The University of Washington (Winnie’s Alma Mater)
With a child on the way, we have lots to think about. What to name him/her, how to get all the proper nutrients, natural birth vs. C-section, and how to pay for college
It might be a little early to be thinking about college, but that is the point of biggest concern shared in comments on the blog and on reddit about our estimate for the cost of raising a child. In general, people are concerned that I am too optimistic about stock returns and not pessimistic enough about the rate of growth in tuition
Let’s investigate
Growing Tuition
College tuition is a large cost that families face, and it has been rising rapidly over the past 20 or 30 years as more people attend college
A graph similar to this one is often used to express this point, which shows that the rate of growth of tuition expenses at a 4-year nonprofit University has increased much faster than the general cost of living
In 2013, a gallon of milk costs more than 3x what it cost in 1979. Tuition at a 4-year nonprofit University costs almost 10x more
That looks pretty dire, but when compared in equivalent dollars, milk costs less today than it did 35 years ago. But does it matter if tuition has increased in cost by a greater percentage than a bicycle, a pint of beer, or a pair of socks? This is definitely the wrong way to think about it.
What matters is the value of the education, and if we choose to get a degree, how to pay for it and how much to pay for it (there is no use crying over spilled milk)
Advocates of getting a college degree claim that college graduates (generally) earn more income, have greater workplace benefits, and have lower rates of unemployment than peers that don’t have a college degree. But this comes at a price… 4 years of studying instead of earning an income, and the expense and possible debt load of paying tuition and related expenses. This interesting and beautiful tool helps visualize the comparison (although I would like to see some changes to improve its accuracy: include student loan interest, taxes, and investment returns for the early investor.)
Saving for Future Tuition Payments
Let’s assume that we’ve decided that a degree was worth pursuing, either because of expected financial benefits or social or family pressure. This is most likely the case if we’ve decided to get a degree in Computer Science or Law, and less likely to be the case if we study 19th Century French Poetry (except perhaps for those families descending from famous French poets.)
(Watch through at least 40 seconds)
In our case, we are planning 20 years into the future and expect to use the stock market as our primary investment vehicle. When comparing stock returns of the past 35 years to tuition and cost of living increases, this looks like a reasonable way to go
But wait, there is more
This is our baby’s college fund we are playing with, we aren’t going to spend those dividends, we are going to reinvest them!
From 1979, consumer prices increased 3.4x. Tuition increased 10x. The S&P500 increased 18x. And with dividends reinvested, the S&P500 increased 45X!
With a 20 year investment horizon, investing in the stock market seems like the way to go. In all periods from 1979 to 2013, investing less than 50% of a median families income in the year of conception (and often much less) would have provided enough funds to fund 4-years of tuition 20 years later
Based on 2013 median family income, we would need to invest only ~$25k to pay for college in 20 years. This is even more optimistic than the $55k funds I estimated we would need to invest here
What is a Degree Worth?
At some point, tuition increases exceed a reasonable point and it is no longer financially rewarding to pursue higher education
If tuition continues to increase as it has over the past 35 years, what will tuition look like when our child is ready to entire the ivory towers?
Annual tuition in 2034 would exceed $120,000 per year in 2013 dollars. 4 years of tuition payments would have cost a 1979 family the equivalent of 10.5 months of income. A 2013 family would pay the equivalent of 24 months of income (2 years.) In 2034, a family would pay the equivalent of 20 years of income
But wait! Saving 25 years of annual expenses is sufficient to allow early retirement!
Since 20% of median income earnings will go to taxes, just give your kid the cash instead of paying tuition and let them retire at age 18. This will allow them to live a median income lifestyle forever, without working a single day (and just maybe they will sit at home reading 19th Century French Poetry.)
Clearly historical tuition increases are not sustainable
But what is reasonable?
It depends on income. If a college degree would come with a “guaranteed job in the field of study or you don’t pay” clause, and a college degree was guaranteed to pay more than a high school degree, then a for profit university could be expected to obtain the equivalent of a professional recruiter or agent… 10-20% of income.
Since a degree has neither of these guarantees, the fees would be less, more in the neighborhood of 3-5%. Since future income must still be earned, trading hours for dollars, this should be reduced further
Since a university wants up front payment, we have to determine the present value of a 40 year career with annual salary increases that exceed the cost of inflation. This is basically the Present Value of an Annuity
If a degree were to provide a job that pays 2x the median income (~$100,000), and annual salary increases of 2% greater than inflation (5%), then an equivalent annuity would have a present value of $1.7 million. Half of that is because of the college degree. The university can have the agent fee of at most 5%, or $43,000. Tuition would then be about $11,000 / year, more for high income jobs and less for low income jobs
This is a bit more than the tuition at most public universities for in state students (average $8,900 in school year 2013-14.) Despite the rapid rise in State College tuition, and the relative simplicity of this pricing model, it seems reasonably priced
Conclusions
Tuition has long been rising faster in price than general cost of living, but even at today’s prices state schools seem reasonably priced for jobs that will earn $100k/year or more. For jobs that earn less than that, we should question if a college degree is the right solution (which it may be for non financial reasons.) Private 4-year university’s appear to be substantially over priced
Recent trends in tuition increases are not sustainable, but continued increases in price in line with general income trends would be expected. I expect new business models (and the internet) to provide substantial price pressure on the current education models
Even at today’s prices, with the US model of government subsidization of student loans, students are facing unreasonable debt loads. Either relative prices come down or fewer students attend college.
The stock market is by far the best investment medium for long term financial gains. With a 20 year investment horizon for our child’s tuition, the stock market is where we will invest. Based on historical returns, investing a minimum of $25k today should provide sufficient funds to pay for tuition. This assumes worst performance return over a 20 year period in the stock market, and that tuition continues to increase at much faster than inflation, and that our child chooses a private 4-year university with no scholarship.
This should be sufficient margin, but to further eliminate risk, we have already mentally set aside much more than the minimum required
Do you think college is worth it? What would you do to save for a future child’s education, if anything?
Data sources:
College Board’s Tuition data
The US Census data on Median Income
Robert Shiller’s data from his book Irrational Exuberance
on:
Stock market returns
Stock market dividends
Median income
CPI
The traditional college experience will likely no loner exist by the time your kiddo is thinking about what they want to do–textbooks will be electronic. So will classrooms. I can’t see the physical college campus as sustainable or realistic when there are so many virtual options–look at all the free/open courses universities are now teaching.
Also, with articles like this (http://seattletimes.com/html/localnews/2024480734_uwhousingxml.html), kids are going to look for options. And if the kids who just graduated (and are absolutely bogged down with debt now)become parents, they are likely to direct their own children to alternative options that avoid long term debt.
Finally, I think we’re going to see a return to some tradeschool options–do you need a four year degree to weld, or build robots for an assembly line? Probably not.
I’m in complete agreement
The impact the internet will have on education is going to be incredible. I expect some really great teachers will have incredible online courses with broad reach, and average to mediocre teachers will be happy their student loans go into deferment during unemployment
This won’t just be at the university level, but across all ages and levels
Worst case, I wanted to make sure we had enough saved if the worst of the worst happens.
Best case, education will be close to free and we will have extra savings
Your analysis reminded of this scene from Accepted:
http://www.youtube.com/watch?v=nGWtzmsCHgc
I’d love to see what an aspiring FIRE candidate’s short career timeline would do to this analysis. I’d guess it would make the breakeven cost of a University somewhere in the $3,000 per year range. Thanks for putting this together, it was cool to read.
Haha, pure comedic genius!
Using a 10 year career vs a 40, the value drops to about $5k a year.
Interesting analysis. I’m definitely with you on this one, if the potential salary is much lower than the education cost then I’m not sure if there’s a need for the degree.
This seems to be the case for a great number of people today, especially when the cost of debt/interest is added to the analysis
I’m with you on this one. If I have to fork over 20 years of income for each kid’s college education, I’ll just give them everything I have and let them retire early. I’ll take my college education and go back to work!
I recently advised an adult looking for a career change to consider free online courses at coursera in lieu of paying tens of thousands for an online associate’s degree from a not very well known “college”. I don’t know if we are quite to the point of free online ed being giving similar weighting to a real live certified degree from a real live accredited university, but in 17-18 years when your kids and my kids are in college, that might be the case.
At some point finding a good job comes to what you know and who you know. Having excellent skills in engineering or software or whatever career might be more useful than a 4 year degree.
How to convey the fact that you’re super awesome in a particular field without a degree and without meeting contacts in the industry during college might be tricky. Between linkedIn, facebook, and whatever other social media we invent in the next 20 years, it might not be as hard as we think to get noticed.
I’ll also throw out the Georgia Tech Masters in computer science. An online degree with a $7k price tag I believe. From a solid top tier school. Think about what a $7k bachelor’s degree would do to disrupt the higher ed marketplace. We can’t be that far away from it today. Technologically we are there I think.
Really interesting post…and timely for us as we just welcomed baby #3 to the family. The oldest just entered kindergarten and I have $200K set aside for college already (not all locked in a 529 though). This post makes me feel like I’ve gone overboard but I’m wondering what current tuition you were starting with and if that included room and board? I was planning on at least $20K a year in current costs for room and board ($10K tuition, $10K room and board) which is what Ohio State would cost in the state. If you are growing $25K to cover all college costs I’m assuming you are starting with a lower tuition and room/board. I agree there’s a good chance the system will be disrupted but love the peace of mind of checking college off the list as fast as possible!
Hi Dan
All of the data comes from College Board
https://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fee-and-room-and-board-charges-over-time-1973-74-through-2013-14-selected-years
I used the data for a 4-year private University, with average tuition for the 2013-14 school year of $30,094. This didn’t include room and board, which adds another ~$10k/year (+33%), but I figured a person needs to eat and sleep somewhere whether they are in college or doing something else so those expenses would be paid regardless. State schools were much less (~$9k/year tuition, $10k/year room & board)
I haven’t studied it enough yet, but I don’t think I’m a fan of the 529 (for us, other early retirees.) It allows tax free growth of investments, but we already pay zero tax. It also has penalties if the funds are used for something other than college, and I don’t like penalties / restrictions
With 200k set aside already, it looks like you will be in fine shape if/when your kids start university. Well done
Cheers
Jeremy
As an owner of a 529 for child #1 in the state of Iowa, I believe the penalty on withdrawals only apply to any earnings, and not the contributions, much like a Roth IRA…
What if I do not use the money in my account for a qualified higher-education expense?
The earnings portion of a distribution not used for a student’s qualified education expenses is subject to federal and state income taxes and a 10% federal penalty tax. Exceptions to this penalty include a withdrawal made because the student:
https://www.collegesavingsiowa.com/home/why-choose-college-savings-iowa/withdrawals.html
What I like about the 529 is that it’s transferable to damn near anyone (brother, sister, first cousin, yourself), so if kid #1 decides not to do college then kid #2 could get it, or niece #5. just my two cents
If your own retirement is financially secure enough that you are cool with paying for college for niece #5, then OK. Hopefully niece #4 is ok with that too.
I am extremely optimistic about the future of remote education. As the value of basic information drops to zero, it will be the teachers that matter. The massive scale that allows pro sports superstars to earn millions of dollars per year will allow great teachers to finally earn what they are worth. Great teachers will be able to share with millions instead of 100’s. Intelligent students that today pursue degrees in law or finance might return to teaching, a move towards a better society
Why learn physics from an emotionless guy that smells like cigarettes, coffee, and rum, when you can learn it from Walter Lewin:
We all do some online learning today… TED talks, blogs, online forums… maybe even take some classes via Khan Academy or similar. We have interactions with others, in blog comments, email, reddit, etc…
Over the past two years, you and I have had hundreds of interactions, to the point where I wouldn’t hesitate to make a recommendation. Certainly since we’ve never met, our relationship isn’t as strong as if we went through fraternity hazing rituals together, but then again we didn’t have to run naked through the University quad in the middle of winter so I’m not sure that is a bad thing
Many years ago I took some online graduate level classes through Northeastern University. It wasn’t great. The classes were filmed, VHS tapes were sent to my work, I watched them at home and took tests with a proctor. I emailed or called the teacher during office hours if I had questions, but had no interaction with other students.
Today video would be instant and we would use skype to interact with the teacher and others, and an online forum would be used to share thoughts and questions with other students. The advances in telepresence over the next 2 decades will be incredible, allowing full interaction with others like we are actually there
http://en.wikipedia.org/wiki/Telepresence
In 20 years, kids will laugh about how their grandparents went to a physical classroom to learn, and about how much we paid for the privilege. Education will be for everybody
That’s some visionary thinking for sure! I hope it comes true in 20 years, but I would guess the traditional brick and mortar university will still play some significant role in higher ed.
What I have found amazing about the online learning opportunities is the ability to get the most amazing instructors in front of tens or hundreds of thousands of people. I’ve taken few courses through coursera and I believe each class had over 100,000 participants. And most participants actually focus on the course and do the assignments (judging from the essays we had to peer review in one course.
If this was mainstream thinking, then I wouldn’t be “extremely optimistic” :)
Imagine if every one of those 100k students gave the teacher $1. How many teachers would continue to work at their college/Uni for current salary?
I am not quite as optimistic about college costs, although I do see technology as being a massive boon to providing better access to educational resources to the masses. Not quite the same as disrupting the relevance of getting a degree from an accredited university, which will actually make the pedigree of the historied institutions more valuable. There is the issue of ensuring the graduate can actually solve problems, and gets individualized help in areas where they are faltering so they don’t drop. Things like writing out your whole thought process and getting instruction on where you went astray (maybe just transposed a number, maybe had no clue as to what equation to apply) is where the difference is. And this is without taking into account the vast array of professions being taught. There will likely be a larger divide for our children between non-degreed, on-line certifications (the trades) and ‘professionals’, and even ‘accredited professionals’ like PE that require continuing education. You should listen to the podcast at EconTalk – http://files.libertyfund.org/econtalk/y2014/Kollereducation.mp3
Just like we thought we’d have paperless offices and no need to travel for business, there is more paper and travel than 20 years ago… But, I’ll admit, I am rooting for MOOC’s!!! There are a lot of smart people with big incentives working the problems. I’m just also spreading my bets by being prepared to help my children pay a substantial amount for college degrees, since the best evidence we currently have is that a college will continue to be very valuable and expensive.
Thanks for stopping by EV2020!
With current prices of 2 years of median family income for a 4 year State College degree, I would say prices are fairly reasonable. 20 years of median family income would be expensive. Either way they are only valuable if a graduate can make more money with the degree than without, something many recent graduates are unable to do
Today, if we were comparing two resumes, and one listed a degree from Stanford and the other listed a degree from the University of Phoenix, 99% of people would probably choose the candidate from Stanford (probably even the President of the University of Phoenix.) But then again, we both just listened to a free podcast to become better educated (hosted by a guy from Stanford)
But expectations on the future cost or method of education aside, like you I hope for the best and plan for the worst
Best case, our child gets a great free education and I get to buy an island (or two)
Worst case, our child gets a great education (assuming he/she chooses that path)
Thanks for the reply GCC, and congrats! Whatever happens in 18 yrs is anyone’s guess of course, hopefully I get to yacht over to your island while our brilliant, well-educated children make the future even cooler for us :)
I’ll have coconuts and rum waiting :)
First let me say, I enjoy your blog immensely and much of it really resonates with me. But something in your opening sentence bugged me so much I couldn’t concentrate on the rest of the piece, specifically “natural birth vs c-section.” I guess I’m not sure exactly what you meant by this, but I kind of envision you wondering whether your wife and baby would be better off with a vaginal birth vs a planned c-section. I know you’ll do your due diligence and research thoroughly, but I can’t help but add my two cents as a recovery room nurse. A c-section is MAJOR abdominal surgery-something to be avoided unless deemed necessary. It comes with its own set of risks, and the healing process is long and painful. It can seem like a simple way to get a baby out, and in today’s modern world it is quite routine, but it’s a really big deal. There are lots of increased risks: Risks associated with the anesthesia/spinal, bleeding risks, infection risks (from the incision and the urinary catheter), delayed bonding, narcotic pain med requirements, and worse outcomes for baby. All these risks are small of course, but real. When a c-section becomes necessary it is the most wonderful miraculous surgery there is, but having spent hundreds of hours recovering sectioned mamas I can’t imagine anyone electing to have one if they don’t have to and would consider it a failure of the doctor to have obtained true informed consent. Whew. I’ll step down off my soapbox now and get back to reading your article.
Hi Jill, thanks for taking the time to share your knowledge and experience
Here is what I meant by it: I found it curious that people focus on the college portion of having a child when there is SO MUCH MORE IMPORTANT STUFF to think about. So my intro was some random baby stuff that people talk about in the here and now and then WAY out in the future is college. So basically it was a joke (although not nearly as inappropriate as the one Winnie just made… I just love her dearly :) )
My sister is a nurse and a hippie, has an incredibly deep passion for natural child birth, and for a time worked in one of the nation’s largest birthing centers. She has talked about this with us a lot, even before we ever thought we would have a child. To me it is in the category of “baby stuff people talk about”… I’ll support Winnie whichever way she wants to go. As I understand it, it is not uncommon in Taiwan to plan a C-section even before conception
I’m pretty sure a natural birth is in our future, for many of the reasons you mentioned, but also because the recovery from the scolding my sister would give us for having a planned C-section would be even more severe :)
Hopefully the rest of the article is also interesting
All the best
Jeremy
From one dude to another, go with the V birth and skip the C birth if you can (well, if Winnie can). After each of the 3 V births, my wife was up and on her feet after a day or two and 90% recovered. It makes dealing with a screaming peepooping slobbering ball of love a lot easier if both parents are able to take care of the new arrival without worrying about the mom recovering from her own major surgery.
And don’t fall into the hippy trap of skipping the epidural out of principle or some feeling that it makes you superior. That thing is an amazing advance of modern medicine (with a few minor downsides). Although Mrs. RoG didn’t have time for it once since kid #2 was being impatient (or maybe it was me driving 90 miles an hour on the interstate that scared the kid out?!). She says natural child birth “wasn’t that bad. What are all these other women always complaining about?”.
Jeremy,
This is a great post. I liked it so much that I highlighted it at our blog in my most recent post about paying for college and compared it to the thought or lack there of that most parents and kids put into this decision. We have a similar plan and have reached the same conclusions as you, but got there more intuitively. Your analysis was very interesting.
I found you guys through the MF and recently listened to your interview on the RPF podcast and was initially interested by your tax planning strategies. I’m really curious to follow along and see how having a baby changes or reinforces your perspectives. Our path is a bit different than you as our now 2 y/o baby is what pushed us to get serious about FIRE. Based on this post and your one about the cost of raising a child, I think you’re right on and that will be a lucky child.
Cheers!
ChrisEE
Hi Chris
Thank you kindly. I originally reached these conclusions intuitively as well. I was happy to see that the data was supportive
I like your thoughts from your post on this topic as well. “Achieving abnormal financial results is rarely a result of working harder or making great sacrifice. Instead it is about long-term thinking, good comprehensive planning, making your money work for you instead of against you and daring to be different” pretty much sums it up
I have no idea how a child will influence our future. In that way we are probably quite normal. But whatever happens, it will surely be a great adventure
All the best
Jeremy
There’s a more fundamental question here about kids needing to have a reason to go to college and deciding as 18 year olds what they want their first career to be when they finish college. If they go in just wanting a university experience or a liberal arts education, it’s highly unlikely that college will be “worth it”.
College isn’t the cheapest place to “find yourself” that is for sure
I know of one European country where trade school is encouraged after middle school for kids who either don’t want to proceed with education or are not good in class. The thing I found interesting is that no one looks down on trade schools because they know that you need crafts people for some tasks. The good thing is that crafts people actually make a good living and are respected in the community. My country for one, would do well to go the same way especially with the boom of construction in the past decade.
I grew up in a lower income small town, and trades people were the norm.
A 4 year degree isn’t for everybody, and indeed many pursue that route that would probably be better suited to the trade route
Jeremy, this is an excellent and well-written article. I think the upcoming generation is really going to have to work hard together and think outside the box to avert this national problem. A physician recently published an open letter to President Obama with a proposal to cut rising tuition costs on our website: http://www.bareletters.com/home/a-physicians-open-letter-to-president-obama-regarding-the-student-loan-crisis
Thanks again for your entertaining and educational posts. We love reading about your Curry Cracker journeys!
I enjoyed the letter, it is well written. In part it made me think of this article:
http://www.theatlantic.com/business/archive/2013/03/how-washington-could-make-college-tuition-free-without-spending-a-penny-more-on-education/273801/
I suspect little will happen in the next 2 years with a Republican controlled Senate and a Democrat in the Presidential seat, but who knows.
I’m more optimistic about the open market and internet education forcing the hands of politicians in government and the education system, e.g. http://www.iflscience.com/technology/edx-offer-free-advanced-placement-courses-high-schoolers
I’d also like to see high schools provide a more rigorous financial education, so students understand better what it a loan entails
Thanks for sharing, and thank you for your kind words
Jeremy
Timely topic, (as always) GCC. Congrats to you and Winnie…the pic of her alma mater makes me want to hang at the “U-Dub” quad for a while. :) Perhaps I’ll pull a Rodney Dangerfield and head “Back To School” with my daughter? Anywho…my daughter turns 4 in March and I’ve been contributing to an age based 529 portfolio through Vanguard. The balance is @ 27k with additional funds from the grannys’ ( perhaps several $12 checks…I’m not quite sure. ;) It’s difficult to predict how much will be enough…I’ll be 58 when she’s a college freshman…sure hope I’m not sportin’ a Walmart smock at that time to help defray costs! As many posters have mentioned…online opportunities ( i.e. Khan Academy ) may help reign in the ridiculous rise in higher education costs. Happy New Year!
Happy New Year Jon
The U-dub quad was just a couple blocks from our Seattle apartment. I would bike past it on my way home from work, and we would hang out there quite a bit
27k at age 4 is pretty good, and with another 14 years of tax free growth you will probably be in good shape. And maybe convince Grandma to index her checks for inflation ;) Downward pressure on the price of education should also be substantial in that time, the internet is a beautiful thing
We are on the same timeline, I’ll be a similar age when GCCjr steps into the ivory towers. If you do go back to school, I hope you don’t “Get no respect” haha
Cheers
Jeremy
Hey Jeremy,
Just found your site about a week ago and have been pouring through it. Love the information and the links to the Stock Series and other blogs like this. My wife and I just had our first kid 4 weeks ago and I am looking to start investing some money for her for college but don’t have enough for a 10k vanguard account. What would you recommend someone who wants to invest $500 now and perhaps an additional $1000 or more each year?
Thanks!
We fund and pursue college for our kids in an unconventional way. As homeschoolers, we have a lot of freedom skip grades, compress courses and do high school and college together. My oldest kids got AA degrees by testing out of most of their College required classes by using CLEP test which cost only $80 per test = 3 to 4 credit hours. Then their AA degrees were well matched with their 4 year college aspirations. In our state, there are several schools that give 50% off tuition if the student transfers from a state Community College with an AA degree. Also, there are several online universities that virtually allows your student to ‘test-out’ of 80% of certain majors. So if you are open to trying creative ways to pay for college it can be done. Thus far, my oldest daughter is graduating next year, with an AA in BioInformatics, BS in BioInformatics and Minor in Computer Science, and it cost me a whopping $24K. Other thrifty people have done it for less.
Awesome! Well played
My brothers were able to get a lot of college credit during high school via a program where they could go to the community college for certain classes, math, english, etc… Even if you can get one year of basics out of the way and reduce college to 3 years, you are a huge step ahead
I’m really optimistic about the changes to formal college education that will come in the next 20 years via online classrooms and self-learning
I’m new to your blog and really enjoying reading about an alternative perspective. Apologies if this question has already been asked but I’m curious how far in advance of tuition being due are you planning to pull your funds out of stocks so you can be protected if they happen to fall right as college begins?
I haven’t thought about it. We’ll need to see what college is looking like around early high school age, and see how the portfolio has stood the test of time
Since schools like Stanford are now offering free tuition (essentially) and online learning is becoming more mainstream, I expect the education landscape will be vastly different in 18 years
This article predicts the demise of 50% of traditional universities by the time GCCjr would be college age
http://www.futuristspeaker.com/2013/07/by-2030-over-50-of-colleges-will-collapse/
Interesting article, thanks for sharing! I’m certainly for a lower cost education opening up the opportunity to learn to more people. I do feel lucky though that I came of age in a time where going to college had a reasonable cost. In addition to coursework, there were so many lessons learned outside the classroom by living away from home, but in an environment with additional support and resources. Best wishes to you and your growing family!
Jeremy,
I would love if you could do a blog post analyzing the pros and cons of contributing to a 529. I contributed $4,000 each to my two kids last year. I’m not quite at the 0% tax like you are, but my AGI is very low. It did save me about $400 in Virginia state taxes, but like you I’m not that comfortable being penalized if it’s not used for higher education. I also wonder whether college will become much cheaper in 15 years when my first born turns 18.
I agree that the college/university will be vastly different in 20 years. But my child is a high school freshman, so we are stuck right in the middle of this. It seems like he must have a college degree for almost any job, since databases do the first level of screening at most large companies. If you don’t have a degree, you won’t even get an interview. Maybe small businesses would be more human in looking at resumes, but if you see a candidate with a college degree vs. one without, and you need some easy way to sort through a hundred resumes, which will you pick? So we’ll be spending a small fortune in a few years, just to send him to a public school, because it seems necessary in today’s environment.
You said all I need to have now is 25K saved per child in a 529 and give it 20 years? What is the rate of growth of the investment portfolio? If I use 6% I get in 20 years it will be about 70K. That doesn’t seem like enough to cover 4 years worth of tuition.
I said I’m saving $25k. We also don’t use a 529.
You should save however much you think is necessary, and in a 529 if that is best.
Growth over the previous 20 years was much more than 6%.
If future growth is lower, tuition growth will be as well.
Hi Jeremy, thank you for this post. I recently listened to you & Winnie on the Afford Anything podcast and was amazed! You are an inspiration!!! We have a young song who just turned 20 months old so very close in age to gccJr. I have been saving for him in a traditional savings account ($3,000) while researching and trying to decide the best way to invest for him. We also have a very very small 529 started (~$350). However I liked the strategy you talked about on the podcast where you sell each year, up to the amount where you would incur more than 0% taxes to increase the cost basis. I have been scouring your blog hoping for a post outlining this approach but have not found it yet so figured I would ask here in the comments. I think you said this approach involves putting the asset in gccJr’s name, is that right? Did you use an UTMA or an UGMA? Just checking, this means that all the money is officially in the control of gccJr at age 18? Any concerns about that? Im sure you plan to give gccJr a major education in financial literacy but…teenagers!, right? I remember how headstrong I was at 18. That seems to be one of the trade offs with the 529 in that you can control how the money is transferred and for what purpose. I hope to be able to instill very good money values in my son and we love the idea of having the savings be unrestricted by qualified education expenses but I would also be heartbroken if I saved diligently and my headstrong teenager blew his money on a fast car that he crashes a few days later (true story). Also, I thought I heard you say that a minor can sell/take gains up to $6,000 per year before triggering taxes at more than 0%. Can you explain the details on this a little more? Anything else I should know before I try this approach? Thank you!