More than 20 million students are enrolled in American colleges and universities. That’s 20 million souls with dreams of career grandeur, goals of professional fulfillment, and hopes for a tomorrow that’s more financially lucrative than today.
It was our own Thomas Jefferson who said: “With great risk comes great reward.” But, unfortunately, when navigating the waters of higher education, the “risk” in that scenario is often tied to money. It’s a familiar song and dance at this point; student loan debt is up 60% in the last decade with the average graduating student owing $28,000 and up.
The landscape of post-secondary schooling is ever changing, making way for progressive ways to affordably pair individuals with an education. Purdue University recently launched an income-sharing agreement (ISA) where the student pays nothing up front, then pays back a percentage of income based on their major and salary for the next 10 years. A teacher won’t pay as much as an engineer, for example. It’s a creative way to put the financial risk on the institution, not the student. Ultimately, if a university is advertising that attendance will lead to that career grandeur, then perhaps they should have some skin in the game. But unfortunately in most cases, like death and taxes, the high price tag of a quality education is certain.
Brandon Cross, a Blacksburg-based Edward Jones financial planner, shared a custom-built calculator that helps quantify a forward-thinking strategy. You can type in any institution, the projected year of enrollment and the amount of money you are capable of saving monthly, and it will give you the amount that will be available when the student is ready for dorm life. It takes into consideration tuition inflation, interest earnings and will tell you what steps you need to take in order to assure 100% coverage of college.
A 529 college savings plan is the most popular way of putting away money for college. It’s a state-sponsored education savings vehicle that is federally tax-free if used for education. As of January 2018, qualifying elementary and secondary schools (generally private or religious) are also eligible. A 529 is attached to a singular individual but can be transferred to a sibling if the original beneficiary decides to backpack across Europe instead of attend college. But if all children have big dreams of college, they will each need their own 529 plan.
How to best use a 529 plan is based
on when you start saving:
Ages 0-10 years old: Within a 529 plan invest in a growth mutual fund (more volatile, higher return long-term).
Ages 10-17: Put money in a slightly more conservative college target-dated fund. It will protect your savings from significant dips in value when your known cash-out date arrives.
Age 18+: Money market or an in-college
Treat paying for college as important as choosing a college. Do your research. Talk to a professional about your goals. There are all types of scholarships and grants offered by private parties, non-profits, colleges, states and the federal government. These don’t need to be repaid. Schools commonly offer some amount of financial aid, and it never hurts to ask for more. Be your own advocate. Proactively play the card that “College B” offered you “x” amount of money, then challenge your first-choice school to match or exceed that. After all, it’s a common tactic used in the workplace; get your practice in early.
And everyone should ask the federal government for assistance. FAFSA (Free Application for Federal Student Aid) is an opportunity available to any college-bound individual. It takes a good, hard look at the funds available to you and determines money awarded based on an overall financial need.
It also never hurts students to save most of their full-time summer earnings and get a part-time job during school. Kids who work through college get better grades than those who don’t. It teaches time management in conjunction with money management, the yin and yang of success. Cross concludes: “Our society says borrow and buy instead of having the discipline to save. Most Americans could do well financially no what their income is, you just have to tell your money what to do.”
Understanding that money can actually do something besides get handed over in exchange for a product is so important to instill at an early age when their tunnel vision is still money begets special treats. Respecting the value of money can be an ongoing life lesson. So when it comes time to hand over funds in exchange for the special treat of a college education, you will not be handcuffed to instantaneous years of loan debt.
When grandparents want to stuff birthday cards with a bit of cash, have them do so with one-dollar bills. Take the opportunity to teach a young child how to distribute the money. Save some, give some, share some and enjoy the rest. It’s a simple place to start. Make the discipline to save second nature, along with promoting sensible buying decisions on clothes, accessories and entertainment. The habit is sure to leave more doors open than closed. Even if those doors don’t lead to a classroom.
Text by Nancy S. Moseley
Nancy S. Moseley is a freelance writer who not-so-secretly hopes her children choose to backpack across Europe and take her with them.♦ End