This Is How Much You Should Save For Your Kid's College

With the families I work with, a common early financial planning question I get is:

“Are we saving enough to put Junior through college?… is $50/month sufficient?”

It’s funny how common this question is, even down to the dollar amount.

My first question back to them is:

“Tell me about your college experience. Who paid for it? What do you think are your responsibilities?”

There are a variety of responses to this, but usually align with one of the following:

• “I came out with debt, and I don’t want my kids to carry that burden.”

• “My parents paid for (much of) my college, and I am super thankful.”

• “I put myself through school, and the experience made me who I am … and I want that for my kids.”

  Where do you fit on that spectrum? Do both partners agree?

My second question is, how old are your kids?

College usually is planned to start when they reach 18. So this number will determine the time frame for saving.

Then we get into a few subjective areas

The parents’ college education is indicative of their kid’s future college experience. If you went to an Ivy League college, and you have a MD/PhD, your kids are likely to follow a similar path. On the other hand, if you and your spouse got liberal arts degrees from a state school your kids will, in all likelihood, follow a different path than the MD/PhD kids.

This data will help me model the proper yearly college expenses.

Harvard current yearly expenses: $71,000

Harvard yearly expenses in 10 years: $127,000

Ga Tech current yearly price: $28,000

Ga Tech expenses in 10 years: $50,000

Find stats for your college here.

The last few subjective areas are: What is your current income (and capability to pay as you go) and are you “saver”.

At this point, we have the basics we need to start putting together a college savings plan.

The Basics for a College Savings Plan

• Your thoughts on paying for college

• Where you went to school and the type of degree = where your kid will likely go

• How long until the bill is due

• The approach to saving/paying for school

I typically advise clients to start with saving for two years worth of college expenses, and to think about using a standard in-state college tuition rate. There are a number of factors that have led me to this advice:

• The kids may not go to college

• They could get HOPE scholarship money

• College could be free in the future

• The kids may take an alternate route than their parents

• You don’t want to have all of this money tied up in an account that makes it difficult to access

That gives you a number: (Ga Tech 10 years out *2) = ~$80-100k

After you have wrapped your head around that big number, its time to add the additional factors from your own situation.

Lets say that you want to plan for 2 years of a top tier private school: (Harvard 10 years out * 2) = ~$250k

As the kids get closer to high school graduation, the muddy picture of their college future will begin to clear up. As the picture becomes more clear, the next planning steps will also become more clear.

The investment vehicle for college savings

You want a 529. A married couple can add ~$30k/year. You add money after tax. However the growth of the account is not taxed, if withdrawals are made for college expenses. The state of GA offers a small tax break for using the GA 529 program. If you live in a state that does not offer a tax break (like FLA, since they don’t collect state taxes), the VA plan gets high marks. If you need any help setting up these accounts, I can help.

The accounts should be in YOUR NAME,

with your child as the beneficiary.

I also recommend forwarding deposit information to your parents and other family members. In years to come, your kids will appreciate their college being paid for, much more than Poe’s x-wing lego set.

Josh’s College Saving Recommendations:

• Talk to your kids about this. They need to understand how much college costs.

• Children need to understand the value of their degree and future job prospects.

• Take them to college campus’ sooner than later … start when they are in middle school or freshmen. Don’t wait until they are seniors. The more colleges they see, the sooner kids will gain a better understanding of what they want from their college experience. And that means you will have a better picture of how much you should be saving for college.

How to Pick a College That's Worth the Expense

Picking a college is one of the most important early decisions one can make.  Its arguably the most important decision (other than choosing a suitable mate) in determining the trajectory of someones future.  Money Magazine published a thoughtful analysis on the Top 25 List of the Best Colleges that graduates are likely "able to avoid heavy debt and succeed in the workplace".

Yes, my alma mater, Ga Tech is ranked 19th!!  Tech has long been ranked one of the best values in college.  I like how this article expands the data to include the ability to quickly escape the heavy burden of debt.

Have questions on how to help your kids limit their debt burden due to college expenses?  Call or email Josh.