College Planning
By: Ronald W. Rogé, MS, CFP® and Christine Parisi,CFP®, www.rwroge.com
My staffand I were eating lunch together in the office, as we often do. Jeff Roberto,our Director of Portfolio Operations and Administration, who is the father ofthree children, thanked me for giving him an article on how much it costs toraise a child these days: about $1 million, according to the calculations usedin this analysis.
The conversationquickly turned to the cost of a college education. I said to one of ourplanners, Christine Parisi-who recently became a mom-that you could probably think of a college-savingprogram as a 22-year car payment, since saving for a newborn's collegeeducation from birth is the equivalent of making 22 years of car payments,assuming the child enters college at age 18.
Withthis thought in mind, Christine crunched some numbers for her daughter Emily,who was born in December. She used cost of attending a private college today,approximately $40,000 a year, as her baseline assumption. Christine alsofactored in a 6% rate of inflation (the historical average for college tuitioninflation) and an 8% return on investments. She then repeated the calculation butwith a $20,000-a-year public college education as the alternate factor.
Thetable shows the results.
To meetthe expense of a typical private college, one can make an initial investment of$113,248, or one can make a monthly payment of $872 for 22 years.
For apublic college, the numbers are less daunting but still a challenge: a lump suminvestment of $56,624 at birth or monthly payments of $436 per month for 22years.
ThenChristine decided to have some "fun" with our colleague Jeff. She ran the numbersfor his three children-ages twelve, nine, and seven-for both private and publicschools. His monthly savings number for the next 14 years is $1,894 for publiccollege or $3,789 for a private college. The poor fellow was understandably ina state of shock. "What's a family with three children to do?" asked Jeff."Hope? Hope for scholarships, I guess."
Christinepointed out that, as car payments go, these numbers are in Porsche and Maseratiterritory. For many American families who have more than one child, thesefigures are perhaps out of reach.
Let'snot even consider graduate school payments.
Helpful Strategy
Copingwith responsibilities of this magnitude requires serious long-term planning.The bottom line is that the sooner you start a focused savings program, thebetter off you'll be-not only financially, but also in terms of your peace ofmind.
Inaddition to savings, we counsel our younger clients who are buying a home totake a 15-year mortgage rather than a conventional 30-year note. The idea is tohave the mortgage paid off by the time the first child enters college. It alsomeans equity in your home can be tapped for college funding.
If youimplement a timely and realistically structured tuition savings program, youmight be pleasantly surprised when the time comes to send your future NobelPrize winners to college. You'll have assets accumulated, equity in your home,and maybe your little wizard will conjure up a scholarship or two.
