College tuition is increasing at a rate double that of general inflation. In 2010 the annual tuition for a public four-year college was $16,000, which was up 6.1% from 2009. The cost of a private four-year college was up 4.3% from 2009 to 2010, coming in at a staggering $37,000.
The Impact Of Rising Costs Goes Beyond School
Due to this, it has become increasingly difficult for parents to pay for college; if the student pays for it, then they graduate with a mortgage on their hands. While students have a grace period of six months to begin repaying their loans, over the last few years, many graduates are finding it difficult to find jobs when they graduate due to the frail economy. A good rule-of-thumb is to borrow only your first year's salary. That would barely pay for one year's tuition.
Some folks in fact are taking any job, just to have some income. This could sabotage their career by putting them in an income bracket that is well below their potential, and hard to break out of when the economy gets better.
Parents To The Rescue
Most parents only want the best for their children; they want their kids to have more than they did. So, parents are paying for college; but, with the rising costs, it's hard to get ahead of it; so what are parents doing? The parents of 24% of college students are tapping into their 401(k)'s, which doesn't include the number of parents who are reducing or arresting their contributions altogether. Some parents are delaying retirement in order to pay for collge.
A few years ago, before the housing bubble burst, homeowners could tap into the equity of their homes by refinancing and using the extra cash to spend. Some did that to send their kids to school. Now that home prices have dropped, there's no equity to be had, so parents can no longer use their home as an ATM.
What Can Be Done About Expesnsive Tuition?
To be sure, students have many avenues open to them to borrow money; it may not be at a good rate, nevertheless, it exists. However, retirees don't have many ways to borrow money in retirement, so it doesn't make sense for a parent to sacrifice their retirement for their kids. There are no guarantees your kids will take care of you in retirement.
Working in school may be a good solution to the problem; it actually works double time; not only does the student get financing for their education, but also the student cannot spend while they're working. Taking a year off between high school graduation and starting college and working would be a great way to save money for school. Also, starting a college career at a lower-cost local college may be another way to begin; however, the transfer process has become highly competitive.
How did you pay for college tuition?