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How much college can you really afford?

Weigh current and future costs against potential benefits, both financial and personal.

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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 he or she 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 his or her 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 five suggestions below.

1. Don’t take on too much debt.

For the 2014–15 school year, the average cost for tuition, fees, and room and board at a four-year college was $18,943 for an in-state public college, up 1% from the previous year, and $31,231 for a private four-year college, up 1.6% from the previous year.1

For most Americans, that means taking on student debt. The average family paid only 17%2 of total college costs in 2013, down from 24% in 2007. Seventy percent of last year’s graduates left college with student debt, ranging on average from $24,000 to $30,000.3

So, how much debt is right for your college student? That depends, in part, on his or her salary potential, and how much help—if any—you plan to offer to pay off those loans. 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 his or her 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 2014 was $45,473 per year for college grads, up 1.2% from the previous year, according to the National Association of Colleges and Employers.4 But starting salaries vary significantly by career. For some of the fastest-growing and highest-paying professions, see the graphic below.

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. To get started, estimate college costs and monthly savings needs with our College Planner.

4. Think creatively.

If you’re like the 81%5 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. 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:

  • 58% of parents plan to have their kids work part time during their college years
  • 47% are considering having their child live at home and commute to school
  • 42% will ask them to set aside some of their own savings to help pay for college
  • 42% will encourage them to attend a public college or university
  • 25% 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 2014, 64% of parents surveyed had started saving for college, up from 58% in 2007. Of those saving, 35% are invested in a dedicated college savings account like a 529 plan, up from 26% in 2007.6

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 you child’s dreams? Is the college a good fit? College is a significant investment and also a major life choice. So, do some smart, educated shopping to help your child start his or her career on the right foot.

Learn more

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Please carefully consider the plan's investment objectives, risks, charges, and expenses before investing. Contact Fidelity for this and other information on any 529 college savings plan managed by Fidelity, call or write to Fidelity for a free Fact Kit, or view one online. Read it carefully before you invest.

The UNIQUE College Investing Plan, U.Fund College Investing Plan, Delaware College Investment Plan, and Fidelity Arizona College Savings Plan are offered by the state of New Hampshire, MEFA, the state of Delaware and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments. If you or the designated beneficiary is not a New Hampshire, Massachusetts, Delaware, or Arizona, resident, you may want to consider, before investing, whether your state or the designated beneficiary's home state offers its residents a plan with alternate state tax advantages or other benefits.

Units of the Portfolios are municipal securities and may be subject to market volatility and fluctuation.

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.
2. Analysis by Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, 2013.
3. See footnote 1.
4. National Association of Colleges and Employers.
5. Fidelity College Savings Indicator, summer 2014.
6. 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.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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