It’s Time to Save
While it is arguably the best time to be on the East End, with the sun still shining brightly and the local farms bursting with their harvest, our attention begins to refocus away from the joys of a glorious summer. The traffic has given way to yellow school buses as our children return to their classrooms. This is the perfect reminder to parents about the need to plan for the costs of higher education.
Starting early may ease the burden, as parents can take advantage of opportunities and programs specifically designed for saving for college. Parents and others who are thinking about funding education expenses should try to be as informed as possible and carefully consider their options, their own financial situation, and future objectives when deciding on appropriate levels to set aside.
According to a recent study conducted by the United States Department of Education, the average tuition cost of one year at a public university is north of $15,000, and a private institution is approximately $33,000. Consider also that these costs have grown over the last decade at an average annual rate of 6.5 percent, far outpacing both inflation and wage growth. This means that for my twin boys entering kindergarten this year, when they reach college age it is likely that one year of public tuition will cost more than $44,000. One year of tuition at a private university may reach close to $130,000. These are daunting figures.
The costs associated with obtaining a college degree might seem discouraging, but they are important to know and understand. Knowing what costs to expect drives parents to consider various planning strategies. Regardless of one’s financial condition, the best results are often achieved when a plan is initiated at the earliest possible stage. With that said, it is never too late to start.
For parents of young children, 529 plans have become popular tools to save for education. These state-sponsored plans offer tax advantages and are even transferable among family members. Education Saving Accounts also offer certain tax benefits, but differ from 529 plans in their contribution limits.
Student loans, too, are an important tool, but come with a cost. The burden of carrying debt for young adults entering the work force handicaps their path toward financial independence, a goal every parent has for their children. Merit and performance-based scholarships and financial aid packages may also play a role in covering some of the costs of college, but cannot be guaranteed and should not be fully relied upon. Other strategies to set aside money for education exist and vary in their complexity and have benefits and limitations all their own.
Watching my kids paddle out to the lineup at Ditch Plain with the warmth of summer still lingering in the air, it is fun to dream about one of them getting a full ride to college on a surfing scholarship, if there even is such a thing. I think instead I will add a little money to their 529 plans on Monday and make sure they do their homework.
Andrew Stern is a financial adviser with Lebenthal Wealth Advisors in Bridgehampton.