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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." As such, 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 for, and get creative in making your choice work for your family.

And you’ll want to 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 2012, 81% of parents surveyed considered college a minimum requirement in order for their child to land a decent job.1 Information from the Georgetown Public Policy Institute backs this up. One out of seven new four-year college graduates was underemployed in May 2012. In comparison, nearly half of the new high school graduates were underemployed in 2012.2

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 also can make a difference in their quality of life after they graduate.

For example, you’ll want to check to see if a more affordable school can offer your child the full spectrum of study fields 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. A Rutgers University study done in May 2011 found that college graduates who were able to get a job “somewhat related to the field in which they earned their college degree” had a starting salary ($35,000) that was “considerably greater than those who did not ($25,000).”4

Where might the job opportunities be when your child graduates? From 2010 to 2020, the BLS expects some of the fastest-growing occupations to be:5

  • Personal care aides, projected to grow at 70%
  • Biomedical engineers, projected to grow at 62%
  • Helpers (brickmasons, blockmasons, stonemasons, and tile and marble setters), projected to grow at 60%  
  • Veterinary technologists and technicians, projected to grow at 52%
  • Meeting, convention and event planners, projected to grow at 44%
  • Diagnostic medical sonographers, projected to grow at 44%
  • Marriage and family therapists, projected to grow at 41%

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 2013 was $44,9286 per year for college grads. Typically, graduates who studied math, sciences, or career-tracked courses tend to earn more than those who earn degrees in the humanities. Some examples of starting salaries, according to payscale.com, include:

Job Salary
Petroleum engineer $107,944
Software engineer $73,914
Economist $71,533
Electrical engineer $69,490
Biomedical engineer $61,711
Human resources manager $59,980
Marketing/communications specialist $47,063

2. Balance the budget

How much will college cost?

  • To budget carefully for college, it helps to have some idea of potential costs. According to the College Board, the average increase in tuition and fees for in-state students at public colleges and universities was 4.8% in 2012-13. That increase has come down somewhat over the past couple years, but the annual increase still exceeds the inflation rate.9
  • In fact, the average total for tuition, fees, room, and board for an in-state public four-year college was $17,860 for the 2012–2013 tuition year. That was up 4.2% over the previous year.
  • The average total for tuition, fees, room, and board for a private four-year college was $39,518 for the 2012–2013 tuition year, up 4.1% over the previous year.10

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 16% (down from 24% in 2007)7 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 2010-2011 for a bachelor’s degree recipient at graduation was $27,204. So, to pay off that loan amount in 10 years, following graduation, would cost the student loan holder a little over $313 a month.8

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%11 of parents surveyed in Fidelity’s College Savings Indicator 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, 46% of parents surveyed will ask their kids to pay for some of their college expenses, while 57% of parents will have their kids work part time during their college years.12

For other solutions, 27% 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, more than 49% of parents surveyed said they would think about having their child live at home and commute to school, and encourage them to attend a public college or university.13

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 2012, 66% of parents surveyed had started saving for college, up from 58% in 2007. And, of those saving, 36% are invested in a dedicated college savings account such as a 529 plan, up from 26% in 2007.14

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 whatever extent possible—should be a rational rather than an emotional decision only. 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.

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1. Fidelity College Savings Indicator, summer 2012

2. From "The College Advantage: Weathering the Economic Storm." Georgetown Public Policy Institute, Center on Education and the Workplace, August 2012
3. U.S. Bureau of Labor Statistics. www.bls.gov
4. “Unfulfilled Expectations: Recent College Graduates Struggle in a Troubled Economy,” by Jessica Godofsky, M.P.P., Cliff Zukin, Ph.D., and Carl Van Horn, Ph.D., John J. Heldrich Center for Workforce Development, Rutgers University, May 2011.
5. U.S. Bureau of Labor Statistics, Occupational Outlook Handbook, 2012-2013 Edition, "Fastest Growing Occupations 2010-2020," www.bls.gov/ooh/fastest-growing.htm
6. National Association of Colleges and Employers, www.naceweb.org
7. Fidelity College Savings Indicator, summer 2012.
8. Analysis by Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, September 2010.
10. Ibid.
11. Fidelity College Savings Indicator, summer, 2012.
12. Ibid.
13. Ibid.
14. Ibid.
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