Paying for college: How much is too much?

Weigh the costs against potential benefits, both financial and personal.

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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.

Parents want their children to be happy and successful. Having some options when it comes to college is one way to help them. Saving and planning far in advance can help—but there are other steps parents can take to help ensure that a college education is a financial blessing and not a burden.

"College is an investment in your child's future," says Melissa Ridolfi, vice president of retirement and college products 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

For the 2018-19 academic year, one year at a public university comes with an average sticker price of $25,890.1 One year at a private college is priced at $52,500.1 It's not cheap. Even if most people end up paying less than the full sticker price, for most Americans going to college means taking on student debt.

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 average graduate from the class of 2017 left school owing $39,400—up $2,364, or 6%, from the previous year.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."

Read Viewpoints on Fidelity.com: A guide for student loans

2. Consider salary potential

The average starting salary in 2017 was $50,516 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," Ridolfi advises.

4. Think creatively

If you're like the 70% of the parents surveyed in Fidelity's College Savings Indicator (CSI) research, you're already saving for college but may be on track to meet just a fraction of your saving goal.4 What's the solution? "Many parents are getting creative about college funding and asking their kids to share more responsibility," says Ridolfi.

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

Though 62% of parents in Fidelity's CSI survey say they plan to cover the majority of costs, they want their children to save money for their education too: an average of $15,385 by high school graduation. It's important to communicate expectations to kids though—40% of those surveyed with high school sophomores or older had not discussed expectations with their kids.

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 2018, 70% of parents surveyed had started saving for college, up from 58% in 2007. And 37% began saving when their child was 2 years old or younger. Of those saving, 39% are invested in a 529 plan.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 savings," explains Ridolfi. "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.

Next steps to consider

Open a flexible, tax-advantaged 529 college savings plan.

Check to see if you're on track with our college savings calculator.

Learn how college savings plans work, including tax savings.

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