COLLEGE COSTS

The beat (on your head) goes on

November 1, 2009

>> A recent study by Patrick Callan’s National Center of Public Policy and Higher Education confirms what everybody knows: The cost of getting a college education keeps going up, while its affordability keeps going down.

In New Jersey, for example, the average New Jersey family in 2000 had to spend 19% of its income to pay for college. Today the figure is 34%. That’s a 44% increase in just eight years. In 2008, average total costs for New Jersey residents rose about 6% at state schools (to $13,589) and 6% at private schools (to $32,307).

Fortunately, about 75% of students get some form financial aid, but rarely does it cover the bulk of total costs – and student loans can leave graduates with staggering debts.

According to the College Board, the average annual cost of tuition and fees for a public four-year college in 2009 is $6,585, up 6.4 percent from last year. Not too bad, you might think. But a private four-year college in 2009 will set you back $25,143 a year, just for tuition and fees. For details, go to this site: www.collegeboard.com/student/pay/add-it-up/4494.html.

Self-defense: Start sooner and save more. Starting sooner is especially important because of the way compounding works: Within limits, amount of time can be more important than amount of money. Start saving and investing from the first minute you can.

You may want to build your college fund differently from the way you save for retirement. When that fateful day comes to write a tuition check, the money has to be there. You can’t say, “Oh well, the markets are down, so I’ll just wait.” For that kind of situation, there is a special investment called a “zero-coupon bond.” It’s a kind of bond that pays out no interest while you hold it; you get your interest and principle when the bond matures. The advantage is that you can buy bonds that mature on the dates you’ll need the money. (Downside: You have to pay taxes on the interest while you hold the bonds, just as if you were collecting the money all along.)

You may not want to put all your money in zero coupons. Depending on your circumstances, a reasonable plan may be to put half your money in broad-based index funds, like a total stock market fund, and the other half in Triple-A rated or Treasury zero coupon bonds. That way, you can combine the growth potential of stocks with the near certainty of the zero coupons.

Of course, you should consider housing these investments in a tax-advantaged 529 plan, so that more of your money can work to build your college fund. There are useful 529 Websites (www.529s.com, for example), but be sure to see the very helpful table in www.sec.gov/investor/pubs/intro529.htm.

For a site that helps you calculate the cost of specific colleges and also shows ways to get the money to pay the costs, go to www.go.salliemae.com/plan/?dtd_cell=SEEIGP

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