A new study from Fidelity emphasizes some of the points made in our August newsletter article about paying for college. It shows how unaware many families are about the cost of college and the ramifications of student loans.
The findings, Fidelity says, reveal “staggering disconnects between expectations of costs and reality.” Among those findings:
One in four parents of high school students believes the full cost of a year of college is $5,000 or less. The actual average annual total cost (tuition & fees, room & board, books, and personal expenses), according to the College Board (PDF), is nearly $27,000 for public in-state universities, more than $43,000 for public out-of-state schools, and nearly $55,000 for private schools.
Nearly two-thirds of college grads and their parents report feeling surprised over the size of loan balances, likely because they didn’t realize that interest begins to accrue on unsubsidized loans when the loan is taken, even though repayment may not begin until several years later. Another contributing factor, according to Fidelity, is that parents may be “using their own college experience as a benchmark for future costs.”
Among high school students who expect to use loans to help pay for college, 40% expect such loans will not exceed $5,000. Reality: Students who graduated in 2019 with education debt had an average loan balance of nearly $29,000, according to the College Board.
What to do?
If you have young children and want to help them pay for college, open a state-sponsored 529 plan and start making monthly contributions.
If borrowing for college looks inevitable, run some numbers to see how various loan amounts will translate into monthly payments and understand the terms of the type of loan you’re considering. Also, get a sense for starting salaries in your child’s field of study, and carefully consider how those payments may (or may not) fit into a post-college budget.
Use those numbers to guide decisions about where to go to school. Carefully weigh the costs and potential benefits of public vs. private and in-state vs. out-of-state schools.
If you’ve already been through the "paying for college" season of life, what words of wisdom can you share with those who have college-bound kids still under roof?
