If you have kids, one of the biggest financial worries you'll
ever face is how to pay the ever-growing cost of a college
education. With all the considerations involved in preparing to
pay for college
, you almost have to become an expert in order to figure out
everything you need to know.
Getting the facts
To give you a sense of the magnitude of college financial planning,
here are just a few of the issues you'll face between now and
- When and how much money should you start setting aside for
your child's college expenses?
What type of accounts
should you use to stash your college savings?
- What investments should you make, and how should those
investments change as your child grows?
- How should you balance your own financial needs with those of
- What steps should you take to maximize financial aid?
- Should your child take
, and if so, which kind are the best?
Over the next several weeks, we'll take a closer look at all of
these questions and more, in an effort to give you the knowledge
you need to make the best decisions for your child. As an
introduction, though, it's helpful to get a sense of just how big a
commitment providing for your child's college education can be.
The rising cost of college
Anyone who thinks deflation is right around the corner hasn't paid
a tuition bill lately. According to figures from the College Board,
the cost of tuition and room and board at private universities has
risen at a 5% annual rate since the 2006-07 school year. Public
colleges have seen an even bigger increase, approaching 6%. And for
those hoping to give their child an Ivy League education, the
current bill for four years will exceed $200,000.
With that much money involved, it's no surprise that education
has become a big business. For-profit educational institutions have
turned into big revenue generators, with
(Nasdaq: APOL) and its University of Phoenix leading the way with
$4.8 billion in total revenue and around 80,000 graduates during
the past four years. Competitors
(Nasdaq: COCO) ,
) , and
ITT Educational Services
) all grossed at least $1 billion in sales over the past 12 months.
And all but Corinthian have maintained double-digit profit margins
on those revenues.
The business of helping families with college financial issues
has also become quite lucrative. You'll find Fidelity,
) Franklin Templeton among the many investment managers overseeing
investments for popular
. And of course,
Bank of America
) , and a host of other money-center banks offer a variety of
student loans for those who need help covering their tuition.
How to start
With all those competing players, one of the biggest difficulties
is figuring out how to begin. What you'll find, though, is that the
most important thing you can do is to start putting money aside as
early as you can. Even if competing priorities limit the amount you
can save for college, every little bit is a small amount less that
you won't have to come up with later. And while investing that
money wisely is essential, you shouldn't let uncertainty about the
best investment for your child to get in the way of starting a
savings program today.
Saving for college is a daunting prospect for any parent. With
courage and discipline, though, you
put together a financial plan that will get you through one of the
most costly expenses you'll ever pay -- and give your child a gift
that will pay dividends for decades to come.
Stay tuned each Wednesday in September and October as Dan
goes through the ins and outs of saving and paying for
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has five years down and 13 to go for his daughter's college
savings. He doesn't own shares of the companies mentioned.
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