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Mary Caroll Murphy
Wednesday, May 9, 2012

Preparing for child’s college education starts early, often

Mary Carroll Murphy

I call it your child’s “first mortgage.” With the cost of annual tuition at public and private colleges and universities continuing to rise, it’s becoming increasingly likely your child may have a six-figure bill for their college education.

The average cost of a bachelor’s degree from a private college in 2009 was $28,500 a year and $8,244 a year for a public college education, according to the 2008-09 study completed by the College Board. This translates to $114,000 for a typical private college and $32,976 for a public college for four years, not including room and board or ancillary expenses, such as laboratory fees, school supplies, extracurricular activities, etc.

Tuition and fees at U.S. public colleges are rising at twice the rate of inflation, or 8.3 percent in 2011 according to the College Board. Nonprofit college costs rose at 4.5 percent. Students have good reason for concern. The statistics are stunning – roughly two-thirds of the Granite State’s college graduate population currently carries student loan debt, and New Hampshire students carry the heaviest burden of debt nationally with an average of $31,048. How can students plan wisely before entering college so they don’t emerge with a debt that will take years to pay off?

If your child is confused or uncertain as to the career he or she wants to pursue upon high school graduation, you could consider having your child work one or more years before attending college. This can provide them with more time to research careers, as well as accumulate savings toward college expenses.

Parents and children also should be realistic and consider college costs within the context of their potential future earnings, job market demand for their chosen profession and job prospects upon graduation. For example, the median wage for a social worker in Hillsborough County is $49,602, whereas a chemical engineer’s median salary is $94,471, according to The engineer should be better able to borrow more money than the social worker. A rule of thumb that I recommend to clients is to borrow no more than $5,000 a year, or only debt that can be paid using 15 percent of the student’s pre-tax income upon graduation.

It’s difficult to know what a student will earn, but parents can research average salary data for their state at and the U.S. Department of Labor website.

Given the increasing cost of a college education, I recommend the following strategies for college planning:

Start early and save more. Put your savings on “automatic pilot” by setting up a recurring deposit into an investment account, such as a 529 Plan, that has been earmarked for your child’s education. The earlier you start saving, the higher the probability you will achieve your college-saving goal because of the power of compounding. Also, some college-saving strategies are only practical with children 8 years old or younger. Plan to fund five years, which is the average students in America take to complete a bachelor’s degree.

Identify ways to reduce the cost of college so you don’t have to save or borrow too much. Encourage your child to take accelerated classes, such as Advanced Placement, which reduce the number of credits required for a bachelor’s degree and improve his or her chances of qualifying for merit-based scholarships.

Other cost-reduction strategies include prepaying tuition if you know your child will attend one of the colleges in the network that offers this option. Attending a college in your state or transferring credit from a local two-year community college might save on room and board. These strategies can have a side-benefit of ensuring your child stays focused on their studies during their first two years of college, which are often the years with the highest rate of dropout.

Leverage all possible grant, scholarship and loan options. Research colleges for which your child exceeds their admission criteria. This usually enhances your child’s eligibility to receive financial aid toward that college’s costs. Try to leverage federal loans (Stafford and Perkins) first because they usually have lower interest rates and more flexible repayment options. Don’t assume you won’t qualify based on your income. Educate yourself about income-based repayment plans, a provision of the College Cost Reduction and Access Act. Income-Based Repayment allows graduates to pay back federal loans on a sliding scale based on his or her income.

For the portion of your child’s education you want or need to pay, it’s important to balance savings priorities between your child’s education and your own retirement. You can borrow for your child’s education, but you cannot borrow for your retirement. Having your children share the costs typically sensitizes them to the expense and might improve their focus on academics and ultimately their grades.

Design your savings strategies to minimize “countable assets.” This is where consulting with a professional can help.

Some quick tips include:

Assets in the parents name are counted at a lower value than assets in the child’s name.

Reduce student-owned assets as much as possible except accounts specifically earmarked for education (e.g. 529 Plans, Coverdale Plans, etc.)

Pay off debts and bills (e.g. insurance, property taxes, etc.) to bring down value of investment and savings accounts.

Report the value of accounts on the day you are filling out the form.

Don’t include retirement assets, home equity, permanent life insurance, annuities, or personal property (boats, furniture, vehicles, or other household possessions as assets).

Appear to consider loans even if you really don’t want to borrow. You can always decline the loan later.

Have your student work at campus jobs for no more than 15 hours per week. This can improve chances of getting scholarship money.

Which parents’ information should you use? The parent who has most custody (51 percent of support). Stepparents must contribute to child’s education.

Student savings – if a student is younger than 24 and a 529 Plan is earmarked for school, the 529 Plan is counted as parent’s savings, so it shouldn’t have an impact.

Encourage your child to foot some of the bill via work study or paid internship programs. This will have side benefits of providing the student with early work experience and exposure to taxes and other real-world paycheck deductions.

Parents seeking more information should attend the upcoming free workshop at 9 a.m. Saturday at Charles Schwab, 2 Cellu Drive, Nashua. Register at or call 595-0581.

Mary Carroll Murphy is a Nashua-based Independent Branch Leader with Charles Schwab. She can be reached at or at 595-0438.