Facing College Costs

August 8, 2015

2015-August-Client-Bulletin-1How much does it cost to send a child to college now? For the 2014–2015 academic year, the College Board puts the average cost of tuition, fees and room and board at private nonprofit four-year schools at over $42,000. The College Board estimates other expenses (including books, supplies and transportation) at $4,000–$5,000. Thus, sending your child away to a private institution costs an average of around $47,000 this year; at universities considered “elite,” the total tab is generally well over $60,000. Those numbers likely will be even higher in the 2015–2016 school year, and they will certainly be higher for youngsters entering college in the future.

Parents of collegians can reduce their concerns a bit by considering the College Board’s report on “net prices.” These prices are determined by subtracting grant aid (reductions in direct college costs) and education tax benefits (savings from tax deductions and credits related to higher education). As reported by the College Board, such reductions bring down the cost at private institutions from the published price of $42,000+ to a net price of $23,000+. Including the other expenses mentioned previously, sending your child to a private university might cost “only” $28,000 a year, rather than $47,000.

Be aware, though, that the net price offsets will vary enormously from family to family. The higher your net worth and your income, the less need-based grant aid your student is likely to receive. The higher your income, the smaller your tax savings from education tax breaks, many of which have income-based phaseouts. Our office can help you determine how much relief you can expect from grants and tax benefits.

Higher and lower

The numbers mentioned previously in this article are national averages. Therefore, at some schools, the total cost will be much higher, whereas others will have much lower costs. Regional differences can be huge. According to the College Board, total costs for private institutions in New England are well over $50,000 a year, yet costs average less than $40,000 in the South, Southwest and West.

Moreover, all of those figures are for private colleges and universities. Costs come down dramatically when you send your children to public institutions. The College Board puts the average total cost for in-state students at four-year public colleges and universities at just over $23,000: about half the cost of private schools. After grants and tax benefits, the net price at these public institutions is under $13,000 a year. At two-year public colleges, including community colleges, costs are even lower.

Charting a course

Even relatively modest costs for higher education can be daunting for many families. Therefore, parents should consider starting college funds for their children as early as possible. Creating a designated account for higher education may help you avoid “dipping in” for other purposes.

Under the federal formula, a family is more likely to qualify for need-based financial aid if savings and investment accounts are held by the parent, rather than in the student’s name. For example, a parent might be the owner of a 529 college savings plan, with the child as the beneficiary. Such plans, offered by nearly all states and some private firms, can generate tax-free investment earnings to pay college bills.

Once children are finishing their high school careers, it may make sense to apply to multiple colleges— some more expensive than others.
Private and public institutions could be in the mix. If students are interested, applications to virtually no-cost military academies and Reserve Officers’ Training Corps (ROTC) program scholarships also might be included, along with other specialty schools.

Accomplished youngsters may receive more than one college acceptance, allowing the family to decide among the various opportunities. Published costs, net of any aid and tax benefits, might not be the main reason for making a decision, but they also should not be ignored. Everyone—students and parents—should have a reasonable idea of how the costs will be covered.

Keep in mind that your child’s first college might not be his or her last place for higher education. Your youngster might start at a less expensive institution and wind up graduating from or getting a postgraduate degree from a more prestigious college or university.
Regardless of a student’s path through higher education, it’s possible that family cash flow plus grant aid won’t be able to cover all the expenses that arise. Consequently, as is the case for many, your family may need to explore loans as an option to pay for the desired schooling. Take a look at the article “What You Should Know About Student Loans” in this issue for more information on college funding through student loans.