Wealth Management Insights
      Do you know how your children will pay for college?
    May 2011
As high school seniors celebrate graduation, many of their parents are thinking about the large bills that will accompany the start of college in the fall. While a number of schools have already announced 2011–2012 tuition increases that are smaller than their historical averages, the price is still rising at a time when most household incomes are not. Meanwhile, inflation could hike the real cost – including room and board – even higher.
What you should know:
1.
College is one of the largest investments most individuals make.

However it is funded, higher education is a substantial expense for any family. For the 2010–2011 academic year, published averages for tuition, fees, room and board combined were:

    • $16,140 for in-state students at a public, four-year institution (up 6.1% from 2009–2010)1
    • $28,130 for out-of-state students at a public, four-year institution (up 5.6%)
Some of this can be attributed to state budget constraints in the wake of recent economic turmoil, but private non-profit four-year colleges also saw tuition increase to $36,993 (up 4.3%).1 It is worth noting that these increases occurred at a time when the general rate of inflation, which can directly impact the cost of living, was not as large a concern for most people as it has become today.
2.
 Future tuition increases are something you can count on.

Regardless of the state of the economy or the rate of inflation, the cost of college tuition alone has increased annually by an average of 3% at private schools1 and 5.6% at public colleges and universities over the past decade. The chart on the next page shows projected annual tuition costs at private and public schools, assuming similar increases through 2021.

Annual Cost of College
3.
 Federal student aid is available.

Recent reforms to lending have made federal aid more accessible to many lower-income families, opening the door to need-based grants and low-interest loans. However, income restrictions can disqualify the children of some middle-class families. Regardless of circumstances, it is recommended that you or your child fill out the Free Applications for Federal Student Aid (FAFSA). Forms are available at fafsa.ed.gov .

    • The deadline to submit the form is the end of June for the current school year (so if your child is already in college, you can still fill out an FAFSA for 2010–2011 and submit it by June 30).
    • Contact your child’s school for information about other aid opportunities and deadlines.
4.
 May is “529 Month.”

State-sponsored 529 plans provide a tax-advantaged way to set aside money for the cost of a child’s education while taking full advantage of compounding over time.

    • Family and friends are all free to make contributions, which can qualify them for an income tax deduction in many states.
    • Accelerated gifting techniques for 529 plans offer the option for donors to maximize their contributions in a single year.
    • Earnings grow tax-deferred and are not subject to federal tax on withdrawals used for qualified higher education expenses.
What you should do now:

A child’s education is an important investment and a subject worth doing your homework on. Investigate your financial aid options and talk to your financial advisor about opening a 529 savings plan for the future college graduate in your life.

1Trends in College Pricing 2010 (The College Board)

Investors should consider the investment objectives, risks, charges and expenses associated with a 529 plan before investing. This and other information is available in a plan’s official statement. The official statement should be read carefully before investing.

Depending on your state of residence, there may be an in-state plan that provides tax and other benefits not available through an out-of-state plan. Before investing in any state’s 529 plan, you should consult your tax adviser.

 

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