College Math
After completing (hopefully) our last college tour today, I was reflecting on the process for planning and saving for college for my son, who will be attending in the Fall. The process is definitely not simple or easy - SAT preparation courses / tutors, taking the SAT multiple times (including subject matter tests), filling-out applications for multiple schools and then the angst of waiting to see where you get in. Then there is the depression of rejection, the uncertainty of "waitlist," and the struggle of choosing between the schools that accepted you. It's a roller coaster of emotions, for sure. For your child, it can be the first time in their life where they truly have difficult choices to make.
Walking through the dorms today really brought back memories of my own college experience - both good times (like the parties) and bad times (like doing your laundry in the basement with a hangover and not having enough quarters). There were academic highs and lows too, but for me college was about the people I met and the life skills I learned as much as the classroom work. I would have to say even to this day that my college experience was awesome and I'm really excited for my son to start that journey soon. College was also a relative bargain back when I attended. I went to a state school and had in-state tuition. I calculated that the entire cost of my education over 4.5 years was roughly equivalent to one year today.
The cost of college today is simply staggering. Just the preparation, testing and applications was $3K for us and we did most of it ourselves. But the real sticker shock is the cost to attend. A typical school in the University of California system will set you back about $19K for "cheap" in-state tuition/fees/books and another $16K for room and board - a total of $35K/year. Oh and that's assuming you get in, which turns out is really hard, even for the best California students. Many wind up going out of state. That's about $140K for one child for four years of college, assuming no scholarships or loans are available to help fund their education. The number could easily be double that for out of state / private schools.
Turning back the clock and using our handy compound interest calculator, you would have had to start saving $400 per month when your child was born 18 years ago and earn an average rate of return of 5% in order to have $140K today ($139,680.81 to be precise). If you only earn 2%, your contribution goes up to $550 per month to achieve substantially the same result. For most people, that's the equivalent of a car payment and also makes saving for retirement, or anything else for that matter, at the same time a real challenge. Conventional wisdom is that you should always save for retirement first before saving for college. With inflation, the amount you would have to save in the future could easily be double that of today. Using the calculator again, $140K at a 3% annual inflation rate will be $240K in 18 years. That's the power of compounding working against you.
Fortunately, there are plenty of scholarships and grants available and also student loans to help pay for the cost of education. I believe in the wake of the college admission scandal, there will also be more opportunities generally for kids who work hard themselves to get into college. I also see more opportunities for legitimate athletes to attend college over the next few years and possibly more scholarship money available for them. Even if you aren't able to save the full amount for college, having some money saved is better than nothing.
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