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College fund planning. Every parent has wild dreams of hoping to make their child’s upbringing a little better than their own. It is natural to strive for this and is noble as well, as long as you are not sacrificing your own retirement, otherwise we are just trading one problem for another.
Over the past week, I’ve been taking some time to go over some research about how much our family is going to need to send our 3 and a half year old and our 1 and a half year old to college when they hit 18. I thought I would share some of my finds and hopefully alert you to some of the crazy insights I’ve gained since starting out.
College Fund Planning is Expensive
My first impressions were that I couldn’t believe the cost that the College Fund Planning Calculators I used were coming up with! College is getting increasingly expensive, given the track record that it has gone up the past 15 years. If we stay on that same track, it’s going to continue to be a major hurdle for any family if you don’t plan for it or if the costs of college continues to grow that the average rate of over 6% that most calculators are expecting.
Inflation Is Exploding The Cost
You have probably heard your parents talk about how the cost was much smaller when they went to school and that was true. Inflation hasn’t stopped and although we are seeing rates about the same as 2000 in our area, the cost has gone up tremendously since 1996, and this is for a community college.
Doing the same comparison for the main in-state public college here in Illinois results in this whopping graph:
Again, you can see the cost of tuition exploding. This helped me come to the unfortunate conclusion that those college funding calculators were probably correct, although the numbers seemed just astronomical.
With College Fund Planning, the Sooner We Start, the More We Will Have
This point is obvious, but is worth mentioning. For our family, we have received a nice blessing of an inheritance from a family member and are putting a very nice chunk of it into good growth stock mutual funds to help get these funds started. As it stands, we are still working to fully fund baby step 4 (15% of our gross going towards our retirement) and are working to build up our investments before we start ongoing college funding.
Obviously, the sooner we are able to start funding the college fund, the more growth it will accrue and have for us. One of the things we are going to do is use a 529 college savings plan so that we can take advantage of tax free growth for the funds we have set aside for our kiddos to start going to college.
The Difference Between Community College and a Public School Is BIG!
One of the biggest things is how much the difference in cost is between community college and public college can be. When we ran the numbers for community college, it estimated that we were going to need roughly $178,000 for our two girls to go to college versus the more than $500,000 that it was estimating us to need for a 4 year public in-state college.
College tuition is going to be a big hurdle for any family, but we, as parents, do need to remember that our retirement comes first since it’s a privilege to go to college, but retirement is not optional. One of the things we have been doing is showing our extended family the costs that we are going to be saving for and explaining why we are asking them to pitch into the college fund rather than just buying that toy each year for birthdays, holidays and other special occasions. If they help, it gets us closer to that goal, if not, we will continue to save as much as we can to get closer to being fully funded.
What are your thoughts about college costs and how much you will need to save for your kids?
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