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Personal Finance & Planning
November 22, 2019

How You Can Afford the Huge Costs of Higher Education

According to the College Board, the average annual cost of tuition, fees, and room and board at a four-year in-state public university for the 2018–2019 school year was $21,370—representing a 30% increase from a decade earlier.1 (For private nonprofit schools, the total was $48,510, or a 25% increase.) Multiply those costs by four years, factor in inflation, and you could be looking at hundreds of thousands of dollars per child.

But do you really need to save every last penny of the total cost of college? Maybe not. “Thanks to financial aid, grants and scholarships, many families don’t pay the full published price for college,” says Robert Aruldoss, a senior research analyst at the Schwab Center for Financial Research.2 “So don’t automatically rule out schools based on the price of admission.”

You can use the National Center for Education Statistics’ Net Price Calculator to browse published prices and the net cost that families typically pay after subtracting the average amount of federal, state/local government, grant or scholarship aid from the total cost of attendance.

Then it’s time to estimate a likely combination of financial aid, savings and out-of-pocket payments that works for your family. For example, if your child’s education will cost $100,000 in total, you could aim to save roughly a third before college, cover another third using a combination of your regular income and your child’s contributions from part-time work, and fund the remaining third with a mix of loans and the like.

You can use a calculator to determine just how much you’ll need to sock away each month in order to reach that goal.

“Of course, every additional dollar you can put toward your child’s college fund today—without sacrificing your retirement savings, which should always take priority—is a dollar you or your child won’t have to borrow tomorrow,” Robert says. “But however you choose to apportion the high cost of college, tapping multiple sources can help you successfully pursue your other savings goals while still keeping your college-savings efforts on track.”

1“Tuition and Fees and Room and Board over Time.” | 2How America Pays for College, Sallie Mae, 2018.

When four becomes more

What if it takes your child longer than expected to earn that undergraduate degree?

According to the National Center for Education Statistics, only 42% of students complete their undergraduate degree in four years, whereas 60% graduate by year six.* But does that mean you should be saving for more than four years?

Not necessarily. Sitting for Advanced Placement® or College-Level Examination Program® tests while still in high school and taking classes at a local community college are two ways to reduce the amount you might pay for higher education.

“That said, it’s always a good idea to set expectations with your child regarding how much you’re willing to help—and for how long,” Robert says.

*Data is for those who began undergraduate programs in 2011.

What You Can Do Next

At Charles Schwab, we encourage everyone to take ownership of their financial life by asking questions and demanding transparency.

Our Insights & Ideas bring you information that fosters that ownership, because we believe that the best outcomes in life come from being fully engaged.

Want to know more? Talk with your Schwab Financial Consultant or call 800-355-2162.

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

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