VestMatch Blog

Recently CNN reported that college costs are expected to increase 15%, and in some cases 30%, for the 2010-2011 school year.   This is on the heels of costs that increased 10% in 2009-2010.  This puts parents of younger children in a bind, and puts the future of the higher educational system as we know it at risk.  You can read the entire article here.

While increasing educational expenses may be interesting for many people, it is panic-inducing for parents of children who hope to go to college.  The impact of these skyrocketing costs is that parents need to expect to contribute astonishing amounts each year in order to pay for college.  Here’s an example.  If college costs continue to rise lower than expected, at a rate of 10%, annual school costs of a public college will go from about $25,000 per year to over $125,000 per year 18 years from now.  In order to reach that goal, parents would need to be socking away about $16,500 per year, assuming an annualized rate of return of 6%.   You say you have two kids?  Make that savings requirement $33,000 per year.  Saving for retirement, too?  Not anymore.

Of course, fiscal logic breaks down with these numbers.  The costs of college cannot continue to rise at the same speed as they have for the last decade, a rate that a several times the rate of inflation.  We’re not sure what the tipping point will be or what the exact outcome will be, but financially the idea of a four-year university where a student lives in or around campus cannot survive if costs continue to rise much faster than incomes or wealth rises.  As the idea of “saving for college” becomes less and less realistic, less people will save.  The fewer people save for college, the fewer children will be able to attend a four-year university as we know it.

However, until that happens, parents need to be saving as much as they can, but they also may be needing help from their own parents.  After all, grandparents often give children financial gifts on birthdays and holidays.  Why not have those gifts be placed directly into a 529 Plan or another account you are using to save for college.  And you can use VestMatch to make , link it to your financial account you use for college savings, and then invite others to join in the effort.  Who couldn’t use a little help?  Or a lot?