Parents today are being given a "heads up" about saving for college for their children. Fidelity Investments has, as one of its products, a 529 College Savings Plan. When figuring the amount of money that should be put into that savings plan, Fidelity took a look at both public and private colleges. They assumed a 5.4% annual rise in tuition and costs over the next 18 years and also conservatively figured, based on income groups, how much would be forthcoming in family graduation gifts, scholarships and grants. All of this is in an effort to avoid what is happening now: parents are projected to be able to meet a much smaller percentage of college costs than in the past. Please note that these costs do not include transportation or health care as these are not considered qualified 529 expenditures. Fidelity estimated that these costs would be between $1,750 and $2,500 per year and that parents might want to save for these expenses in a separate account, such as a savings account in their own name, rather than the name of the student. New health care laws somewhat help as you can now cover a child living at home until age 26, but that doesn't help if your child attends an out-of-state college.
So, if you make $55,000 a year, you will have to save $48,000 to cover the qualified costs in a public university and $107,000 to cover the same costs in a private university. If you make $75,000 the numbers jump to $51,000 and $115,000 for public or private universities, respectively. It goes up even more for those making $100,000, to $55,000 for a public school and $123,000 for a private one. The numbers can be staggering, yes, but wouldn't you rather be forewarned than realize 10 years from now that you should have been saving a lot more money? If you are able to do this, in any way, shape or form, this will alleviate the necessity for your child(ren) to take out additional school loans in order to get that college degree.
To make it easier, Fidelity has broken it down even further and has provided their recommended amounts. Most of their 529 account holders range in the $55,000 to $100,000 income range, but these percentages can be applied to whatever your income is.
If you make up to $55,000 a year, you should be saving 3.5% of your income for a public college and 9% of your income for a private university. At an income of exactly $55,000, that equates to $160 a month for a public school and $410 a month for a private one. Between $55,000 and $75,000 that percentage drops a bit to 3% for public and 6.5% for private, equaling $190 a month for public and $410 a month for private. As you can see, the percentage only drops because you are making a larger income and for a private university you will probably have the same financial aids available to you as someone making $55,000. Between $75,000 and $100,000 there is little change for a public school, still saving at a rate of 3% of your income, but the savings amount recommended for a private school will be 5.5%.
Kind of daunting, isn't it? Unfortunately, there may come a time when qualifying for student loans will be as difficult as qualifying for a mortgage or car loan today. Student loans are defaulted upon at an alarming rate, especially with a 9.5% unemployment rate. It is hoped that the economy will be in much better shape when your children enter college, but there are no guarantees. You don't know what life will be like 18, 15 or even 10 years from now. We can hope that times will be easier and that our children will not be struggling as we are right now, but the bail outs and the stimulus plans have pretty much put our children in danger of paying for this debt long after we are gone.
Doesn't it make sense to do what you can do today to hedge against an unpredictable future? If you are able to, saving in a 529, or similar type of account may be an insurance policy for your child(ren)'s future. And don't let the numbers above scare you to death. Saving something is definitely better than saving nothing. Your child(ren) will thank you for your foresight and sacrifice.
Joe has a couple of kids in college and a couple more that will no doubt go to college too. For now though, his younger boys are playing in the garden with their Dad, a favorite family pastime. Joe lives in the country and does most of his shopping online at Garden Harvest Supply. They have everything from organic vegetable seeds to a rat zapper; everything he could possibly need for his home and garden.
No comments:
Post a Comment