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How much college can you really afford?

Planning ahead and knowing your child’s career goals is key.

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Given the high cost of college, shrinking financial-aid pools, and a tight job market, choosing the right school can get pretty emotional. But if you can stay objective, it may be smart to think of college as an investment.

Just as you consider your financial goals and needs when you choose your portfolio investments, you may want to use similar criteria when your child begins thinking about which college to attend. After all, says Keith Bernhardt, vice president of college planning at Fidelity, "College is an investment in your child’s future."

Although many parents are willing to sacrifice a lot to send their kids to the best college, Bernhardt says, "You want to make sure your child can expect enough benefit to justify the cost and potential debt that may be present after graduation." Thus, you’ll want to align your child’s college choice with his or her job goals and current job market opportunities. Think realistically about how much you can pay, and get creative in making your choice work for your family.

Make sure the college fits the student—not just in terms of a program that matches your child’s interests, but also with respect to learning environment, location, student population, and the size of the school. In essence, it may pay to do some planning and investigating when shopping for a college. Below are some considerations to explore with your child.

1. Consider job security

In Fidelity’s most recent College Savings Indicator (CSI) study, conducted in August 2013, 80% of parents surveyed considered college a minimum requirement for their child to land a decent job.1 According to the Georgetown Public Policy Institute only one out of seven new four-year college graduates was underemployed in May 2012, versus nearly half of new high school graduates.2

Furthermore, the U.S. Bureau of Labor Statistics (BLS) projects that from 2010 to 2020 more than 11 million jobs will be filled by workers with a bachelor’s degree or higher who are entering an occupation for the first time.3

There’s no question that a college degree can give graduates a leg up when it comes to post-graduate employment opportunities and career options. But the type of degree a child earns can make a difference in his or her quality of life after graduation, too. With that in mind, you’ll want to check whether a more affordable school can offer your child the full spectrum of study he or she desires. Conversely, if your child prefers to attend a more expensive school, you’ll want to be cognizant of the amount of debt he or she may be saddled with upon graduation and may have to pay off for many years to come.

That’s why it’s important to consider the types of jobs that might be available when your child graduates. Although a potential paycheck shouldn’t be the bottom line when choosing a school—or a degree—it does matter. “If you’re going to borrow money to pay big tuition bills, be sure your child can afford to pay back student loans on his or her salary,” says Bernhardt.

In other words, it might be wise to keep the projected job market in mind as you plan your child's education. Where might the job opportunities be when your child graduates? Take a look at the chart to the right for some examples of the faster growing occupations.

What about salaries? Clearly, that depends on your child’s field of study, but the National Association of Colleges and Employers reports that the average starting salary for 2014 was $45,473 per year for college grads, up 1.2% from the previous year.4 Typically, graduates who studied math, sciences, or career-tracked courses tend to earn more than those who earn degrees in the humanities. See the chart to the right for some examples of starting salaries, according to payscale.com.

2. Balance the budget

Once you are equipped with an idea of the salary your child might earn after college, you can put pencil to paper and figure out how much you can really afford to contribute toward tuition and fees. Although some families can pay for college without taking out loans, most families can come up with only 17% (down from 24% in 2007)5 of the total cost of college. Thus, taking loans to pay the bill is more the rule than the exception.

So, how much student loan debt is OK? That depends on your child’s potential salary and how much help—if any—you plan to offer in paying off his or her loans. On average, according to finaid.org, student loan debt in 2011–12 for a bachelor’s degree recipient at graduation was $28,720. So, to pay off that loan amount in 10 years, following graduation, would cost the student loan holder a little over $331 a month.

How much will college cost?

  • Average total for tuition, fees, and room and board for a four-year college for the 2013-14 school year: $18,391 for an in-state public college, up 2.9% over the previous year.
  • A private four-year college, up 6.7% over the previous year. 6

To estimate potential loan payments and the salary your child might need to pay them off without hardship, try the student loan calculator at finaid.org. Then, carefully consider your child’s future. If the child has his or her heart set on a lower-paying profession, then choosing a top-tier private university may lead to financial hardship.

Huge amounts of student loan debt shouldn't keep your child from living independently or eventually being able to save for other important financial goals—like buying a first home or contributing to a workplace savings plan. With so many good programs at less-expensive schools, or at a school where your child may receive scholarships or merit-based aid, loading up on student debt may not be necessary.

“The time to assess your college budget and project potential loan payments is long before senior year in high school,” Bernhardt says. He suggests trying some of the college cost/loan calculators (at finaid.org, for example), running a mock financial-aid calculation, and “putting all your facts on a spreadsheet so you can see the full picture and make decisions rationally, rather than emotionally, at the last minute.”

3. Think creatively

If you’re like the 78%7 of parents surveyed in Fidelity’s College Savings Indicator (CSI) research, you don’t want to burden your kids with college loans. What’s the solution? “Many parents are getting creative about college funding and asking their kids to share more responsibility,” says Bernhardt. According to the CSI, 43% of parents surveyed will ask their kids to pay for some of their college expenses, while 54% of parents will have their kids work part time during their college years.8

For other solutions, 23% of parents surveyed said they may ask their kids to work harder to graduate in fewer semesters, as a way to cut college costs. Also, 50% of parents surveyed said they would think about having their child live at home and commute to school, and 40% encourage them to attend a public college or university.9

Of course, one of the biggest things you can do is start saving early and potentially save more effectively for college. Interestingly, while the economy has put a damper on many types of saving, the CSI indicated that today’s parents are “still taking positive steps toward saving for their child’s education.” In fact, in 2013, an all-time high of 69% of parents surveyed had started saving for college, up from 58% in 2007. And, of those saving, 37% are invested in a dedicated college savings account such as a 529 plan, up from 26% in 2007.10

Still, 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,” says 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 holistic decision based on facts, but one that still reflects emotional considerations. Carefully consider several important factors, including interests, goals, and “fit,” in light of the long-term benefits and costs of any particular college education. College is a significant investment. Do some smart, educated shopping to help your child start his or her career on the right foot.

Learn more

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The views and opinions expressed herein are not necessarily the opinions or recommendations of Fidelity Investments. This material is provided for informational purposes only and should not be used or construed as a recommendation for any security.

1. Fidelity College Savings Indicator, summer 2013.

2. From "The College Advantage: Weathering the Economic Storm." Georgetown Public Policy Institute, Center on Education and the Workplace, August 2012.
5. Analysis by Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, 2013.
7. Fidelity College Savings Indicator, summer 2013.
8. Ibid.
9. Ibid.
10. Ibid.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

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