The Mortgage Porter

My son will be entering high school next year.  I really can’t believe it.  If all goes as it should, he’ll be in college in four years!  I did start a 529 account for him a few years ago…much later than I should have, but I’m thankful that we have it.   

Yesterday,  Ben Bernanke said…a "key observation is that over the past few decades, the real wage of workers with more years of formal education have increased more quickly than those of workers with fewer years of formal education.  For example, in 1979 – median earnings for workers with a Bachelor’s or higher degree were 38% more than those of high-school graduates with no college experience; last year, the difference was 75%." 

Do you have children that you’re planning to help finance their college tuition?  I would love it if my son receives a full scholarship…however, I certainly can’t depend on that.   Salary.com has an useful college tuition calculator for crunching tuition dollars.

For example, assuming your child attends a public in-state college with a tuition, room & board of approx. $12000 per year (factoring in tuition inflation).  Both scenarios are using a return of 6% on the investments.

Scenario A:   Future college bound student is currently 3 years old.  Total est. tuition cost to be saved:  $101,500.   Here are some options:

• Start investing $384 per month for 15 years, or
• Do a lump sum today in the amount of $44,850, or
• Lump sum today in the amount of $15,700 plus $250 per month for 15 years.

Scenario B:  Future High School freshman, currently 14 years old (gulp).  Total estimated tuition cost to be saved to go to the same college as Scenario A:  $62,850 (less time for inflation).   Here are the same options:

• Start investing $1,200 per month for 4 years, or
• Do a lump sum today in the amount of $50,000, or
• Do a lump sum today in the amount of $39,400 and $250 per month for four years.

If $250 seems like a bit too much to part with, you may want to consider meeting with your Mortgage Planner and/or Financial Planner in order to review your current debt structure.   A 529 is just one option.  I like it for my scenario because the money I put in grows tax free.   And…I tell my son that if he doesn’t go to  college, I will select one of my nieces or nephews to be a benefactor!  Funny how that motivates him.  And, I don’t HAVE to do this…but I want to.  In my profession, I see many first time home buyers buried in student loans…some of the amounts can be staggering.

The bottom line is, the earlier you begin saving and planning for your child’s education, the more funds you will have for furthering their education and it will actually cost less to fund the education.  And…it’s never too late!