Prepare yourself. $20,298. That’s Virginia’s average in-state cost for one year of college (tuition and room and board). If the average annual cost increase remains the same as the current 6.8 percent, in ten years, the price tag for a year of higher education at a 4-year institution will be $39,189.
If you’re a parent who plans on helping a child with college costs, that figure might have given you a headache. Being smart about college costs can go a long way toward easing the financial burden. Consider these areas:
1. School Choice It should come as no surprise that there is a huge range in cost from one school to the next. For the 2014-2015 school year, the total cost to attend William & Mary was $28,000, compared to $16,176 at Norfolk State. What might be surprising is that the undergraduate degree one earns does not necessarily equate to career success. According to Where You Go Is Not Who You’ll Be by Frank Bruni, of the chief executives at the top one hundred companies in the Fortune 500, only thirty went to an Ivy League school or equally selective college.
2. Scholarships, Grants, and Financial Aid There is a lot more merit-based aid available today than need-based aid. Merit-based aid is available for students who are well above the entrance requirements for a given school. When a college admissions board sees an applicant who will improve the school’s academic standing, in most cases they will subsidize a portion of tuition.
3. Student Loans Be careful about this one. Sixty percent of Virginia’s graduates come out of college with student loan debt greater than $25,000. Consider that only 14 percent of last year’s college seniors had steady, career-type jobs lined up after graduation (according to a 2015 poll conducted by AfterCollege).
4. Prepaid Tuition Plans Virginia allows families to prepay a portion of future college costs and mandatory fees at Virginia public colleges and universities. Benefits are not limited to public schools in Virginia, but the payouts are different based on the type of school attended. For more information, visit virginia529.com.
5. Savings Vehicles The most popular college savings plan is the 529 plan, mainly due to the tax advantages. Earnings inside 529 plans are excluded for income tax purposes as long as the money is used to pay for qualified higher education expenses. However, if the money is not used for college costs, then the tax advantage is lost. Also important to note are the underlying investments inside a 529 plan, which are typically large mutual funds. As many families realized in 2008, a perfectly designed plan can come up short because of timing and market conditions. An under utilized, and equally efficient college savings vehicle is permanent, high cash-value life insurance. When structured properly, life insurance can provide two different avenues with which to pay for college. If a parent dies prematurely, then the life insurance policy can provide a lump sum of cash for a child’s education. If a parent lives to see a child go to college, then the savings portion inside the life insurance policy can provide similar tax advantages to a 529 plan, without the requirement of using the funds for higher education costs only. This means that if there is still money in the policy after the child graduates, or the child never attends college, the parent can still have access to the growth on a tax-excluded basis for their own enjoyment or retirement. There may also be an opportunity, depending on the life insurance policy, to borrow money from the insurance company at a lower rate than what the cash is earning inside the policy.