Giving Your Kids or Grandkids a Good Financial Start

Sobering Stats

According to statistics released annually by the College Board, college tuition has been rising significantly faster than the general rate of inflation—nearly six percent per year faster. The average cost of one year of tuition and fees at an in-state, four-year public college now tops $8,200, which is more than 8% higher than it was for the 2010-11 school year. When you add room and board, the total average annual cost exceeds $17,000, which is 6% higher than it was a year ago.*

Recently, the headlines were full of news about the potential doubling of the interest rate on federal student loans, which brought the issue of student loan debt to the forefront. The amount of student loans taken out last year exceeded $100 billion for the first time in history, and total outstanding student loan debt is expected to exceed $1 trillion this year, which is more than total credit card debt in the U.S.**

Full-time undergraduate students now borrow an average $4,963 a year, which is 63 percent more than 10 years ago (adjusted for inflation), reports the College Board. About two-thirds of college students now graduate with student loan debt, which averages about $25,000.

Is It Worth It?

Not surprisingly, some Americans are now questioning whether a college degree is still worth the cost. While every individual and situation is unique, the latest statistics reveal that college graduates do earn more money on average than high-school graduates who don’t go to college.

According to the U.S. Census Bureau, a college graduate with a bachelor’s degree earns an average of $51,206 a year, while a high school graduate without a college degree earns only $27,915 a year—barely half as much. For advanced college degrees, the average annual salary jumps all the way up to $74,602.

Based on these numbers, a college degree could remain a worthwhile investment for many students. This makes a college education fund one of the best “gifts” that parents and grandparents can give their children and grandchildren.

Excessive student loan debt can be like a financial millstone around the necks of college graduates for many years—even decades. Establishing a college education fund for your children or grandchildren when they are young, and contributing money to the account on a consistent basis year after year, is one way you can help them get off to the best possible financial start in their lives.

College Savings Vehicles

The good news is that there is a wide variety of education savings vehicles available to help you build up a college savings fund. These include Section 529 plans, Coverdell Education Savings Accounts (ESAs), Zero Coupon Municipal Bonds, and even Roth IRAs, which can be used to save for both retirement and college simultaneously.

The key is to establish a college savings fund and start contributing to it as soon as possible—in elementary school, pre-school or even right after the child is born. Doing so will help increase the chances that you can save enough money to possible pay for your child’s or grandchild’s college education in full—and save him or her from having to shoulder a mountain of student loan debt after graduation.

For help in determining how much money you may need to save for your children’s or grandchildren’s college educations, check out the David Lerner Associates Education Planner by visiting http://www.davidlerner.com/education-planner.aspx.

*Source: The College Board, Trends in College Pricing

**Federal Reserve Bank of New York