Most people look at the price of a college degree as an expense, like the electric or cable bill. But what if you looked at it as an investment? According to the U.S. Census Bureau, in the year 2009, the average male college graduate, aged 25-34, earned 85% more than the average male who completed only high school or had a General Education Development (GED) certificate. Among women the same age, college graduates earned 111% more than non-graduates.
So, how will you finance this investment?
Pay as you go.
Your child could help pay for college by getting a job, but he’ll already juggle studies and and other college activities. Even a part-time job might detract from his primary focus of getting an education.
You can also plan to pay college expenses out of your future income, but you should understand that doing so might require substantial cutbacks in other areas of your family budget.
Pay later.
Some might suggest that you approach college tuition as you would buying a home – borrow the money to pay for college and simply repay the debt with higher earnings after graduation. Though many parents see advantages in having children contribute to their education expenses, a college education can be as costly as buying a home. How many parents want their children to start out with such substantial debt?
Find someone to help pay.
Scholarships and grants are the ideal financial aid. They don’t have to be paid back. But according to the College Board, less than $50 billion of the $165 billion in federal financial aid for the 2013-14 school year came in the form of grants, while over $95 billion was loans. (The rest was federal work-study and the value of education tax benefits.) The states, employers, private organizations, and colleges themselves provided an additional $74 billion in scholarships and grants in 2013-14.
Save now for more freedom and more choice later.
Saving now is the best way to ensure that you have options later. After all, you would like your child to select a college that offers the best education…and not necessarily the best financial aid.
Many strategies and investment vehicles are available to help you maximize your college savings. For each option, you should consider key characteristics such as risk of financial loss, ease of account management, and tax implications.