How to Overcome the College Funding Challenge

Every generation wants to provide their kids with as much (or more) quality education as they received. That’s because people believe that a good education is necessary for a better life. In fact, on average, a college degree will result in higher earnings. According to the Bureau of Labor Statistics, individuals with a bachelor’s degree earn 66% more than those with only a high school diploma.

Earnings by Educational Attainment

But while seeking to provide your children with the most optimal education is admirable, you also have to face the reality of rising education costs and the amount of money it will take to accomplish this goal. There aren’t one size fits all solutions that families can use as plug and play options. Each family’s journey is unique and reflects an educational philosophy, the reality of their cash flow, and a realistic assessment of financial resources.

To combat this, we have formulated a process that incorporates the four Ps of higher education that includes: preparing, planning, prioritizing, and persevering.

Preparing

While preparation is the key to achieving any financial goal, it’s especially true when it comes to college funding.

First, you have to assess whether you have the background and expertise necessary to take on such a complex challenge. If not, you may want to reach out to a financial advisor because they can help you determine the cost of your goals, advise you on how to achieve those goals, and help you navigate the investment landscape along the way.

Next, you have to determine how much a child’s education will cost in today’s dollars and how much those costs may increase in the future. In the chart below, we identify the three most common types of four-year educational institutions, private, public out-of-state (non-resident), and in-state (resident), and the average estimated full-time undergraduate budgets associated with each. The additional costs above tuition, such as housing and food, books and supplies, transportation, and other expenses, are similar to that of owning a car. At first blush, people think they’ll need funds to simply buy the car but quickly realize that it becomes costly when the variables of insurance, repairs, and gas are added to the equation.

According to a recent College Ave survey, nearly 90% of parents agree that a college degree is important for their child’s future, but only 44% felt ready to pay for the first tuition bill when their child graduated from high school. It’s important to gather information in the early stages. Nearly all parents surveyed expected to help their child pay for college and will use a mix of methods, including:

Source: 2024 College Ave Survey.

Planning

However, less than half of all parents in the survey had a plan to cover the full cost of college before their child enrolled in college. Perhaps this is why most parents find paying for college stressful and the aforementioned costs are much higher than expected. Many parents think of saving for their child’s college costs at birth, but other costs such as their own student loans and the overarching costs of caring for a child often get in the way. Reviewing your employer’s 529 plan, researching a Coverdell education savings account, gauging the interest of the child’s grandparents or relatives in participating/contributing, and contacting a financial advisor are great initial steps to take in the college planning journey.

Forbes suggests that you save about a third of future college costs, or about the full cost of a college education the year the child was born. This works out to be about:

• $250 a month for an in-state four-year public college
• $450 a month for an out-of-state four-year public college
• $550 a month for a four-year private college

Prioritizing

Once you’ve prepared and planned, and set an actionable foundation, it’s time to prioritize. Young couples are often still paying off their own student loans and their parents are trying to fund their retirement. Because there are many moving parts, the approach you take and how you prioritize your options requires flexibility and a balancing of various activities. For instance, the choice to fund either a 529 plan or a Coverdell education savings account (ESA) is often confusing since there are a number of key differences.

Keep in mind that college savings accounts can impact your eligibility for financial aid, though the impact is generally limited when calculating the Student Aid Index (SAI), which is used as a basis for issuing financial aid. Prioritizing the inclusion of a learned professional can help you avoid the many nuances and pitfalls inherent with the college financial experience.

Persevering

You’ve calculated your goal, and you know what you need to do to achieve it. Your challenge is to calmly and consciously remain committed to achieving the goal, month after month, year after year. Financial goals are achieved by people who persevere. You want to remain up to date on education funding laws and options, or work with a savvy professional. You want to regularly invest and stay invested through thick and thin despite changes in your life. You want to focus on your goals regardless of the changes, challenges or discouragement you face.

You can solve the education funding puzzle and achieve your higher education goal by preparing, planning, prioritizing, and persevering through any and all challenges.