How to Pay for College

by: Smith and Howard Wealth Management

It’s never too early to start saving for your child’s college education. In fact, unless you started saving when your child was newborn, you could end up short the funds needed to put her in her first-choice school.

According to the College Board, the average annual cost of tuition and fees at a public, out-of-state, four-year university is $22,958. Add in room and board, and you’re up to around $40,000 per year.  Multiply that by four for each year of school, and then multiply that by the number of kids you have.

It adds up fast – and that’s today’s cost. If your child is years away from attending college, the bad news is the price of higher education is currently increasing at a rate of 8% per year, but the good news is you have more time to save.

Time is Your Greatest Ally

The difference between what you need to save for a one-year-old, versus what’s required for a 10-year-old is substantial.  Start when your child is 10 and it’s necessary to put aside about 340% more per month to reach the funds required to support his trip to a typical four-year, out-of-state public university.

You can see how the proposition of paying for college quickly reveals itself to be alarmingly expensive. Will you have to be a millionaire to put three kids through college by 2030?

Strategies to Defray the Cost of College

Fortunately, in addition to time, you have a few tools at your disposal. Depending on your child’s goals, it may make sense for her to attend community college for the first two years and then transfer to a four-year institution.  These two-year, publicly funded schools are 30-50% less expensive than four-year colleges. Taking this route, a student has the full benefit of graduating from a more prestigious school at a fraction of what it would cost to attend all four years.

Another strategy to cut out-of-pocket college expenditures is to take advantage of free money.  People of means usually assume they won’t qualify, but $2.9 billion in various forms of scholarships and grants are left on the table every year. Check with your child’s university financial aid office and his high school counselor. The College Board’s Scholarship Search Engine is also a good source of information. It allows you to search 2,200 programs totaling nearly $6 billion.

What Your Student Can Do

Getting a job during college has benefits in addition to covering a portion of college expenses. It allows the opportunity for your child to gain work experience, to explore career possibilities, and to go into the post-university job hunt with valuable skills.

Close to 40%of kids going to college don’t graduate within six years, which of course adds substantially to the cost. Students who take full class loads, keep track of graduation requirements, and focus on earning good grades in every course are less likely to need more than four years.

A Few Hope Scholarship Caveats

Our clients who live in the state of Georgia and whose child graduates high school with a 3.0 or higher GPA qualify for the Hope Scholarship. (Other college-bound individuals may qualify as well. Click here to see a more complete description of the requirements).

But beware if you’re counting on this program to fund college: Benefits have been cut, and since 2011, the program no longer pays for books or fees. Further, it covers less than 100% of tuition, with the exact percentage depending on annual state lottery revenues.

And if your student doesn’t maintain her 3.0 GPA once she goes to college, she loses eligibility to receive funds. In fact, only three out of every ten Hope scholars keep the grant until they graduate.

What’s more, by increasing the demand for college education in our state, Hope has also put admission to the University of Georgia and Georgia Tech out of reach for many students. These institutions have become highly competitive with UGA and Tech accepting only 56% and 51% of applicants respectively.

How to Save for College

Savings vehicles to consider include the 529 College Savings Plan and Coverdell Savings Plans. A Roth IRA is another option. The Uniform Gifts to Minors Act (UGMA) allows you to set property aside for your child’s benefit without having to set up a trust fund. Different programs impact financial aid eligibility differently.

But first and foremost in saving for college is to start planning early. For that reason, at Smith and Howard Wealth Management, the question “How much are you saving for your childrens’ college?” is always on the agenda when we begin working with a new client – no matter how young their children are.  The older they get, the harder it is to catch up.

One client we met with recently wanted to be prepared to send their two-month old to an out-of-state, four-year university. We calculated monthly savings required to meet that figure at over $300 per month, a number that exceeds their means today. But going through that exercise, they now understand the importance of saving what they can today and putting away a percentage of salary increases in the future. We’ll work with them to review progress regularly and help evaluate whether their plan is on track.

Planning for College Doesn’t Have to Be Complicated

We can help you sort out the details and make sure your plan makes allowance for all your future financial needs – including retirement. An Atlanta wealth management firm for 15 years, and a top fee-only firm in the nation for two straight years, we’ve served as CFO to hundreds of families. We listen and help them understand what wealth means to them and what they want to accomplish with it.

Please feel free to call (404-874-6244) or send me an email if I can answer any questions about how to pay for college or to help ensure your family is ready for all the future’s financial demands.

© 2015 Smith and Howard Wealth Management. All Rights Reserved. The content and any portion of this newsletter is for personal use only and may not be reprinted, sold or redistributed without the written consent of Smith and Howard Wealth Management. The information and material contained herein is provided solely for general information purposes. Smith and Howard Wealth Management does not make any warranty or representation relating to the accuracy, completeness, or timeliness of any information contained in the newsletter and shall not be liable for any damages of any kind relating to such information nor as to the legal, regulatory, financial or tax implications of the matters referred herein. This material is not intended to be investment advice nor is this information intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue.