When we had our first kid, we knew that we wanted to start saving for college immediately. This led us straight down a rabbit hole with questions like, “How much should we save a month?”, which then turns into “How much is college going to cost in 2030?”, which (after the shock wears off) leads to, “What savings vehicles/plans do we use to save this much?” which inevitably ends in the question that seems to stir the most controversy in our social circles “How much should we as parents pay for?”
How much should WE pay for?
Originally Mr. SSC and I were coming from different angles. Mr. SSC had to pay for his entire education himself (well, I helped pay off over $40k in loans when we got married), so he thought college should be 100% or mostly put on the kids. Thankfully, he’s changed his mind since then. I always thought we should pay for a good portion of their college. This was based on my experience- as my parents were able to pay for some of my tuition, and then I had to take out student loans.
Taking out student loans, was for me, a good experience. Being a teenager, I had no desire to go to the state university where I grew up, and so I chose a private university. Even back in the ‘90s the cost was upwards of $25k/year. While I was rebellious, I was also moderately intelligent and didn’t want massive loans (especially since I was originally thinking of majoring in Religion, not Physics). So, I decided to graduate in 3 years by taking my non-major coursework at a local in-state college during the summer and transferring them to my pricey university. This helped me cut out $25k of potential loans. I also was an RA, TA, and tutor, which helped with costs. Ideally, we are hoping our children are more like me than Mr. SSC. For more back story on his student loan issues – check out this post.
Eventually, we both decided that we would aim to pay for 50% of an in-state university because 1) we have the means to save for the kids’ education, and 2) the kids need to have some skin in the game, after all it’s their future. Not having any skin in the game was the main reason that Mr. SSC took so long to graduate -he had his first few years covered with Pell grants. He stayed undeclared and took a lot of electives that were interesting and developed his intellectual side more, generally added nothing towards a degree except an overabundance of electives. He graduated with over 200 hrs. for an undergraduate degree for goodness sakes. For perspective, the average is ~120 hrs for an undergraduate degree…
We have many friends who disagree with our 50% goal. They want to save 100% for their kids. Heck, I even have co-workers who are still working because they want to pay for all their grandkids college educations. Ridiculous. Plus, I could also go on an entire rant about my issues with higher education, inflating costs (and grades), and how a Bachelors is hardly more than a glorified high school degree nowadays in some fields, but I won’t….
How much will college cost in 2030?
Ahh… the most difficult question. This is where we found some online calculators to solve this riddle! We looked at a few – they are easy to find.
Here is one from Fidelity that suggests college for our son at an in-state public institution will be ~$140,000. Here is another by American Funds that suggests it will be more around $226,000 if the cost of college inflates at 6%. Obviously, these calculators are not crystal balls, and we have no idea if college costs are going to continue to increase at the ridiculous rates they do now. I like to keep things simple, since there is no magic formula, and so I’ve settled that college will cost around $180,000 per kid, and since we want to save enough to pay for half – we need to invest enough to have around $80-100k per kid by 2030.
How much should we save a month?
OK, so here is where I consult my trusty spreadsheet. Ahhh… I love Excel. If you don’t love excel as much as me, don’t worry, there are lots of online calculators to help you with this too. The only difference for people like us, is that we are going to stop funding this when we hit our FI around 2018. However, we may still add more through the years as holiday gifts, and my parents tend to give us a little $$ for the 529s on occasion, but for practical matters, we will stop contributing at 2018. You can see in the chart that we have saved aggressively the first couple years, mostly by using our bonuses to help front-load the accounts, and currently, we save $400/month/kid. Using a 6% growth assumption, we should get close to $90k in each account when they head off to college.
We use 529s through Vanguard for our college savings accounts. Picking a 529 is a whole other topic that could be a whole separate post. Since you don’t have to invest in the 529 in the state in which you live, you get to shop around and find one that benefits you and your situation best. For instance, some states have tax benefits for saving in 529s (Texas has no state income tax, so no benefit for us). I primarily consulted Morningstar’s 529 rankings, but there are websites out there that let you compare plans as well. This site has some good starter info and questions that could get the ball rolling for you, and a lot of tools and calculators as well. FYI- we’re not affiliated with them at all and they are but one source you could consult.
Lastly, the other thing we try to keep in mind is a good perspective. If we aren’t accurate in our predictions and assumptions, no biggie, life will go on. Maybe college costs will get reasonable by then and we may need less, maybe our kids decide they want to do something that they don’t need a degree for, and want to learn a trade instead. Just maybe, our personal retirement investments will grow more than expected and we can contribute more to college than just the 529s. Time will tell.
To sum it up
If you read our posts – you can see that I tend to try and keep things simple and not over-think and over-analyze. We have no way of knowing the future. For us, right now we save $400/month in the 529s, and that should give the kids enough of a boost to help them with their education. But, honestly, an education is what you make of it – and teaching our kids to value education is more important than worrying too much about if we should save $200 or $225 a month or can cover all or just some of their education.
Also, there are amazing free and almost free online courses available (I’ve been taking them the last few semesters from edX just for fun), and community and local colleges can often offer better quality education than mega- universities, particularly for required non-major courses in a liberal arts education.
At this point in time, I plan on advising my kids to go to a local or community school the first year – take non-major requirements and some electives, have fun, explore, and figure out what they want to study. I spent my first year figuring out if I wanted to study religion, biology, or physics, and then I realized I was best suited for engineering – which was not offered at my school. Mr. SSC ended up taking time off to hike the Appalachian Trail in the middle of his Bachelors work just to figure out what he wanted to do in school, or if he even wanted to be there at all. Sometimes I think we push kids too quickly to grow up and pick their careers and maybe that is why we search for a way to escape the 9 to 5… We see life as a career ladder to climb, always looking for more money and recognition, instead of taking time to figure out what brings us happiness before we start down a path that is difficult to exit.
So that is our plan! What are your plans for your kids?