For the 2002-03 school year, the average annual cost of a four-year public college is $12,841, while a four-year private college costs $27,677 (Source: Trends in College Pricing
, 2002). Trying to fund four years of those types of costs can be an overwhelming prospect. If you have a young child, you probably don't even want to think about how high those costs could be when your child enters college. But before you decide you'll never be able to afford a college education for your child, take a closer look at these cost figures.
While college costs are definitely increasing by more than the inflation rate, they aren't increasing as much as they were 10 years ago. From 1982 to 1992, the median family income increased 16% after inflation, while tuition increased 62% at private four-year colleges and 58% at public four-year universities. From 1992 to 2002, median family income increased 8% after inflation, while tuition increased 37% at private four-year colleges and 38% at public four-year colleges (Source: Trends in College Pricing, 2002). However, tuition has increased at relatively high rates over the past two years. For instance, four-year public college tuition increased by 8.4% after inflation in 2002-03, which was attributed to lower state appropriations resulting from a slowing economy. Although no one knows how much college costs will increase in the future, it's probably a safe bet it will be by more than the inflation rate.
However, consider whether you even need to worry about the average cost of college. Approximately 38% of full-time college students attending four-year universities pay less than $4,000 annually in tuition and fees, while 70% pay less than $8,000. Only 7% of students attending four-year colleges pay over $24,000 per year in tuition (Source: Trends in College Pricing, 2002). If your child commutes from home, you can subtract anywhere from $5,327 to $6,779 in room and board charges from the average college costs.
These costs also don't consider any financial aid you may receive. While college costs increased 38% over the past 10 years, financial aid increased 117% after inflation. The average financial aid award per full-time equivalent student was $7,827 for the 2001-02 school year. However, only $3,085 was in outright grants that don't have to be repaid, while $4,200 was in loan aid, $437 in federal tax credits, and $105 in work aid (Source: Trends in Student Aid, 2002).
While those figures might make college seem more affordable, realize that much of financial aid is based on need. That need is determined by financial aid officers, using formulas that often result in much higher estimates of what you can afford than what you think you can afford.
What you should take away from all these figures is the realization that college costs are a significant expense that require planning and saving on your part. Even if your child is young, start thinking about college. Consider what colleges your child might attend and then find out what they currently cost and how much tuition has been increasing. Find out how financial aid is calculated and determine how much aid you can expect. Approximately 54% of financial aid is in the form of loans, so relying solely on financial aid may mean that either you or your child will incur a substantial amount of loans.
Armed with this information, you can then map out a plan to save for your child's education. There are now many tax-advantaged ways to save for college, including Section 529 plans (both prepaid tuition plans and college savings plans) and Coverdell education savings accounts.