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Proper planning can help put a college education within reach

The difference between published prices and net prices can be significant.

  • By Fidelity Learning Center
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The cost of a college education has risen dramatically over the past two decades and more students than ever are graduating with student loan debt. Whether you are the parent of a newborn, a toddler, or a teenager, you may have some concerns about your ability to cover your child's future college education expenses.

While there is no arguing with the fact that a college education has become more expensive, the numbers that are often reported in the financial media don't tell the whole story. For instance, because they are based on national published averages, they do not reflect regional differences or the fact that the net price (which factors in grants and tuition discounts) many students pay to attend college is often significantly lower than the published price.

What does college really cost?

Each year, the College Board publishes Trends in College Pricing, which provides a detailed analysis of the cost of attending college in the U.S. This report is based on the College Board's Annual Survey of Colleges, which includes nearly 4,000 schools across the country.

For the 2013-14 academic year, the average published price for tuition and fees and room and board at a private nonprofit four-year college was $40,917.1 While that amount is high enough to cause sticker shock among even relatively affluent families, a closer look reveals that many students do not pay the full sticker price. For example, the average total published price for tuition and fees (not including room and board) was $30,090 in 2013-14, but the average net price was only $12,460—a difference of more than $17,600.

Students who attend public colleges pay significantly less than students who attend private colleges. The average published price per year for a public four-year in-state college was $18,391 in 2013-14.2 Public colleges typically don't provide tuition discounts, so there is no real difference between the published price and the net price. Keep in mind that all of the College Board's numbers are based on national averages, so depending on where you live, the cost of attending a public college could be even lower.

Students who attend local community colleges for an associate's degree and then move on to earn a bachelor's degree at an in-state college may be able to complete their college education for a fraction of the cost of a private, four-year college, and at a significantly lower cost than a four-year public college. It's also important to consider that some expenses, such as room and board, will still be incurred regardless of whether someone attends college or not. These expenses can be reduced if your child continues to lives at home rather than in their own apartment, but in either case, your child will still incur costs for basic living needs. Financial aid also plays a significant role in reducing the out-of-pocket cost of attending college. About two-thirds of full-time undergraduate students receive grants that reduce what they pay to attend college.3 In fact, the College Board reports that the average full-time undergraduate enrolled in a private nonprofit four-year college receives enough grant aid to cover about 60% of tuition and fees.4 In addition, many state colleges and institutions grant tuition waivers to groups such as veterans, teachers, or dependents of college employees. Those who choose to live at home and commute to an in-state public college can reduce their costs even more.

An investment in your child's future

As outlined above, there are several methods by which you can reduce out-of-pocket expenses for your child's college education. Yet while many people are able to avoid paying the full sticker price, a college education remains a significant financial burden for many families. To help keep matters in perspective, keep these points in mind:

  • A college education is an investment in your child's future. In 2012, the median family income for families headed by a four-year college graduate was $101,909, which was more than twice the median income for families headed by a high school graduate.5
  • Getting an early start on college savings may pay off in the long run. The earlier you start saving, the more time your college savings portfolio will have to potentially grow. With money set aside, your child can make his or her college choice based on what's the best fit, rather than financial considerations only.
  • Seek ways to minimize your child's student loan burden. According to the 2014 Fidelity College Savings Indicator Study, 81% of parents do not want to burden their children with hefty student loans. The more you can save in advance, the less you or your children may have to borrow.
  • It's never too late to start saving for college. If circumstances prevented you from saving for college while your children were young, it's not too late. Any amount you (and your children) can set aside now will reduce your borrowing needs and your overall cost of college.

Those who are able to establish disciplined savings habits may find that it is still possible to save enough to cover all or a significant portion of their children's future college expenses. Given the long-term dividends that a college degree can pay, parents and students may want to explore every possible way they can set aside money to pay for college expenses.

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1. College Board, Trends in College Pricing 2013, Average Published Undergraduate Charges by Sector, 2013-14. http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2013-14
2. Ibid.
3. College Board, Trends in College Pricing 2013. Average Published Undergraduate Charges by Sector, 2013-14. http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2013-14
4. College Board, Trends in College Pricing 2013. Average Net Price for Full-Time Students over Time — Private Institutions. http://trends.collegeboard.org/college-pricing/figures-tables/published-tuition-and-fees-net-tuition-and-fees-and-room-and-board-2012-dollars-full-time
5. College Board, Trends in College Pricing 2013, Highlights. http://trends.collegeboard.org/college-pricing/highlights

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Please carefully consider the Plan's investment objectives, risks, charges and expenses before investing.  For this and other information on any 529 College Savings Plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view online.  Read it carefully before you invest or send money.

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