Do you make enough money to pay for your kid’s college education? The actual amount you need to earn may depend on your state.
A new GoBankingRates report analyzed both college costs and the cost of living in each state to determine how much parents need to earn, assuming they have little or no money set aside for the purpose. College costs are based on in-state tuition and fees at four-year public colleges and universities. Living costs include state averages for housing, transportation, utilities, healthcare, groceries, and miscellaneous costs such as savings and discretionary spending.
These are the states where parents would need to earn the most money to juggle the cost of college and living expenses:
On the other hand, these are the states where parents need to earn the least amount of money to live comfortably and also pay for college:
However, many families may not fall within these recommended income categories. What are their options?
While the financial advice provided by our panel of experts may vary, they all agree on the importance of realistically evaluating available options and setting and managing expectations.
Certified financial planner Edward Kohlhepp of Kohlhepp Investment Advisors in Doylestown, Pa., tells GoodCall® that parents need to have a realistic conversation with their child. “Many parents are willing to sacrifice to send their children to college – but be honest, is the child truly ‘college material?’”
And, if the answer is “no,” this is not necessarily a negative assessment. LinkedIn CEO Jeff Weiner recently bemoaned the shortage of skilled workers and remarked that the U.S. is too focused on four-year degrees.
“Might your child be better served by working for a year, gaining maturity, saving some money and getting a clearer idea as to how they may want to spend their future?” Kohlhepp asks. That’s sound advice considering that college grads often second guess their school and degree choice.
He also says parents need to decide whether they’re prepared to spend money that they don’t have to pay tuition and fees. “If so, how will this student loan debt impact their own retirement planning?”
Carrie Braxdale, head of investor services at TD Ameritrade, tells GoodCall® that both teens and their parents are concerned about tuition. A recent TD Ameritrade study reveals the following:
- 36% of teens now favor affordability over reputation when it comes to college.
- 35% are thinking of taking a gap year between high school and college.
- 20% say they may delay college altogether due to expense.
- 63% are saving for their own education as they anticipate paying for their textbooks and living expenses.
- 42% plan on working part-time to help pay for their expenses.
“Though these costs may be stressing teens out, 70% still believe that college is the best way to achieve their career goals,” Braxdale says.
Ironically, the survey reveals that 20% of teens don’t know if their parents are saving for college. “Parents should talk to their kids early and often about the cost of various college options and any savings they may have set aside for them,” Braxdale advises. “If they plan to cover the costs themselves, it is important that they are up-to-the-task financially, keeping retirement costs in mind.”
Students should also be realistic about their work expectations while in school. A recent report reveals that most full-time students cannot work to pay for college anymore.
Set up a 529 plan
“By setting up a college savings plan as early as possible, parents can save an ample amount of money that can be put toward college tuition,” according to Leslie Tayne, who is the founder of Tayne Law Group, a financial/debt attorney and author of Life & Debt. “A 529 college savings plan is typically managed by an investment company and is similar to any other type of savings account,” Tayne explains. And she says that some of the benefits include tax-free accrued interest, a low level of maintenance, and an increased chance of getting financial aid.
Some parents might think they need to earn more than they do to afford to contribute to this type of plan. However, Peg Creonte, senior vice president at Ascensus College Savings, tells GoodCall® that the contributions don’t have to be aggressive. “College savings are built gradually over time at a rate that suits savers’ financial situations.” In fact, she reveals that according to Ascensus data, the vast majority (75%) of contributions were $200 or less.
“Parents don’t have to be able to invest large amounts of money to effectively save – and remember that the goal should be to reduce long-term debt, not cover every penny of college costs.” Creonte says that 89% of accounts had $50,000 or less, and among accounts for kids from the ages of 0 to 5 years old, the average balance is just over $10,000.
But, for some families, $200 might be a financial strain. Deborah Goodkin, managing director of savings plans at First National Bank of Omaha, and program manager for the NEST 529 Plan, tells GoodCall®, “Even adding as little as $50 a month can result in significant savings later on, and can help defray the added cost of having to pay back student loan debt.” She recommends starting to save as soon as possible, but says it’s never too late for parents to start. “Consider your comfort level now, and plan to increase your contributions at key timeframes such as kindergarten, sixth grade and ninth grade.”
Research the availability of scholarships and grants
One way to reduce the need to earn more money is by taking advantage of scholarships. Millions of scholarship dollars go unclaimed each year. “With a boatload of scholarships available for just about anything, students have an excellent opportunity to find a few that may match a multitude of their talents, Tayne says.” And since there are so many various types of scholarships available, she says that garnering a few small scholarships can really add up.
Don’t procrastinate on financial aid forms
What’s more stressful that applying to college? Filling out financial aid forms. As a result, Tayne says parents and teens tend to procrastinate because the process is so tedious. “However, it is important that parents file FASFA forms as early as possible. because the earlier financial aid forms are submitted, the better financial aid packet you are more likely to obtain.”
In addition, she says more money is available at the beginning of the financial aid season, so families should file as soon as possible after Jan. 1. “Students should also send FASFA forms to each college,” Tayne explains. “Each school will see where the student is applying, which may serve as incentive in prompting them to offer better financial aid packages in hopes of persuading students to choose their school.”