Friday, October 30, 2009

The Cost & Rewards of A College Education

Part 1 - Education Pays

It should come as no surprise to a parent that the cost of sending a child to college is an expense which continues to rise year over year. The average annual total tuition and fees at four-year public colleges and universities in 2009-10 are $6,585. Throw in room and board and the total cost climbs to $14,333. This is 6.4% higher than they were in 2007-08. As staggering as this annual increase seems, it is significantly smaller than in preceding years. This 6.4% increase follows increases of 13% in 2003-04, 10% in 2004-05, and 7.1% in 2005-06.

How does the cost at a four-year private college compare? Average total charges, including tuition, room and board, and fees are $34,132 for 2008-09. This is 5.6% higher than last year, and has been the average over the preceding three years.

Come graduation day, the typical parent will have spent almost $58,000 for public universities and $137,000 for private or out-of-state universities.

However, to most Americans the skyrocketing cost of sending a child to college seems to overshadow the long-term benefits of a college education. Numerous studies have been done indicating a direct relationship between the level of education an individual receives and that individual’s earnings potential. These studies show that, monetarily, a college education is an investment that pays off over a lifetime. In 2008, the typical full-time worker with a four-year college degree earned $50,856. This is 65% more than the $30,732 earned by a full-time worker with only a high school diploma. A worker with a master’s degree earned over twice as much, $63,856, as the high school graduate. In fact, the earnings gap for college graduates versus high school graduates is estimated to exceed $1 million over an individual’s lifetime.

The information contained in this report attempts to summarize the various savings vehicles and college funding options available to most Americans today. While the costs to attend college may be imposing for many families, the costs associated with not going to college are likely to be much greater.


How Are Parents Saving Today?

A recent Gallup survey commissioned by Sallie Mae revealed that three-quarters (75%) of the 1,200 parents surveyed thought it was "highly likely" their children would be attending some form of higher education after high school. Of this group of parents, 62% (but only 32% among those with household income below $35,000) of them have saved or invested for college.

The survey found that only 33% of parents are investing in 529 savings plans, and only 20% of households earning $150,000 or more are taking advantage of them. A majority (59%) used savings, money market accounts, or CDs while 41% saved with stocks or bonds. 35% of those not saving for college anticipate scholarships or financial aid to cover the cost.


Estimated 2009-10 College Costs for Selected Colleges

Below are total costs for some of the top universities in the United States, as ranked by U.S. News & World Report. These figures represent the total cost of sending a Texas-resident student to each school for the 2009-10 school year, including tuition, room and board, fees, books, and miscellaneous expenses.

For colleges in Texas:

Public Universities:
University of Texas - $25,284
Texas A&M University - $20,531
Texas Tech University - $18,464
University of Houston - $16,418
Stephen F. Austin University - $11,360

Private Universities:
Rice University - $45,685
Southern Methodist Univ. - $43,295
Baylor University - $42,898
University of St. Thomas - $30,906
St. Mary’s University - $30,266


Other colleges in the United States:

Exclusive Universities:

Stanford University - $53,652
Harvard University - $52,000
Brown University - $50,560
Dartmouth College - $49,974
Princeton University - $49,190

Private Universities:
Georgetown University - $55,130
Vanderbilt University - $54,718
Northwestern University - $53,608
Tulane University - $52,240
Notre Dame University - $51,300


Public Universities (Non-TX):
UCLA - $46,420
University of Michigan - $44,797
Miami (OH) University - $41,864
University of Colorado - $38,365
Louisiana State University - $22,195


With college costs increasing at alarming rates, advanced planning is required to make these costs affordable for your children and/or grandchildren. Time and the power of compounding are your most valuable assets.

In the coming weeks, I will be posting more information on the various savings vehicles parents should be aware of, including 529 Plans, Coverdell Savings, Education Savings Bonds, and UTMA/UGMA accounts. Other topics will follow, including the basics of financial aid, tax incentives available for educational expenses, and programs designed specifically for members of the military. Please check back regularly for more updates. Better yet, click on 'Follow' on the home page to be notified when items are posted to this blog.

1 comment:

  1. Hey Matt! Great article. I'm trying to figure out what my son and daughter will cost me. I'm assuming 7% annual rise. For my son, he'll be going to college in about 10 years. If I did the math right, will it basically double between now and then?! And my daughter is a year behind him. I'm thinking it will be about an extra $2000 a year on top of that. Tell me my math is way off and highly exaggerated!!

    ReplyDelete