Whether you are raising young children or looking ahead as a grandparent, the soaring cost of higher education may already be on the radar.
Even if it isn’t a daily concern, there’s no escaping the reality that earning a four-year degree now requires a significant financial commitment.
Depending on the university, many first-year students are eligible for scholarships that help defray some costs.
Including government sources, over $100 billion in grant and scholarship money is awarded annually, according to theEducation Data Initiative, a team of researchers that collects data about the U.S. education system.
- The average scholarship award for public 2-year institutions is worth $4,100.
- On average, first-time undergraduates who receive government grants and scholarships at a 4-year college receive about $15,750 annually.
But even with aid, outlays are formidable.
There is, however, a bit of good news. Tuition inflation has slowed in the 2020s. In fact, it has actually declined, falling at a 3-year average annual rate of 1.90%, according to the Education Data Initiative.
While welcome, that ray of sunshine hardly seems noticeable to students and parents when the college bill lands in the mail.
How bad has it become? The average annual cost of tuition at a public college is 40 times what it was in1963; after adjusting for inflation, tuition has increased 312%. It is up 37% since 2010.
If you attended a four-year university in the 1970s or 1980s, you are well aware that tuition inflation has far outstripped the general rate of inflation.
So, who does the heavy lifting when it comes to paying for college?
On average, assuming $30,000 per year, parents bear about 40% of the costs, while scholarships and grants cover about 25%. College savings plans and student loans each account for approximately 11% of the total funding mix.
Miscellaneous sources cover the remaining 13%.
An investment in your child’s future
First, let’s review the basics.
Early planning makes a difference. Can you start as soon as your child or grandchild is born? If so, the power of compounding works in your favor.
For example, if you save $250 per month for 18 years and earn 6% annually, your savings will grow to about $97,000 when the child turns 18.
However, waiting until age 9 slashes the balance to just under $35,000 by age 18.
Using the parameters in our example, doubling the period almost triples the balance.
The lesson is simple: take advantage of the power of compounded growth. But let me also stress that even if you didn’t start saving shortly after your child or grandchild was born, that 9-year-old in our example above has resources to help defray costs.