With school back in session in most of the country, many grandparents and parents are thinking about how to prepare for their grandchildren's or children’s future college expenses.
Now is a good time to sharpen one’s pencil for a few important lessons before heading back into the investing classroom to tackle the issue. Get your Retirement Checklist of over 30 things that you need to think about for your retirement.
AVERAGE COLLEGE TUITION COSTS IN 2017
According to recent data published by the College Board, the average annual cost of attending college in the US in 2017–2018 was $20,770 at public schools, plus an additional $15,650 if one is attending from out of state. At private schools, average college tuition costs and fees were $46,950.
It is important to note that these figures are averages, meaning actual costs will be higher at certain schools and lower at others. Additionally, these figures do not include the separate cost of books and supplies or the potential benefit of scholarships and other types of financial aid. As a result, actual education costs can vary considerably from family to family
AVERAGE COLLEGE TUITION COSTS IN 18 YEARS
To complicate matters further, college costs have historically increased every year. This increase is due to inflation. Inflation makes the amount of goods and services $1 can purchase decline over time.
One measure of inflation looks at changes in the price level of a basket of goods and services purchased by households, known as the Consumer Price Index (CPI). Tuition, fees, books, food, and rent are among the goods and services included in the CPI basket.
In the US over the past 50 years, inflation measured by this index has averaged around 4% per year. With 4% inflation over 18 years, the purchasing power of $1 would decline by about 50%. Said another way, the amount of goods that $1 will purchase today, will only purchase $0.50 worth of goods in 18 years!
However, the cost of college tuition has historically risen faster than average inflation. In fact, over the past 5 years, college tuition costs have risen 5% per year.
What does this mean? Well, if you plan on funding your grandchildren's or children's education, you might be in for a shock. Based on data from CollegeBoard.org, at a 5% inflation rate, the total cost to attend just one year at a public, in-state college including room, board, tuition, and fees will increase from $20,770 to $49,985! This is per year.