Only a few short months to go and many of us will be filling out those FAFSA and CSS PROFILE forms and thinking about how much we should have saved. But if you’re a little further from judgment day than I am, let me suggest that the way to eat the elephant is one bite at a time. Or divide the elephant up into three large chunks…
Let’s just assume that you won’t qualify for one penny in aid, and Junior hasn’t been offered any scholarship money at all.
Student contributions—the first chunk
Yup, I said the first chunk. If your kid isn’t willing to invest in his education, why should you? Let’s work with some nice round figures here to make it all easier to calculate. Say four years at Ivy U. costs $60,000/year. Yes, I know that colleges aren’t quite up to that yet, but wait a month or two and we will be. So, four years is going to cost at least $240,000—probably more, with college cost inflation at 6%, but let’s just go with the $240K for purposes of illustration.
Now, I firmly believe that any student, even one whose parents have no problem footing the bills, should be paying something. Not only does it tend to cut out some of the late night booze and barf parties, but it also makes the kid a better consumer. No kid who is working hard enough to come up with $20K a year is going to shell it out for classes in Bowling 101, or tolerate a professor who doesn’t show up for class. As an aside, when I was putting myself through college and grad school, I used to calculate how much each individual class session was costing me, and ask myself if I would put that much money in a meter (had there been one outside the classroom)—did I get as much value from the class as it would take me to earn that much money? Sharpens your focus, no?
So, is it possible for little Jason or Jennifer to earn $20K? Let’s see—15 hours per week for 36 weeks at $10/hour equals $5,400. Then, there’s, say, two weeks at Christmas where you could theoretically work full time—35 hours x 2 weeks x $10=$700. That leaves 14 weeks for summer break. Let’s give Junior a two week vacation. 12 weeks x $10/hour x 35 hours=$4,200. Junior now has $10,300. Sure, I know Junior will probably spend some of this, or taxes will grab a chunk, but then again, Junior probably could hold down 20 hours during school (I used to work 32 hours and take 18 hours a semester as an undergrad. But then, I didn’t have any choice—no one else was paying.) With a little attention to skill development and early hustling, he might be able to nail a job paying a little more. Maybe Jason can mow a few lawns in high school?
We’ve got a deficit here of $9,700/year. It’s grant or loan time. $38,800 will need to be borrowed by Jennifer over four years. Maybe that film or speech major isn’t looking so great right about now. But, under my principal of only borrowing up to what you can expect to make your first year out, I think this is doable. The average starting salary for a college grad in 2011 is about $50,000, according to CNNMoney. Round numbers here, don’t forget. And gosh, if you’re forking over $60K a year for Ivy U., you ought to be able to get a job with at least an average salary. Good questions for the admissions and career services officers.
There are worse things than graduating with 4 years of work experience, a cultivated eye for the bottom line, and some consumer smarts. Some people don’t learn that until they’re 40, if then.
Savings—the second chunk
The next $80,000 should come from savings. I’m not going to go through the growth vs. inflation of the four years of college—you’ll need to come see me for that level of specificity. Let’s just say you want $80,000 “in the bank” by the time Jennifer is ready to move into the dorms. Say you didn’t get religion until she was 10 years old, giving you 8 years to come up with the $80,000. Let’s be conservative and assume a 4% rate of return on your investments. You need to save $8,682/year or about $708/month. (Not figuring inflation—round numbers, remember?) Get going earlier, say when Jason was 5, and you can cut that down to about $4,811/year. I don’t think this is unreasonable—if you’re making enough money that you won’t qualify for any aid at all, you’re making enough to stash this amount of cash. Worst case scenario is you’re grossing at least $130,000/year. At more than $10K a month, it’s reasonable to think you could save less than $400 per month (it’s less than 4% of your gross).
Repeat to yourself as often as needed, “I will not skimp on my retirement savings to fund this.” If you get to this point, it’s time to think about a cheaper college.
Payment from current parental income—the third chunk
$20,000 is around $1,667 per month. Okay, you’re already used to saving $400-$800 per month toward the education, right? Now, Junior isn’t going to be eating at home—say $250 per month in savings right there, maybe more. Gassing the car once a week @ $50=$200. No more music lessons, math tutor, SAT test prep course—well, you get the picture. Most parents don’t stop to think that while they’re paying for the kid at college, they don’t have the kid vacuuming out the refrigerator with 20 of their closest hungry friends at home.
These aren’t authoritative figures and they don’t take into account your particular situation—more than one child at home, no savings, child who takes more than 4 years to complete (oh no!). That’s what individual college financial planning is for–you know, that’s the stuff I do. This is just a suggestion of how to think about dividing and conquering, without the feelings of overwhelm and panic that hit parents toward the beginning of senior year.
