According to a report by Sallie Mae, 61% of families expect scholarships or grants to cover the cost of college. We have heard parents say, “my kid is really smart so she will get academic scholarships to cover the cost of college.” Fortunately, merit scholarships still exist and Sallie Mae calculates that 46% of families received merit scholarships for the 2014/2015 school year; however, the average amount was only $8,843. JP Morgan estimates the cost of a four-year college education for a 10 year-old today will be $125,000 at a public university.
We have seen parents who rush their kids around to sports activities, aiming for a full athletic scholarship to cover the cost of college. The reality is only 6 college sports actually offer scholarships that might cover the full costs of college. In addition, athletic scholarships are allocated per sport, so oftentimes players only get partial scholarships.
Our team here was particularly awed by the actual percentage of college students in a full time four-year university program who receive enough grants and scholarships to cover all the costs of attendance. According to Finaid.org that number is 0.3%. Less than 1% of all college students. As a result, the fastest growing source of financial aid are student and parent loans. JP Morgan recently presented these statistics as part of their retirement planning research, focusing on balancing saving for college and retirement.
The results of JP Morgan’s research illustrate that you do need to save for both simultaneously. Your Expected Family Contribution (EFC) per the FAFSA is heavily based on current income. So savings are not as impactful on the financial aid need, especially depending on how you save. Other surprising statistics include inflation, as we always focus on the high inflation of health care costs. College tuition has actually risen faster than health care since 1989. The Sallie Mae study discovered that 83% of college savings accounts are in cash or money market accounts. JP Morgan notes that being a college saver is not good enough given those inflation statistics. You have to be an investor. JP Morgan advocates the 529 College Savings Plan, which we have previously written about, especially since the State of Alaska offers one of the top 529 Plans in the country.
If your child is interested in staying in Alaska for their degree, the Alaska Performance Scholarship (APS) offers a great incentive to cover costs. Your student may be eligible for the APS if they have good grades and college placement exam scores, as well as a more demanding curriculum in high school. There are three different award levels of the APS based on the criteria mentioned above ranging from a minimum of $2,378 per year to $4,755 per year as of 2016.
While our kids might get some scholarship assistance to help with their college costs, we still need to plan to save and invest for college, right alongside our retirement investments. Just like balancing your time as we raise kids, we must also balance our savings. We are here to help you successfully plan for both college and retirement. Sorry we can’t help with the time management though!
Cathie Straub, CPA, CFP®
Director, APCM Wealth Management for Individuals