The end of summer can bring mixed emotions. Some parents are eager for their children to head back to school. Others who have kids nearing college age may wish for time to move more slowly.
With higher education costs skyrocketing, families need to understand their options and develop a plan to pay for these upcoming expenses. Here are some helpful tips to get started:
- How much: While inflation costs for most goods and services have averaged 1-3% per year over the past two decades, the cost of a college education has grown 7% per year. Although that inflation rate may not continue, you should assume it will and know how much money you must save to cover tuition costs when your children are expected to begin college.
- No silver bullets: Every college savings vehicle has its shortcomings — income limitations, control limitations, narrow definitions of education expenses. No single solution will address all your education savings needs.
- Competing priorities: For young families, and families with multiple children, saving for education can be particularly challenging. If it becomes a choice between saving for education or saving for retirement, keep in mind that there are resources available to college students that are not available to retirees. Given the choice, your children would likely prefer to shoulder some of their own college costs rather than support a parent in retirement.
- A family affair: You may wish to open a dialogue with relatives concerning your college savings plans. Grandparents often wish to contribute to this goal, and paying for a college education can be a meaningful way to transfer wealth between generations.
At First Republic, we work with our clients through all phases of college preparation — and even help with post-graduate transitions. Your advisor, in conjunction with your tax advisor, can help you sort out your available options available.
©First Republic Investment Management, 2015