It is no secret that college is expensive, whether your student chooses public or private, in-state or out-of-state. College costs are increasing since the last century, including tuition, room, board, textbooks, and more. With these cost increases, students are looking to their parents for help, and their parents are answering the call. But how are parents preparing financially for their children’s college education?
Average College Costs
Although it is clear that college is expensive, what are the expenses and their respective realistic costs to attend college? An article by US News, “See the Average College Tuition in 2021-2022”, shares that the average tuition and fees at ranked colleges cost $38,185 for private colleges, $22,698 for public out-of-state colleges, and $10,338 for public in-state colleges for the 2021-2022 school year. While the pandemic caused a slight drop in college costs during the 2020-2021 school year, because many colleges shut down their dormitories, the 2021-2022 school year tuition rates at public and private schools have increased at least 2% since the pandemic, according to the US News article “What You Need to Know About College Tuition Costs”.
How Are Parents Paying For College?
Aside from the “sticker” prices themselves, during the 2020-2021 school year, families spent $26,373 on average college costs, according to the survey, “2021: How America Pays for College”. Parental income and savings accounts for, on average, 53% of college costs, with scholarships and grants, borrowing, and relatives trail behind at 25%, 20%, and 2% respectively.
Parents are proving it is better to financially plan for your child’s college education with 56% of families making student loan payments while their child is in school, an increase of 10% from the 2019-2020 school year. The pandemic forced many families to plan ahead and become smarter with their money, contributing to more and more families planning to pay for all years of their child’s college education, not only make payments while their student attends school. The percentage of families planning to pay for all years of college for their child jumped from 44% in the 2018-2019 school year to 58% in the 2020-2021 school year.
How Do You Plan and Budget for College Costs?
Planning is the name of the game when it comes to finances, and what better way to plan than to find a financial advisor to help. Advisors can help map out your future expenses, like your retirement income and insurance planning, even how to budget in your student’s college expenses. Naviplan offers features like cash flow planning to accurately plan your incomes against your expenses; and scenario analysis to create apples to apples realistic future scenarios to analyze your goals and better prepare for your financial future.
When it comes to budgeting, most parents dedicate a portion of their income and savings to their children’s college costs. In the “2021: How America Pays for College” survey: 23% of parents’ income on average is for their children’s college costs, while 22% comes from parental savings, and 9% from parents borrowing the money. Parents are becoming financially smarter for their children, shown by 22% of college costs being paid for by parental savings alone.
In addition, FAFSA is still essential to the college cost budget game. FAFSA® stands for Free Application for Federal Student Aid, a federal program that offers federal student aid based on the parent’s income. While there was a peak of 86% of families applying for FAFSA in the 2016-2017 school year, that percentage has declined to 68% for the 2020-2021 school year. Most families believed they wouldn’t qualify for financial aid, simply missed the deadline, or did not want to spend the amount of time it took to complete the application. There is a potential to miss out on thousands of dollars in financial aid if you do not, at least, apply!
In the end, getting in contact with your financial advisor or getting a financial advisor is a great way to financially plan for your child’s college education and make sure the other areas of your financial life are taken care of. For instance, asset allocation, tax planning, and more.
Financial advisors, contact us today to learn more about our financial planning software.
A Little Something for the Parents of Graduates: Current Status of Student Loans
For those who have graduated and are wondering how they might pay off their student loans (it’s just a tad late to plan), the Covid crisis led to student loan deferral. The federal government placed a nationwide hold on student loan interest accrual and payments starting in March of 2020 and has now extended this loan forbearance through May 1st of 2022, according to the “COVID-19 Emergency Relief and Federal Student Aid” article by Federal Student Aid. There is even a pause on collections of defaulted loans for eligible loans.