College Costs Have Gone Parabolic – What You Can Do Now

by Darwin on July 24, 2011

I’ve been reading about state after state slashing spending budgets because the money simply isn’t there.  Over the past few years, as part of the government bailout of states, banks, automakers, homeowners struggling with mortgages and pretty much anyone else that WASN”T responsible (at the expense of those who were), part of the stimulus spending bill included Billions of dollars in aid to states.  Well, rather than get their ducks in a row, most states immediately blew it, leaving huge year over year gaps in their budgets, forcing huge cuts to spending this year when those federal dollars dried up.  As a result, many state colleges, once known as bargain educational opportunities for in-state students, are now fast approaching the same tuition as private schools.

Here’s just a snapshot of some state school tuition increases this year, compliments of CNN, but I’ve spared you the ridiculous slideshow:

  • Arizona nearly doubling from $5,037 to $10,035.
  • California state schools seeing an increase 40% since 2008.
  • Florida has increased tuition 15% for 3 years in a row now.
  • Washington – 16% increases for state schools
  • Nevada 13% increase
  • …and more.

How to Save for College

There are a few key considerations to make sure you give your children a good shot at college success:

  • Time is on your side (if you start early!) – If you actually start saving upon birth, 17 years is a long time to save to avoid student loans, even if $100,000 in today’s dollars sounds daunting.  However, depending on whether you pick a top 529 plan, how low the fees are, whether you get state tax deductions and whether you do a pre-paid vs an investment plan will all be factors in the outcome.  Personally, I’ve actually been splitting our investments between the investment plans and pre-paid tuition plans because we might continue to see high single digit increases (which the tuition plans are “SUPPOSED” to keep up with) and anything can happen to equities over the next several years.
  • Consider the ROI of the Degree – Parents and kids don’t want to hear this, but the golden age of “anyone can make it in America” is over.  We actually need to compete now.  And that means competing millions of ambitious graduates from other English-speaking countries who want to eat our lunch – and now can, with the connectivity the web brings and an ever-shrinking world.  So, it’s important that there’s a realistic assessment of what kind of money that degree is going to earn upon graduation so they’re not left with college debt for life.
  • Pursue your education online – This is, hands down, one of the best ways you can cut down on college costs. Online schools now offer several degrees that are known to lead to financially rewarding careers, such as an MA in Economics, Strategic Communication, or a Master of Public Administration and Policy. Additionally, you receive 24/7 access to your work as well as constant contact with both instructors and fellow students. Not only are your traveling and housing costs cut down to zero, but the flexible scheduling gives you the opportunity to better yourself at any time in your life, from any location.
  • Set it on Autopilot – Ask yourself, how much would you have in your 401(k) right now if you had to make those payments voluntarily when you saw fit.  Surely not as much as you have in their now.  When money is being automatically deducted from your paycheck or a designated bank account that you keep topped off, you’ll be guaranteed to hit your savings targets (or thereabouts, depending on your investment returns).  But all too often, people think they’ll use a tax refund or a bonus to put toward college savings and it doesn’t happen.  I have steady payments set up coming out of my savings account and I always make sure there’s a few thousand dollars in there to cover a few months’ worth in case I forget to resupply it one month.
  • Know Your Number – I think many people are in denial over what college is going to cost.  I’m working under the assumption that to fully fund a state school education (if the kiddos want to go to a pricey private school or get an MBA, they can share the burden at that point), it will be at least $20,000/year in today’s dollars.  I have 3 kids.  So, we’re talking about a quarter million dollars I have to save.  That’s a house!  So, I have a firm plan set up with my monthly contributions slowly increasing each year and then jumping when my wife finally goes back to work to ensure we hit our goal.  But all this discipline and sacrifice doesn’t mean anything unless you’ve confronted what the anticipated costs will be first.


How Are You Handling College Costs for Your Children?



{ 13 comments… read them below or add one }

Debt Consolidation Nation July 24, 2011 at 11:11 pm

I honestly have no plans of paying for my kids education. If the calcualte the NPV of the degree at the time I think it would work out in their favour anyway.


Darwin July 25, 2011 at 7:51 pm

By “working out in their favor”, do you intend on giving them an equivalent amount to NOT go to college? (I agree, many degrees end up with a negative npv, was just interested in your comment)


101 Centavos July 25, 2011 at 7:38 am

How much of this tuition inflation do you think is caused by easy money of student loans?


Darwin July 25, 2011 at 7:54 pm

Oh, don’t even get me started on that; it’s a giant government money grab where they suck money from the middle class and rich, redistribute it to the poor and lower middle class, and then colleges can charge whatever they want and still be guaranteed to fill their ranks due to government loans and subsidization. There’s no other explanation for 2-3X inflationary increases year over year.


JT July 26, 2011 at 10:18 am

I came to say the same as 101 C. Scholarships, loans, “aid,” etc = massively high price floor.

My solution is to get rid of most subsidies, but at a minimum we should consider future earnings power of any study. The majors in oversupply aren’t leaving any room for niche degrees that result in good earnings, positive social outcomes.

Of course, that’d never happen.


No Debt MBA July 25, 2011 at 9:58 am

A 529 plan or prepaid tuition plan makes more sense than ever. You need all the benefits you can get when trying to foot the bill. Even business school costs, already high, have continued to rise so I’m glad I’ve been living cheap and saving.


Darwin July 25, 2011 at 7:54 pm

I’m making the 529 a top priority (right behind retirement; can’t borrow for that!)


MoneyCone July 25, 2011 at 12:49 pm

The cost of education today is insane! The rate at which this has grown is more than that of healthcare.

At this rate, this is another industry that might get outsourced.


Darwin July 25, 2011 at 7:55 pm

I wish; unfortunately, it would be tough for a “cheap” or overseas education to compete with the name recognition of a top school here. But even state schools are getting outrageous!


Geoff July 25, 2011 at 2:50 pm

I agree with MC, the cost of education is insane. I undertand the value of a good education, but I think there will be a fundamental shift of the definition of a good education over the next 10-20 years. I think the focus will be more on specific skills and trades and 2 years of non-work related liberal arts study will be the thing to go unless you’re pre-mba. That will mean 2 year degrees and trade schools will become the norm.

I’m still planning for my daughter to go to college in 18 years, but I’m minimizing how much I contribute to 529’s just in case she doesn’t (or that shift happens). I think maximizing your Roth first is a much safer bet and then use a 529. Of course you have to have the discipline to dedicate a % of that Roth money to education, but I’m willing to do that.


Darwin July 25, 2011 at 7:56 pm

Agreed, Roth is a little-known gem. You can use those funds later for school OR retirement, whereas a 529 is ONLY for education.


Jeff @ Sustainable Life Blog July 25, 2011 at 4:02 pm

Looking at this wants to make me encourage future children NOT To go to college at all – unless something happens, it just doesnt seem like it’s worth the money. Today in the NYT, they had an article about master’s being the new bachelors degree. The bad part about that is they are specialized and expensive, and the worst part is you cant be positive you can get a job. After my time in school and grad school, I realized I would have rather gone to a tech school for cars, electrician or plumber – basically anything else. Could be the grass is always greener, but it would have saved me a boatload of money


Darwin July 25, 2011 at 7:57 pm

These are all difficult realities today. In the past, you could plan on working in that field; these days, I’d wager 20-30% of college grads or more do nothing related to their undergrad.

There’s something to be said for skilled trades; they do well without the up-front costs (other than perhaps a trade school or community college); however, many people opt to “not go to college”, but then they don’t learn a trade either – they suffer in this economy.


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