College Planning
College is expensive today. According to “How America Pays for College”, a recent study released by Sallie Mae, in the 2023-2024 academic year, the average family spent $28,409 on college fees. This figure is consistent with last year’s report and represents a 1% increase.
Family out-of-pocket contributions-parent and student income and savings— covered the largest share of college spending, 48%. Scholarships covered 15%, grants covered 12%, money borrowed by students covered 12%, money borrowed by parents covered 11%, and funds from relatives and friends covered the remaining 2% of college spending
Notably, the proportion of college spending covered by parent income and savings has decreased over the last few years. In AY 2023-24, this funding source covered 37% of reported spending, down from a high of 45% 3 years ago.
The decrease in share of parent out-of-pocket contributions has been offset by an increasing reliance on student income and savings (11% in AY 2023-24 vs. 8% in AY 2020-21) and borrowed funds (23% in AY 2023-24 vs. 20% in AY 2020-21).
Whether a college education is a distant dream you hold for a newborn child or a financial imperative staring you in the face, it is important to take swift steps to begin meeting the challenge. Next to retirement planning, paying for your children’s education could be the largest expense that your family will bear. Parents and grandparents today have more choices than they have ever had for college savings, from 529 plans to Coverdell Education Savings to Custodial Accounts to Financial Aid. While that variety gives parents and grandparents more flexibility, it also requires that they do more research to make sure they pick a strategy that is right for them and will reduce out-of-pocket college expenses.
Below is a chart that will help you compare Coverdell Education Savings Accounts (ESA’s), 529 Plans and Custodial Accounts. The chart features contribution amounts and key benefits that you will want to compare and discuss with us depending on your needs for college funding. Also, be mindful of the fact that there are specific features available in 529 Plans that vary from state to state.
Because College Planning is not just a simplistic, one-size-fits all savings strategy, we invite you to call us to find out more about your specific tailored needs.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
