If you have children and you hope they will one day go to college, then you are probably already worrying about how you will pay for it. College is expensive—very expensive. According to a new Urban Institute report, adults in their 30s have 21 percent less net worth than 30-somethings did 30 years ago, and a big reason for this is student loan debt. More and more college graduates are entering the work force heavily in debt, and this keeps them from becoming entrepreneurs, from accumulating savings and from spending money—which stimulates the economy—in the same ways their predecessors did.
The cost of attending college goes up every year. In Florida, for example, tuition increases at public universities average between 5 and 15 percent a year. With tuition costs for a four-year college running between $20,000 and $50,000 and even higher, more and more students are forced to turn to loans. It is not uncommon for graduates bachelor’s degrees to start their post-college careers tens of thousands of dollars in debt. If they opt for graduate school, the debt rises even more.
Yet a college degree still appears to be an essential tool for success. According to Georgetown University’s Center on Education and the Workforce, college grads earn 84 percent more than those with only a high school diploma. So college is definitely a good return on the investment, but colleges are not making it easy on parents and students. The fact is that most parents have a difficult time saving money for college, and state prepaid college tuition programs (tax-free tuition savings programs which locked tuition prices for future students) have been shutting down because of insolvency.
And things aren’t getting any better. This summer, Democrats and Republicans in Congress could not reach an agreement on Federal Student Loan interest rates, so rates on student loans jumped from 3.4 percent to 6.4 percent. All the politicians said they wanted to reduce rates on student loans, but they couldn’t agree on how much and how to do it. The losers in this political fight are students, some of whom have monthly loan payments that rival the cost of a traditional mortgage.
Student loan debt is surpassing credit card debt in the U.S. On the average it takes student loan holders nearly two decades to pay off their debt. This means college graduates paying $60,000 in student loans will likely be paying that loan off until they’re in their mid-forties.
To prepare for the cost of college, parents should begin saving early. This is easier said than done, but every little bit counts. A tax-free college savings program is a good idea. Putting between $20 to $100 a month into the savings program will help defer the cost of college. Most likely it will not pay the total cost, but it will help a lot. Your child, too, has to start thinking ahead, sad as that may seem. Encourage his academic excellence, and between his scholarships and awards and your savings, his student loan debt can be kept to a minimum.