The True Cost of 529 Investing
Paying for a Degree in the Future: A New Real-World Dilemma
Are you drowning in student debt?
I know that college is freaking expensive, and if you are paying for a degree, then you know it, too!
If it is expensive now, what will it be like in the future? Is it going to be possible for your children to earn a degree in the future?
College costs are rising so the question is how do you afford it? How do you save for it?
Let’s see if we can shed some light on this increasingly confusing question and some other frequently asked questions!
Then & Now
We know that the cost of college has been increasing faster than the rate of inflation. Let me give you a concrete example: I met my wife at the University of San Diego, where I received a Bachelor’s degree and a couple of Master’s degrees.
Education was expensive back then, but not near as pricey as now!
Let me break down the current expenditure of paying for a degree at USD per year:
- Tuition: $47,000
- Books: $2,000
- Other living expenses: $3,000
- Room and board/dorms: $13,000
The grand total per year:
A four-year degree total:
Now let me give you some real perspective!
My wife, Taylor and I graduated with our bachelor’s degrees in 2006.
The cost of paying for a degree has been more than the 5% increase that we would normally assume for books, tuitions, living expenses, and living accommodations.
In my opinion, the costs of paying for a degree can’t keep increasing this fast. It doesn’t match up with wage growth or the value for what you are getting.
Now and 2024
Let’s jump ahead and look at an estimate of the cost of paying for a degree at the University of San Diego (USD) in the year 2024.
What if the cost appreciated 5% more?
- Tuition: $89,000 per year
What is an estimate for the total of your education?
Paying for a degree would increase to another hundred thousand dollars in five years…and finishing in nine years!
Are you thinking what I’m thinking?
Yes,that is insane.
Leap into the Future: 2029
What if your child enrolled in 2029? What would be the cost of paying for a degree then?
We are looking at an average of
- $114,000 per year
Your four-year degree would cost you:
Bounding into the Future
What if your child enrolled 15 years from now, and completed their education in 2038? Is paying for a degree going to be possible?
- The four year total would be $586,000.
What if you were enrolling in 2037, and finishing in 2041?
- The average cost of saving for a private school for 18 years (starting with nothing as a newborn): $170,000 average, per year
- Your grand total for a private four-year degree (including books, tuition, living expenses): $675,000
Just take a minute to image the possibility of how paying for a degree in our college education system is growing exponentially.
It’s hard for me to imagine that paying for a degree is going to get even more difficult. I don’t understand how a four-year degree would be worth it.
I also don’t think wage growth would even cover the increasing cost of paying for a degree.
Future students that are paying for a degree would be going into massive amounts of debt–and that’s for jobs that are going to pay next to nothing.
Your Newborn in 18 Years
Let’s imagine you have a newborn.
You have 18 years to save for his college career. Paying for a degree seems very far into the future. Right now the college savings fund sits at zero. However, you plan to open a 529 account.
You’ll need to start saving $1,250 per month for a four-year degree (per kid).
Do you plan to have two children? Three?
The 529 College Savings Account
Which state do you live in?
There are differences in this college fund depending on your state. Some states get deductions, while other states don’t get any tax benefits.
There are a lot of different plans to choose from, and you are free to choose which state you want to use. However, paying for a degree will still be tricky.
I’d like to insert a disclaimer here: personal finances are personal.
We plan to help our children when they start paying for a degree. Since I’ve made my disclaimer, I can explain how we are planning ahead to help our children fund their college education.
If you were to compare Utah to other states, you’d see that some of the others have insane fees built-in. There are advisors who put their clients into plans that charge up to 1.5%.
An example that we’ve seen is people with several hundred thousand dollars in their 529 are paying the advisor $2,000 to $3,000, to manage the account that is in an age-based investment.
In addition to our 529 college fund, we use the firm CollegeBacker, which is an interesting concept, because it is similar to crowdfunding.
You can check it out at financialresidency.com/collegebacker. This link will take you to our co-branded landing page, where you can find out more or open an account for your child.
After you sign up, you’ll be given a link.
The link is an easy way for family and friends to give cash gifts anytime, so think about those special occasions, such as birthdays, Christmas or high school graduation.
It can make paying for a degree a family affair!
I think I’ve illustrated that paying for a degree is an expensive pursuit (multiplied by the number of children).
That means your first priority is taking care of your retirement. You can put the debt on paying for a degree, including medical school, but you can’t do that for retirement.
So make sure your retirement plans are solid, then help your children if you are able.
That’s what paying for a degree in the future will look like.
I’m always blown away when I look at the numbers, and can’t believe how expensive it is. Something will definitely have to change so that paying for a degree doesn’t become an unreasonable option in the future.
There’s a lot of money out there to help degree seekers. However, you’re probably going to take on some debt, as well.
Let us know your thoughts on the cost of paying for a degree.
What are your plans?