money health weekly


College Is Expensive!

Have you seen what's happening to college costs!? It's crazy to think about what I got away with - and that was only (already!) 12 years ago. For the school year that just finished up, the average cost for the year was $9,650 for state residents at public colleges, $24,930 for out-of-state residents going to public colleges, and $33,480 for private colleges!

Students these days seem to be getting more post-graduate degrees, too. So on top of the added cost per year, they've got more years to pay for. Graduates are graduating with mountains of student loan debt these days, some with little hope of ever paying it off. So what are students and parents supposed to do?

Is College Right?

If you're a parent worried about college costs (or even if you're not worried), the first thing you could try is to have a conversation with your children about whether or not college is even the right choice, especially before spending tens of thousands of dollars, or sometimes six-figures! There are more and more jobs that are service-oriented now that don't require college degrees. Some may require technical or trade school but many of them pay very high salaries - and by forgoing college your child will get four to five more years of earnings when compared to those to spend that time in school.

There is no shame in not going to college. Here is a clip of Mike Rowe (host of Dirty Jobs) talking about the opportunity cost of college.

How To Pay For It?

Once you have determined that college is the right choice (keeping in mind that many students who start college don't finish), how do you pay for it? The most efficient answer, unfortunately, is pretty boring - save.

529 Plans

There are a few different vehicles that can be used to fund college savings, but the most efficient and most used is the 529 plan. Like many other plans, 529 comes from the IRS code and we're not very clever when it comes to naming account types.

A 529 is kind of like a Roth IRA, but for college instead of retirement. Here are some features:

  • You (or anyone - parents, grandparents, relatives) can put money into a 529 plan

  • 529 money gets to grow tax free

  • Each state offers their version of a 529 plan

  • You can open a 529 with any state

  • The investments you get to choose from are restricted to those offered by each state

  • The beneficiary (the person who will be going to school) can be changed at any time

  • These assets aren't treated as your child's assets for financial aid purposes

Which State's Plan?

When deciding which state to use, look for plans that offer investment options that allow for global diversification (e.g. a wide range of investments). I prefer those that are passively managed. Look for low cost mutual funds within the offerings (those with low expense ratios).

When considering whether or not to use your state's plan or the plan of a different state, look at whether you get a tax benefit.