition costs have risen 161 percent, burying students under the heavy burden of high debt. In stark contrast, combine that with a distinct lack of real wage growth for the middle- and lower-class, and the picture becomes much more clear. New workers are paying down high tuition costs, but the increase in tuition and goods isn't being properly reflected in their wages once they enter the workforce. In a report issued earlier this year by the Brookings Institute, although wages have increased 10 percent since 1973, when adjusted for annual real wage growth the result is much more modest, estimated at 0.2 percent.
            Although student loans have seemingly become a part of the college experience, when people are spending the money they earn paying down student loan debt, there’s a lot of things they aren't doing. For example, the money allocated each month toward student loan debt isn’t getting used to purchase a home. For those who do decide to buy a home, the debt also impacts how much they’re able to borrow.
            Student loan debt can also impact other large scale purchases, like cars, or dissuade those graduates from starting a family of their own. For those who do decide to have children, the race to save money for their college education becomes an additional factor. But perhaps the most frightening aspect of mounting debt is the looming threat of not being able to save money for retirement (or even for an emergency).
           
How to Fight a Growing Problem

            Student loan debt is a trillion dollar problem, but there are ways for parents to stash away money to lessen the burden their children may face in the coming years. Experts highly suggest parents take advantage of specialized savings plans, including 529 programs, to set aside money for tuition payments. Every state in the U.S. and Washington D.C. provide at least one type of sponsored 529 program, which are offered as either prepaid tuition or college savings plans. These are safe savings accounts, but make sure to check to see what fees and expenses you can expect and how these investments impact your federal and state income taxes.
            One of the main reasons people enjoy putting money away into a 529 savings account is that they’re relatively easy to use, especially compared to other savings options. In many cases, parents who might not be money-savvy are able to put their money into these accounts without worrying about where it’s going and what’s being done with it. Outside investment companies or your state’s treasurer’s office will typically handle those investments to ensure the accounts grow. In addition, these types of programs are open to all parents, unlike other accounts that may require a person to contribute a certain amount each year.
            For those taking advantage of a 529 savings program, there are other ways to supercharge those accounts and get the most out of them. Companies like GiftofCollege.com, a college savings gift registry, allows family, friends and employers to help them put away money for college by streamlining the investment process through a direct contribution using a credit/debit card or using a Gift of College gift card. Parents can link any 529 plan they’ve created for their children, and anyone can purchase either a physical gift card or an e-gift card online. 

            Another option some parents are taking advantage of is the prepaid tuition plan, which essentially allows someone to prepay for credits at an in-state university. The credits can be purchased for a predetermined amount, and grow with the price of tuition. Unfortunately, one drawback of those types of accounts is that if the child doesn’t attend school out of state, they won’t see as large of a return on their investments.

Plan Ahead to Stay Ahead

            While it might seem daunting for a parent to stash away the thousands of dollars needed to put a child through school, it’s important to remember that the earlier one gets started on saving the better off their children will be. Of course, although saving for college should not take precedence over paying the rent of saving for retirement, even putting away $100 a month for your child to attend college makes a huge difference in the long run.
            By taking advantage of the options available and finding unique ways to invest money into those accounts, it will reduce the amount those future students will need to borrow later on. Given the rising cost of tuition, the less money future generations need to borrow for schooling means less they’ll possibly have to refinance in student loans if they choose to do so.
            Don’t let the numbers frighten you. There are ways to make college affordable and economical for any family. All it takes are a few dollars each month and some prudent decision making, and you can put your child’s dream within reach.

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