Sending your kids to college can be a financial planning nightmare for parents. But a college education is important, so we at DadLabs offer a few strategies on how to pay for tuition and other school expenses.
College Saving Tips for Dads DadLabs.com Building Better Dads Klein: Hey there Daddy Brad what are you up to? Brad: Daddy Clive I’m counting some numbers and I come up with a conclusion in order to insure the financial success of my kids in the future I’m not going to send them to college. Klein: Well that’s smart, idiot. What are you talking about? You got to send your kids to college? Brad: I don’t know consider this. The College Board says that a B.A essentially will help you double your earning power over your lifetime working that’s about you know a million bucks average. Klein: A million bucks there you go. Brad: Sounds good. Klein: Done deal. Brad: Yeah sounds good but its going to cost me $200,000 to send my kid to a private college. Take the $200,000 invest it in a mutual fund and then when my boy turns 18 I’m going to send him off to the great -- university by the time he retires for making those toasty tasty sandwiches he’s going to have a cool $5.8 million waiting for him. I mean even adjusted for inflation stock market out performs college. Klein: Well that’s just a silly argument, really I know you’re trying to be funny because if you think about any great successful people and you know they’ve all— you know Michael Dowe or you know LeBron James or that guy who did Microsoft. Brad: Is that Bill? Klein: No, didn’t go to college either. Brad: My point exactly. Klein: It sucks. A few beers later… Klein: So clearly a college education for your children is not just about the money. It’s not about them getting a fancy job or a nice house its really about the experience because a college education… Brad: Bullshit! Sorry. Klein: …is not a commodity. It’s about creating… Brad: -- sorry I had something stuck in my throat like a bill for 250 grand. Klein: Okay buddy Brad we get it. It’s expensive duh? So that’s why you have to talk about your philosophy and your values before you set out to create a strategy about how to pay for college. Brad: I value $250,000. Klein: Value is a good college education for your children more important than a few extra square feet in your house or a fancier car. Brad: Not getting a connection here daddy Clive. Klein: Or for example you want to give your child a choice when she’s in the college of their dreams. Brad: Absolutely you know my kids can go to any college they want as long as it has Austin Community College in the title right there. Klein: And how comfortable do you feel with your children having some debt after college? Brad: Comfortable as a mole in a gofer hole. Klein: This is actually a parenting expertise site like we give advice I don’t know if you have picked up on that but that’s kind of what we do. Brad: Yeah giving good advice. Klein: Okay so maybe its time for us to build a financial model for you to pay for college. Brad: Absolutely. Klein: You know your kids are going to see this. Brad: See it I’m going to show it to them dude. They need to know. Klein: Oh yeah. Brad: Hear on ugly numbers. Current tuition average tuition at a public schools $5800, private colleges and university $22,000. Now you add in living expenses, books. You need books also travel expenses will start spinning that wheel. Let’s assume that you have a 5% average annual tuition increase each year. Say you want to send your 9 year old to a private college you’re going to need $200,000. How about your 5 year old most together the public you’re going to need another $100,000 and then your 3 year old well they want to go too private university that’s going to cost you up to $250,000. Now you add all those up and that comes up to $550,000 that’s a lot of money. Klein: You know I’ve got a 9-year-old and a 5-year-old and a 3-year-old. Brad: You do. Klein: It’s kind of funny how you— Brad: Yeah well you know but daddy Klein it’s not just about the money. You know college is not a commodity. Klein: Dude you want to look out for that giant calculator. Brad: What? Klein: So let’s take the $200,000 that’s going to cost me and send my 4th grader to college in a few years and break it down. First, let’s go ahead and take 10% of the top because nobody pays sticker price for college anymore. That’s because if you have a 4,600 degree granting institutions in this country only a tiny percentage has competitive admissions. The rest of you schools are out there chasing qualified students with grants and scholarships. 10% is pretty average numbered so let’s just assume we’re going to take that right off the top. For the rest parents have got to come up with savings, current income and loans. Sorry about the whole giant calculator squishing your guts out. Brad: Don’t worry about it. Okay for simplicities sake lets assume a third, a third and a third. Klien: So with our $200,000 private tuition minus our 10% discount that’s 60/60 and 60. Now let’s start with current income. This is the amount of tuition that you pay out of your annual salary $60,000, $15,000 a year for college now it sounds like a lot but think about this. How much do you pay for day care, okay, so you assume an annual increase of 5% and really college doesn’t cost anything more than day care. Brad: Interesting. Most colleges call for a financial aide but a lot of this is in the form of loans which you have to pay back by the way. Klein: Right. Brad: Let’s say you need $60,000 and the average kid graduates with dead of about $20,000 today until you split it with good for him to have some skin in the game. You get the low interest government loans and you cover yours with private plus notes. Well, $30,000 so that’s $371 a month over the next 10 years. Klien: That’s what you owe? Brad: Yeah. Klein: Okay so we’ve got the current income and we’ve got the loans so now savings. We need to have 60,000 in savings. How do you save $60,000 it’s a lot. Let’s assume a 7% compound return on our investment, we’ve got 18 years to save that means you need to sock away $160 a month from the month your baby is born. Brad: I’m never going to have to eat again. Klein: So you can take that money and you could put it into a 529 fund. There’s some good tax benefit here that also limits your flexibility which may actually be a good thing particularly if you’re like brad. Brad: Tables gone. Klein: Anybody want to go to Vegas? Brad: Oh I do. When do we go? Klein: Oh yeah let’s go. Brad: Let’s get on. Roll it baby! Klein: Let me get this straight its like 160 bucks a month from the time the kid is born $15,000 a year for 4 years and then $371 a month for 10 years. I think we explained that. Brad: Don’t you have 3 kids? Klein: God I hate you. Why do I do this with you? Brad: Here are a few things to remember, before you start saving always, pay off higher interest debt before you start saving and conventional wisdom says its easier for a 20-year-old to retire a debt than it is for a 50 year old who is cramming for retirement. Klein: So you can go off and smoke dope and read Chuck Hoollis novels and— Brad: Chuck who? Klein: Meet girls. Brad: Yeah girls. Well that’s all for us here at the Dad Labs. Klein: You know what Chuck – he’s a novelist dude. Brad: Brother Bear. Klein: I don’t read. Brad: You said earlier 500 companies. Klein: There’s more CDOs that went to small state colleges in the Ivy League. Brad: Huh interesting. Klein: That shows schools are much better at making criminals. Brad: You went to the Ivy League didn’t you? Klein: Kiss my ass look what it got us. Brad: Yeah.