By: Ronald W. Rogé, MS, CFP® and Christine Parisi, CFP®, www.rwroge.com
My staff and 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 of three children, thanked me for giving him an article on how much it costs to raise a child these days: about $1 million, according to the calculations used in this analysis.
The conversation quickly turned to the cost of a college education. I said to one of our planners, Christine Parisi -who recently became a mom-that you could probably think of a college-saving program as a 22-year car payment, since saving for a newborn’s college education from birth is the equivalent of making 22 years of car payments, assuming the child enters college at age 18.
With this 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 also factored in a 6% rate of inflation (the historical average for college tuition inflation) and an 8% return on investments. She then repeated the calculation but with a $20,000-a-year public college education as the alternate factor.
The table shows the results.
To meet the 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 a public college, the numbers are less daunting but still a challenge: a lump sum investment of $56,624 at birth or monthly payments of $436 per month for 22years.
Then Christine decided to have some “fun” with our colleague Jeff. She ran the numbers for his three children-ages twelve, nine, and seven-for both private and public schools. His monthly savings number for the next 14 years is $1,894 for public college or $3,789 for a private college. The poor fellow was understandably in a state of shock. “What’s a family with three children to do?” asked Jeff.” Hope? Hope for scholarships, I guess.”
Christine pointed out that, as car payments go, these numbers are in Porsche and Maserati territory. For many American families who have more than one child, these figures are perhaps out of reach.
Let’s not even consider graduate school payments.
Helpful Strategy
Coping with responsibilities of this magnitude requires serious long-term planning.The bottom line is that the sooner you start a focused savings program, the better off you’ll be-not only financially, but also in terms of your peace of mind.
In addition to savings, we counsel our younger clients who are buying a home to take a 15-year mortgage rather than a conventional 30-year note. The idea is to have the mortgage paid off by the time the first child enters college. It also means equity in your home can be tapped for college funding.
If you implement a timely and realistically structured tuition savings program, you might be pleasantly surprised when the time comes to send your future Nobel Prize winners to college. You’ll have assets accumulated, equity in your home,and maybe your little wizard will conjure up a scholarship or two.
College Planning
December 12, 2008
By: Ronald W. Rogé, MS, CFP® and Christine Parisi, CFP®, www.rwroge.com
My staff and 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 of three children, thanked me for giving him an article on how much it costs to raise a child these days: about $1 million, according to the calculations used in this analysis.
The conversation quickly turned to the cost of a college education. I said to one of our planners, Christine Parisi -who recently became a mom-that you could probably think of a college-saving program as a 22-year car payment, since saving for a newborn’s college education from birth is the equivalent of making 22 years of car payments, assuming the child enters college at age 18.
With this 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 also factored in a 6% rate of inflation (the historical average for college tuition inflation) and an 8% return on investments. She then repeated the calculation but with a $20,000-a-year public college education as the alternate factor.
The table shows the results.
To meet the 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 a public college, the numbers are less daunting but still a challenge: a lump sum investment of $56,624 at birth or monthly payments of $436 per month for 22years.
Then Christine decided to have some “fun” with our colleague Jeff. She ran the numbers for his three children-ages twelve, nine, and seven-for both private and public schools. His monthly savings number for the next 14 years is $1,894 for public college or $3,789 for a private college. The poor fellow was understandably in a state of shock. “What’s a family with three children to do?” asked Jeff.” Hope? Hope for scholarships, I guess.”
Christine pointed out that, as car payments go, these numbers are in Porsche and Maserati territory. For many American families who have more than one child, these figures are perhaps out of reach.
Let’s not even consider graduate school payments.
Helpful Strategy
Coping with responsibilities of this magnitude requires serious long-term planning.The bottom line is that the sooner you start a focused savings program, the better off you’ll be-not only financially, but also in terms of your peace of mind.
In addition to savings, we counsel our younger clients who are buying a home to take a 15-year mortgage rather than a conventional 30-year note. The idea is to have the mortgage paid off by the time the first child enters college. It also means equity in your home can be tapped for college funding.
If you implement a timely and realistically structured tuition savings program, you might be pleasantly surprised when the time comes to send your future Nobel Prize winners to college. You’ll have assets accumulated, equity in your home,and maybe your little wizard will conjure up a scholarship or two.