Jeff Tjornehoj on "Business for Breakfast" 1060 KRCN Tuesday, August 22, 2006 - Back to School
Q: So Jeff, it's that of year again when the kids start going back to school. And for some parents their kids will be in college before they know it. A: How time flies, right? I did some searching the other day and saw that the College Board says that the average 4-year university--including tuition, room and board, fees, books, and so on--now runs about $15,000/year. Private colleges run twice that much, although for public universities room and board and transportation are figured to be half the total cost.
Q: And getting more expensive by the minute, too.
A: Of course. They also figure that college costs are about double the overall inflation rate, or about 7%/year.
Q: Did you do the math for us?
A: Absolutely. If we assume today's 8-year old starts college in 10 years, and today's college cost is $15,000/year and costs go up 7%/year, that diploma will cost about $130,000!
Q: Time to call a loan officer!
A: True--for many of us loans may be a necessity. And while some parents will assume all of the cost, others won't shoulder any of it. But let's assume a parent will pay half.
Q: Gives the kids some skin in the game, after all.
A: True--they'll have an incentive to keep costs down. Now our average 8-year old's parents need to have $65,000 in 10 years. If they can earn 9%/year in order to pay half the cost they'll need to sock away $300/month starting today.
Q: Wow--that's almost like another car payment.
A: Sure is. And what's more depressing is that even starting with $300/month when a child is born today will still only provide about 2/3rds of the estimated future cost.
Q: So what's the solution?
A: Ease into it. Start with $150/month then increase that amount by $5/month. Most people get raises or bonuses that easily cover that. Or buy one less latte each month--whatever works. By going that route a parent can save (assuming 9% annual return) $78,000 in 10 years. And for those that keep the monthly saving plan going while their child is in college they could conceivably cover the entire amount.
Q: Thanks again, Jeff.
A: Thank you.
#
To read more "Business for Breakfast" interviews, please visit the archive.
