How much college can you really afford?

Key takeaways

• Consider the return on investment from a college education
• To do that, estimate total college costs and future student debt burden for you and your child
• Weigh the costs against your child's potential future salary

When you buy a stock, bond, mutual fund, or other asset, you weigh the potential return on that investment. So why not consider the return on another big investment—your child's college education?

"College is an investment in your child's future," says Keith Bernhardt, vice president of college planning at Fidelity. "You want to make sure your child can expect enough benefit to justify the cost and debt after graduation."

That means aligning your child's college choice—and the costs involved—with their job goals, market opportunities, and likely starting salary. Granted, you and your child may not have the answers yet. But start early and think realistically about how much you can pay, and get creative in making your choice work for your family.

Of course, you'll also want to make sure the college fits the student—not just in terms of courses, but location, size, student population, and learning environment.

Time spent planning will be time well spent. To get started, consider our 5 suggestions below:

1. Don't take on too much debt

The average family paid a sticker price of $25,290 for public university and $50,900 for private college in academic year 2017–18 with over 70% of students taking on student loans. For most Americans, that means taking on student debt.¹

So, how much debt is right for your college student? That depends, in part, on their salary potential, and how much help—if any—you plan to offer to pay off those loans. The 70% of the class of 2017 who took out loans had accumulated an average of $37,172 in student debt, up approximately $2,100 from 2015.² To estimate potential loan payments and the salary your child might need to pay them off without hardship or help, try the student loan calculator at FinAid.org.

"This is an important decision," says Ann Dowd, CFP^®, vice president at Fidelity Investments. "Allowing your child to take on excessive college debt can limit their flexibility to make job choices and to save for other life goals like buying a home or saving for retirement."

2. Consider salary potential

The average starting salary for 2016 was $50,359 per year for college grads, according to the National Association of Colleges and Employers.³ But starting salaries vary significantly by career.

For a sense of how much debt your child may be able to afford, based on majors and expected salaries, consider the chart below.

What if your child is heart-set on a relatively low-paying profession? With so many good programs at less expensive schools or ones offering scholarships or merit-based aid, loading up on student debt may not be necessary if you and your child plan ahead.

3. Balance the budget

Long before you start visiting college campuses, create a realistic financial plan that takes into account college costs, room and board, financial aid eligibility, and future student loan debt. Don't forget to factor in the cost of postgraduate study if this will be required, as well as your child's willingness to make spending adjustments during and after college.

"The time to assess your college budget and project potential loan payments is long before senior year in high school," Bernhardt advises.

4. Think creatively

If you're like the 76% of parents surveyed in Fidelity's College Savings Indicator (CSI) research, you don't want your kids to take on too much in college loans.⁴ What's the solution? "Many parents are getting creative about college funding and asking their kids to share more responsibility," says Bernhardt.

Consider some of the creative solutions reported in Fidelity's CSI survey:

• 51% of parents plan to have their kids work part time during their college years.
• 45% are considering having their child live at home and commute to school.
• 37% will ask them to set aside some of their own savings to help pay for college.
• 40% will encourage them to attend a public college or university.
• 23% may ask their kids to work harder to graduate in fewer semesters.

Of course, one of the biggest things you can do to ensure that your child has college choices is to start saving early, and potentially save more effectively. In 2016, 92% of parents surveyed had started saving for college, up from 58% in 2007. Of those saving, 57% are invested in a dedicated college savings account like a 529 plan, up from 26% in 2007.⁵

5. Plan realistically

Just as college costs have to fit your family budget, they also need to coexist with your retirement savings plans. "Fidelity's point of view is that retirement savings should take priority over college saving," explains Bernhardt. "With college, you have some flexibility with financing, but you can't borrow money for retirement." As with any investment, your child's college choice—to the extent possible—should be a comprehensive decision based on finances and personal goals. What are your child's dreams? Is the college a good fit? Can you afford it? College is a significant investment and also a major life choice. So, do some smart, educated shopping to help your child start their career on the right foot.