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These days, the cost for a four-year degree can be as much as purchasing a home. Meanwhile, the costs of borrowing in order to pay for that price tag are rising exponentially as well. Paying back these loans are putting a major crimp on post-graduate life by delaying major milestones such as homeownership and starting a family.
As the importance of having a college degree grows and the price tag to obtain that degree surges, the time has never been more important for guardians to save for college.
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And there’s plenty of data to back this fact up.
A study from Georgetown University found that college graduates on average earn $1 million more in earnings over their lifetime than non-degree holders. A similar study by the Pew Research Center shows that the median yearly income gap between high school and college graduates is around $17,500 per year.
Turning to official government data, the Bureau of Labor Statistics shows that full-time workers with a bachelor’s degree earn on average $1,189 per week. This compares to $515 for workers without a high school diploma and $718 for high school graduates with no college. Full-time workers with advanced degrees, such as a professional or master’s degree, had median weekly earnings of $1,451.
So clearly having a degree is important for future financial and societal success. The problem comes down to the rising cost of obtaining that degree.
For a student enrolling today, obtaining a four-year degree will cost you around $44,000 at a public university. That number jumps to more than $150,000 for a private college. Over the longer term, the picture gets even more expensive.
Tuition costs have long outpaced inflation as measured by the Consumer Price Index (CPI). Over the last decade, industry group The College Board has shown that the historical rate of tuition increases approximately 5% per annum. For a child born today and enrolling in college in 2036, those numbers jump to $106,000 and $371,000, respectively.
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The latest statistics show that roughly 44.7 million Americans owe more than $1.53 trillion in total student loan debt. And those balances are high with the average 2018 graduate leaving school with $29,800 in debt. Monthly payments for that debt average around $299. With payoff times between 10 and 30 years, this huge debt burden is having a real effect on several key life milestones.
Despite their higher salaries, many college graduates simply can’t afford some luxuries that previous generations were able to obtain. Many graduates are delaying or abstaining from home ownership purchases, paying for weddings, cars, vacations and having children – really they’re postponing “normal” life decisions. In addition, many recent graduates are postponing saving for retirement or saving less than they should. This sets up a potential double-whammy, and it’s all due to higher loan balances.
This is why having a 529 plan specially earmarked for college savings is a must in this day and age. The plan offers a tax-deferred way to save for higher education and can be used to give children the degree needed for success – without the burden of student loans and the issues that come with them.
And even if you don’t go the 529 plan route and use a different vehicle – such as a UGMA/UTMA, taxable brokerage account or simply cash savings – the idea is the same. Saving for college now will help your future student over the longer haul.
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