| How to Fund College Education |
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| by Kent E. Irwin |
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| For many people today, having a college education is a base requirement for obtaining a higher paying career. However, the college costs continue to increase many times the average inflation rate. Therefore, it has become an increasing challenge to pay for it. Let’s explore the benefits of college, the costs trends, and different methods of funding. |
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| The Benefits of Higher Education[i] |
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| The high cost of college tuition can be discouraging; however, the difference in earnings of those who are college graduates and those who are not is dramatic. Higher education is one of the best investments an individual can make. Consider the research: |
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| n | Among men, median earnings of four-year college graduates were 19 percent higher than median earnings of high school graduates in 1975. The gap grew to 37 percent in 1985, 56 percent in 1995, and 63 percent in 2005. |
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| n | Among women, median earnings of four-year college graduates were 37 percent higher than median earnings of high school graduates in 1975. The gap grew to 47 percent in 1985, and 71 percent in 1995. It was 70 percent in 2005. |
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| Education Costs Trends[ii] |
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| Current Costs |
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| n | Average total charges, including tuition, fees, room, and board at four-year public colleges and universities in 2006-07 are $12,796. (4 Years: $51,184) | |
| n | Average total charges, including tuition, fees, room, and board at four-year private colleges and universities in 2006-07 are $30,367. (4 Years: $121,468) | |
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| Future Trends |
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| n | Over the past decade, published tuition and fees at public four-year colleges and universities have risen at an average rate of 7 percent per year. |
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| n | Over the past decade, published tuition and fees at private four-year colleges and universities have risen at an average rate of 5.5 percent per year. |
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| Table 1 | College Cost: Future Estimate | College Type | Cost for 4 years | Average Cost Increase | Approximate Cost in 6 Years | Approximate Cost in 12 Years | Approximate Cost in 18 Years | Public | $51,184 | 7.00% | $76,813 | $115,276 | $172,998 | Private | $121,468 | 5.50% | $167,485 | $230,936 | $318,424 |
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| Public Sources of Funding[iii] |
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| Most people do not pay for the entire amount of college costs. There is a wide array of funding resources. Let’s explore the different sources that most people use to supplement the costs. |
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| n | Total student aid, including grants from all sources plus loans, work-study, and tax benefits from the federal government, increased by 95 percent in inflation-adjusted dollars over the decade from 1995-96 to 2005-06. |
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| n | Grant aid to undergraduate and graduate students increased by 89 percent over the decade (after adjusting for inflation). |
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| n | Total grant dollars increased by 3 percent in inflation-adjusted dollars between 2004-05 and 2005-06. Grant aid per full-time equivalent (FTE) student increased by less than 1 percent. |
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| n | Federal loans constitute 51% of total aid to graduate and undergraduate students. |
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| n | The fastest growing student aid program over the decade was Parent Loans for Undergraduate Students (PLUS). Borrowing under this program grew at an average annual rate of 12.5 percent between 1995-96 and 2005-06 in inflation-adjusted dollars. |
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| Table 1 | Public Sources of College Funding | Scholarships | Federal/State Grants | Loans | Academic | Hope Scholarship Credit | Federal Stafford Loans | Sports, music, theatre, etc. | Pell Grant | Federal Perkins Loans | University or College awards | Federal Supplemental Educational Opportunity Grant | PLUS loans to parents | Private | Veterans | State Loan Programs |
| Federal Work Study Program |
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| State Grants |
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| Family Funds |
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| The sources of family funds include savings, loans and employment: |
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| Table 1 | Family Funds for College | Source | Description | Funding Options | Comment | Parent’s income | Parent’s earned income | If parent has excess income | Consider overall financial planning objectives | 529 Savings | State sponsored savings plans, tax deferred accumulation and distribution | Various mutual fund families | Plans vary by state, i.e. some states allow for income tax deduction within limits | UGMA/UTMA Uniform Gift to Minors or Unified Transfer to Minors Act | Custodial accounts that can shift some investment income to child’s bracket, subject to ‘kiddie’ tax rules | Unlimited | Change in taxation (eg. age 18) and ownership, control at your state’s legal age of majority | Regular savings and investments | Funds from parents or students savings and investment accounts | Unlimited | Maximum flexibility for parent | Home Equity Loan | Funds borrowed against home equity | Lending institutions provide a myriad of choices | Interest may be tax deductible | Borrowing from 401(k) plans | Funds borrowed against 401(k) assets | Depends on ’plan document’, 50% may be borrowed | Re-payment pre-tax, payroll deducted, interest charge may be credited to your account | Student’s Income | Student’s income from employment | Work varies from typical labor to internships, which provide better income, learning and opportunities for post-graduate employment | Not having to work at all is a luxury. Most students have some part-time job during school and full-time during summers. | Loans from lending institutions | Regular loans usually considered after all other funding and borrowing options exhausted | Various loan options | Avoid large loans if at all possible | Employing children in your business | Children working for the family business during breaks or if they commute | Multi-tasking in a self-employed environment provides wonderful learning opportunity | There may be tax benefits | Consult your trusted professional tax and financial professional for more information before implementation. |
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| Summary |
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| The way to achieve your college funding plans is to: |
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| n | Create a comprehensive financial plan from eFinplan.com |
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| n | Implement that plan using your team of trusted professional advisors |
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| n | Monitor your plan regularly to keep track of your progress towards achievement. |
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| Kent E. Irwin is CEO and founder of eFinplan, LLC. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU). He can be reached at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
. For more information about eFinplan, go to the website efinplan.com. |
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| Copyright © 2007 eFinplan LLC. All Rights Reserved. |
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| 1 Education Pays: Second Update. College Board. Washington, DC, 2006. 16 Mar. 2007 <http://www.collegeboard.com/prod_downloads/press/cost06/education_pays_06.pdf>. 2 Trends in College Pricing. College Board. Washington: College Board, 2006. 15 Mar. 2007 <http://www.collegeboard.com/prod_downloads/press/cost06/trends_college_pricing_06.pdf>. 3 Trends in Student Aid. College Board. Washington, DC, 2006. 16 Mar. 2007 <http://www.collegeboard.com/prod_downloads/press/cost06/trends_aid_06.pdf>. |
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