Did you know that families whose children will someday go to college start saving earlier if they include their children in funding conversations? So concludes Fidelity’s seventh-annual College Savings Indicator study, conducted by independent research firm Research Data Technology.
Ninety-three percent of families who include their children at a young age (under 10) started saving for college. Of those who reported not talking with their children about college at all, only 58 percent started saving for college.
The families who engaged their children are on to something.
The truth behind making college affordable, like any other major expense, is planning - which requires preparation. The sooner you start, the better.
What do you need to know?
First, you have pricing options. A private college will cost more than a public in-state college. A commuter will save money over an on-campus student.
If you add together tuition, room and board, fees, books, supplies, transportation and other expenses, the average cost of earning a bachelor’s degree from a private college is about $43,000 per year, compared with about $22,000 for an in-state public college, according to the 2012-2013 College Board’s Annual Survey of Colleges.
Second (this may surprise you), you don’t need to pay full price. There is a difference between "sticker price" and the actual cost, which is called "net price" by the College Board.
Tuition and fees average $8,660 a year for a four-year public college, but the average net price is $2,910. The net price is the price "the average family really pays," says the College Board. The average sticker price for a private four-year college is $29,060, but the average net price is $13,380. These are figures for full-time, first-time students in 2012-13.
Third, "gift aid" makes up the difference between sticker price and net price. Gift aid is money awarded based on financial need or academic achievement — grants and scholarships from different sources, such as federal and state government, private sources and colleges themselves — and does not have to be repaid. In 2011-2012, gift aid totaled $112 billion.
You can see why parents need to start preparing college-bound children in more ways than one — and they need to start early, ideally before the children reach age 10.
You don’t want the alternative, which is leaving things until age 17, when college road trips begin in earnest. Procrastinating can lead to last-minute Band-Aids, such as loans. It also can lead to decisions based on personal preferences (campus location or size of the student body), instead of value.
To get started, parents should really think about what they expect the child to get out of college. To get a degree? To get the next level of socialization? To help prepare for a fulfilling and successful career?
This process will help the child crystallize goals and career possibilities, while identifying strengths and interests that will open up grant opportunities. More importantly, the child can experience firsthand how preparation can lead to success, a valuable life lesson.
Here are some helpful tools to use in the process.
To get a sense of future costs, you can use Fidelity’s college planner (go to www.fidelity.com and search for "college planner"). Using the tool as a starting point helps put the goal in sight. For example, a baby born in 2013 will go to college in 2031 through 2035. If she plans to study at Harvard, the four-year sticker price will come to $526,000.
To learn more about college costs, see http://tinyurl.com/n2mgxqv. For information on grants and scholarships, go to http://tinyurl.com/kb6jbyk. A good resource for college funding is http://tinyurl.com/k4ox6v3. To figure net price, use the calculator at http://studentnpc.collegeboard.org/.
Make a stop at Fidelity’s College Savings Resource Center at www.fidelity.com/college, where you’ll find a wealth of information on cost, planning, funding, and saving. As Keith Bernhardt, vice president of college planning at Fidelity, says, preparation is the key.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments (firstname.lastname@example.org).
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