The Benefits of Higher Education
According to the Federal Reserve, the income disparity between college grads and non-grads is growing every year. In 1979, college grads earned 38% more than those with only a high school diploma. But today college grads earn 75% more than those without degrees!
The Cost of Higher Education
Let’s face it: funding college is expensive. And with tuition increasing greater than 4% annually, the cost will only rise. Nationally, just one year of tuition, room and board at an average private college runs just over $30,000. A public out-of-state college runs around $20,000 per year. Even a public in-state college is close to $15,000 annually. So, as a parent who wants your child to have the chance to attend college, what can you do? The answer: plan early!
Emily’s parents were prepared. They sat down with their financial advisor when their daughter was born. They learned that to meet their goals they would need to deposit $345 in a college savings account every month for the next 18 years (assuming a 6% return). Looking deeper, they realized that by using the leverage and tax advantage of their mortgage, along with the power of compound interest, they could instead make a $50,000 one time payment to reach the same goal. By funding their savings plan this way they found that their after tax payment would only be $200/mo – 40% less than their original plan! They also realized that by incorporating this cost into their mortgage loan they would be sure to fund the account. In the past, despite their best of intentions to fund savings plans, they had slipped on making planned payments. Emily’s parents were relieved to have such a seemingly impossible goal taken care of so quickly and painlessly.