Continued from Part 1. Many of the personal finance sites I read concentrate on a few key areas: reducing debt, making investments, emergency funds, saving for your children’s college education and saving for retirement. I agree that most of these are important topics, but I don’t believe that you should save for your children’s college education. This may come across as a shocking or neglectful thing for a parent to say, but I have my reasons.
College costs. A report, “Trends in College Pricing 2006” (warning, big PDF), noted that “[p]ublished tuition and fee charges at four-year private colleges average $22,218 in 2006-07. The $1,238 increase over 2005-06 represents an increase of 5.9 percent, or 2 percent after adjusting for inflation. The average total tuition, fee, room, and board charges at private four-year colleges and universities are $30,367.” The report goes on to note that this amount is usually reduced by student aid, but let’s assume you’re trying to pay for them to go to the best college possible (no Cornell for my baby, only Yale/Harvard/Stanford for her!)
If we consider that tuition, fees, etc. increase at the same rate going forward (no sure thing) then a private school tuition for four years will be $42,000 in today’s dollars by the time my son is in college, around the year 2024. If you consider inflation, that will be $80,000 or more. So you’ll need $80,000 in the bank for each child. Keep in mind that the starting point, $22,000 is the average for a four-year college, not for the very best colleges. Yale, for example, now costsall in. In 2024 a Yale education might cost – get ready – $370,000 for a four-year degree by my very rough calculations. I won’t have that much saved, frankly.
Personally I am not convinced that there is a lot of value in a private school education that is not present in a state university education. There may even be an argument that not everyone needs a four-year degree, to be honest. I am prejudiced. I received a bachelor’s degree and a master’s degree from a state university, and I work alongside Ivy League grads every day. They don’t make any more money or have any more prestige due to their schooling than I do; the distinction between our backgrounds was flattened out back in the first 3 or 4 years of our careers. By year 15 nobody asks where you went to school unless you’re talking about sports.
Those Ivy grads I work with may not be the most successful Ivy alumni, though. If you want a career with the movers and shakers of the world, you need to go to a school where you’ll meet fellow future movers and shakers. For every Ronald Reagan attending Eureka College there are a thousand Bill Clintons/John Kerrys/George Bushes attending Yale, I’m sure. But don’t think that a state school means your ambitions will be cut short, and unless you have ambitions to be the next hedge fund manager or a U.S. Senator I’m not sure a private school is that much better. After you get that first job, no-one will much care if you went to State U. or Fancy Institute except on football weekends. Of course, if you want to major in some specialty that only exists at some private school, or you have some other reason for going (family ties, etc.) there’s nothing wrong with it, but I don’t plan on giving my children an extra $328,000 just for the heck of it.
Invest in early education. One of the main reasons I’ve been uncomfortable with 529s is the fact that you are tying up money for a college education. I know you can get it out, I know it can be used for your own education if your child decides to run off to Nepal, and so on – but what if you need money for education in the early years? We are considering a private pre-school and kindergarten for our son; first, for safety and quality reasons and second, for our own opinions on educational philosophies (we are very interested in Waldorf education, for example). We hope that money spent early on can provide some love of learning that will help earn scholarships later on. I won’t have an answer on whether this was a good idea or not until 18+ years in the future, but it makes sense to me.
I guess in the end this is more of a decision related to your personal values. My parents helped me a lot during college, but I provided the great majority of the money for the total costs of my undergraduate and graduate education came from scholarships and teaching jobs, including 100% of tuition. While my parents could have (and I am sure would have) scraped together the money for me to attend Harvard (yes, I was accepted there), I never felt a burning desire to attend and haven’t ever felt that I shortchanged myself.
My hope is that my son will appreciate the fact that I have enough confidence in him, even now, to know that he’ll be able to put himself through college with scholarships and hard work, and hopefully we will return the favor by making sure first that we are never a burden to him.
I should also point out that I do have a 529 for my son (set up by his grandparents), but it’s mainly a place for relatives to put gifts. I haven’t contributed anything to it myself to date. Please don’t beat me up too much in comments.