How to Pay for College: Exploring Your Options
Paying for college can feel overwhelming, especially as tuition costs continue to rise year after year. The average cost of attendance at a public university for in-state students now exceeds $100,000 for four years in the US, while private colleges can easily surpass $180,000 over the same period (1). However, these figures can be misleading, as some four-year universities may cost as little as $50,000 out of pocket, while top-tier Ivy League schools can exceed $350,000 for the full four years. Given these steep costs, it's no surprise that many families are searching for ways to make higher education more affordable. Fortunately, there are several strategies to help alleviate the financial burden, each of which can make a significant impact in funding your loved one’s education.
The Importance of Planning Ahead
Investing in education is one of the most important steps parents and grandparents can take to ensure a secure future for younger generations. College is more than just a degree—it’s an opportunity for personal and professional growth. For many families, funding education is seen as a crucial way to give a loved one a strong foundation for success in both their career and life. However, with the rising costs of higher education, planning ahead is essential to avoid accumulating unnecessary debt.
How to Save for a College Education
At Wolf Group Capital Advisors, we recommend a variety of strategies to fund a college education. Given the unpredictable nature of college expenses, the availability of scholarships, federal aid through FAFSA, and other factors, flexibility is key. We typically suggest funding 50%-75% of college expenses through a college savings plan. Since these plans often come with eligibility requirements and can become “overfunded”, we generally advise covering the remaining 25%-50% through a taxable brokerage account. This combined approach allows you to save while maintaining flexibility. We understand that each family’s situation is unique, and we tailor our recommendations accordingly.
What College Savings Account Should I Use?
When saving for a college education, there are a few common accounts to consider. The two most widely used are 529 plans and Coverdell Education Savings Accounts (ESA’s). Between the two, 529 plans tend to be the more advantageous option, mainly due to the low contribution limits associated with ESAs.
The 529 plan is a tax-advantaged savings account that allows families to save for education-related expenses. With this plan, your contributions grow tax-free, and withdrawals are also tax-free when used for qualified expenses, such as tuition, books, and fees. Many states offer additional benefits, including state tax deductions for contributions to state-sponsored 529 plans. This makes 529 plans even more attractive, as these tax deductions can significantly increase your savings over time. Additionally, many international schools accept 529 plan funds, providing even more flexibility in terms of where you can use the savings.
Our Thoughts
The key to successfully funding a college education is to start planning as early as possible. The sooner you begin saving, the more time your investments have to grow, and the greater the benefit of compound interest. Even modest, consistent contributions can lead to significant savings over the course of 18 years or more. At Wolf Group Capital Advisors, we are dedicated to helping families and individuals build financial strategies that will benefit future generations.
Helpful Fact: We often meet with clients who are missing out on potential state tax deductions because they’re contributing to a 529 plan from another state. If your state offers tax deductions for 529 contributions, we recommend taking a moment to confirm that you’re fully utilizing this benefit.
Sincerely,
Associate Financial Advisor
About Wolf Group Capital Advisors
At Wolf Group Capital Advisors, a comprehensive wealth management firm and Registered Investment Advisor (RIA) based in the Washington, D.C. metropolitan area, nothing is more important than the fiduciary responsibility we have in managing your wealth. Taking the utmost care, we focus on providing advice tailored to your specific circumstances. With more than two decades advising U.S. expatriates and non-US citizens employed by international organizations, we are qualified in investment strategies addressing global issues. Empathy and curiosity—combined with our experience in life planning and investment management—enable you to explore a wider set of possibilities that can lead to a fulfilling life you’ve worked hard to attain.
Disclosure:
The views expressed represent the opinions of Wolf Group Capital Advisors as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
The information presented is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.