If you’re a parent of young children, you might not have considered the future cost of college. After all, you could still be paying off your own college debt and your child won’t be ready to enroll for years. Although college might be a long way off for your child, experts advise that it’s best if you start planning as early as possible.
As part of Money Smart Week®, the Illinois Student Assistance Commission, the state’s college access and financial aid agency and the administrator of the College Illinois! 529 Prepaid Tuition Program, offers a reminder of why it’s important to start planning for college costs as soon as possible:
- College degrees increase earning power
The jobs of the future will require at the very least a high-quality credential or college degree, and there is ample evidence that a degree increases overall earning power. For example, Americans with a college degree make 98 percent more an hour on average than those without a degree, according to the Economic Policy Institute.
- Tuition costs have historically gone up, not down
The cost of college tuition has significantly increased in recent years, at an annual rate of 6.5 percent, according to the U.S. Department of Education. If this trend continues in the coming years, US News reports that today’s tuition costs could double by 2030.
- Debt delays important life milestones
About 70 percent of recent graduates have student loan debt, with many of them exceeding the average of $37,000. Those elevated levels of student debt can prevent or delay a child from achieving important life milestones. For example, student loan debt caused one in seven recent graduates to delay homeownership; one in three to delay marriage; and prevented one in four from moving out of their parents’ home, according to a study from American Student Assistance.
- 4. Planning early can save you money in the long run
Many states, including Illinois, offer both “529” savings and prepaid tuition plans that make it easy for parents to start putting away money for their child’s education. 529 refers to the IRS tax code provision that offers families significant tax incentives to prepay or save for college. Prepaid plans allow you to purchase semesters of college at today’s plan rates, minimizing the risk for tuition inflation so that the money you set aside today works harder for you in the future. And with many plans, including College Illinois, the younger your child when you purchase, the more you save on the cost of the plan.
A little planning can go a long way towards reducing—or even eliminating—your child’s student debt. By saving today for the future the cost of college, you can help set your children up for success and save yourself money in the long run. That’s money-smart!