If you have kids, one of the biggest financial worries you'll ever face is how to pay the ever-growing cost of a college education. With all the considerations involved in preparing to pay for college, you almost have to become an expert in order to figure out everything you need to know.
Getting the facts
To give you a sense of the magnitude of college financial planning, here are just a few of the issues you'll face between now and graduation day:
- When and how much money should you start setting aside for your child's college expenses?
- What type of accounts should you use to stash your college savings?
- What investments should you make, and how should those investments change as your child grows?
- How should you balance your own financial needs with those of your child?
- What steps should you take to maximize financial aid?
- Should your child take student loans, and if so, which kind are the best?
Over the next several weeks, we'll take a closer look at all of these questions and more, in an effort to give you the knowledge you need to make the best decisions for your child. As an introduction, though, it's helpful to get a sense of just how big a commitment providing for your child's college education can be.
The rising cost of college
Anyone who thinks deflation is right around the corner hasn't paid a tuition bill lately. According to figures from the College Board, the cost of tuition and room and board at private universities has risen at a 5% annual rate since the 2006-07 school year. Public colleges have seen an even bigger increase, approaching 6%. And for those hoping to give their child an Ivy League education, the current bill for four years will exceed $200,000.
With that much money involved, it's no surprise that education has become a big business. For-profit educational institutions have turned into big revenue generators, with Apollo Group (Nasdaq: APOL) and its University of Phoenix leading the way with $4.8 billion in total revenue and around 80,000 graduates during the past four years. Competitors Corinthian College (Nasdaq: COCO), DeVry (NYSE: DV), and ITT Educational Services (NYSE: ESI) all grossed at least $1 billion in sales over the past 12 months. And all but Corinthian have maintained double-digit profit margins on those revenues.
The business of helping families with college financial issues has also become quite lucrative. You'll find Fidelity, Charles Schwab, and Franklin Resources' (NYSE: BEN) Franklin Templeton among the many investment managers overseeing investments for popular 529 plans. And of course, Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), and a host of other money-center banks offer a variety of student loans for those who need help covering their tuition.
How to start
With all those competing players, one of the biggest difficulties is figuring out how to begin. What you'll find, though, is that the most important thing you can do is to start putting money aside as early as you can. Even if competing priorities limit the amount you can save for college, every little bit is a small amount less that you won't have to come up with later. And while investing that money wisely is essential, you shouldn't let uncertainty about the best investment for your child to get in the way of starting a savings program today.
Saving for college is a daunting prospect for any parent. With courage and discipline, though, you can put together a financial plan that will get you through one of the most costly expenses you'll ever pay -- and give your child a gift that will pay dividends for decades to come.
Stay tuned each Wednesday in September and October as Dan goes through the ins and outs of saving and paying for college.
