College tuition continues to skyrocket, outpacing most other expenses today. In state, out-of-state and private college tuitions have seen increases in the 25% or more range in the last 25 years. If you haven’t started saving for your child or children’s college tuition, time is of the essence. According to recent reports, in-state tuition for a public 4-year college averages nearly $9,000 per year. This figure does not include housing, personal expenses, books or lab fees. For a 4-year degree, expect to spend $36,000 in tuition and nearly that amount in other expenses.
Without a substantial college tuition savings account, it is difficult for many families to write that check. This does not even take into account that many private colleges and universities charge substantially more. Harvard University, for example, has tuition of $43,938 per year, plus room and board at nearly $15,000 per year and estimated expenses of nearly $4,000, leaving a per year cost commitment of nearly $70,000 or nearly $300,000 per 4-year degree program. But, all hope is not lost. You can start saving now.
Stock Market
When your child is young, you can choose more risky investments, including a substantial stock portfolio. Stocks can perform well over the long-term, feeding the college fund to pay for your child’s advanced education. An investment portfolio with stocks can help to build substantial savings. However, it is important to remember, that stock investing is not for investors that need substantial returns quickly. As your child moves closer to college age, you can move the investment to less risk investments, including the bond market and mutual funds.
Mutual Funds
Believe it or not, with the last decade’s rise and fall of mutual funds, there are still many that are outpacing the rate of growth in college tuition. Mutual funds are managed by investment professionals and do not require your active participation, like holding individual stocks. As with any investment, there is always risk and diversification of your college savings portfolio is essential. Over the last decade, a few A class mutual funds have shown strong growth. These include Virtus (Emerging Market) Prudential Jennison Health Sciences, Invesco International Small Company and many others according to Troy Onink a contributor for Forbes Magazine.
529 College Savings Plans
Specific states and educational institutions offer 529 savings plans to assist families with future college tuition and fees. The important thing to consider is institution eligibility. Not all colleges and universities participate with each 529 savings plan, so it is essential that you select wisely. 529 plans are beneficial because as your investment in the fund grows, you are free of federal taxation. Many states also offer tax breaks and deductions for participation. In addition, as the donor of the account, you control the funds. This means that you can decide when funds are used and for what purpose.
This also means that you can reclaim these funds,
at any time, however, the money will then be subjected to taxing and possible penalties.
Any way you slice it, the cost of sending your child to college is getting more and more expensive every year. By the time your student reaches college age, make sure that you have sufficient funds to cover education. However, do not forget that student loans, grants and scholarships are available. You do not necessarily have to save the entire estimated cost of college tuition, nor is it recommended. To help determine your best avenues for future financial success, consult with a professional accountant that can help you select the best financial strategies for your future.
