WEST ROXBURY, Mass. — Rachel Colleran is a stay-at-home mom with a two-year-old daughter. Saving for college, she said, just isn’t a priority right now.
“Daycare is expensive, let alone college tuition,” Colleran said. “We want to save for college but right now we’re just getting by.”
It’s easy for parents to feel overwhelmed when looking at college costs. The Education Data Initiative says Massachusetts has the highest average yearly tuition of $47,980 for private institutions. It costs $71,334 for one year of tuition, room and board at Emerson College in Boston, $72,422 at College of the Holy Cross in Worcester, and $75,422 at Boston College in Chestnut Hill, according to College Tuition Compare.
“A big expense for any parent, in addition to buying their first home perhaps, is saving up for college,” said Bradley Baskir, a financial advisor at Morgan Stanley.
Even more startling is the rate prices are rising. Baskir said college costs are increasing at an average of 6 percent a year. If that rate continues for another 15 years, Baskir said a four-year education at Harvard University could set a family back $740,000. Likewise, a four-year degree from UMass could cost someone $325,000 for tuition, room and board.
“It’s so important to plan for this exercise as early as possible,” Baskir said.
DECIDE HOW MUCH YOU CAN SAVE
Baskir said he advises people to break their monthly income down into a 50-30-20 split: 50 percent goes to essential items like the mortgage, utilities and groceries, 30 percent is for discretionary spending like shopping, going to the movies and dining out, and the remaining 20 percent goes to savings. From there, you can decide how much you can afford to put aside for your child’s college education.
“You have to decide what your priorities are. For some, it’s saving for retirement, college, or that first home,” Baskir said. “If you’re not saving at least 20 percent, it’s a great opportunity to look at your budget and see what you can be doing to increase that amount to get to at least 20 percent, if not higher.”
OPEN A 529 COLLEGE SAVINGS ACCOUNT
Once you decide how much you can afford to save, Baskir said you should open up a 529 College Savings Account, a tax-advantaged investment plan where you can contribute as often as you want. Massachusetts offers the Baby Steps Savings Plan and will give you $50 if you open an account within a year of your child’s birth.
There are two perks to using a 529 College Savings Account: 1) the money you earn in that account is not taxed and 2) you can claim a state income tax deduction every year of up to $1,000 for a single-filer and $2,000 if you’re filing jointly.
“What a lot of people don’t understand about 529s is you get tax advantages,” Baskir said. “I think the tax-free appreciation and growth as well as the state tax deductions should pretty much tell you why it’s so important to take advantage of this.”
DON’T SAY “I’LL FIGURE IT OUT LATER.”
Baskir said too many people put off saving for college and fall too far behind. He said parents need to figure out their action plan today.
“College rates are rising at alarming rates. Starting to plan too late could [result in] a mountain that is ultimately too tall to climb,” Baskir said.
Roslindale mother Samantha Boehm said she and her husband have already started saving for their two-year-old son.
“Who knows what [tuition] is going to be like. It could be hundreds and hundreds of thousands more,” Boehm said. “It will be really interesting to see in 16 years what it will be like for him. It’s sort of like I can’t fathom it.”
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