It’s back-to-school time, and if you have a teenager, college costs are likely weighing on your mind. You’ve probably heard the statistics regarding the rising costs of a 4-year degree, not to mention the student loan debt crisis that plagues today’s college graduates.
While it’s no secret that college is expensive, we believe it’s productive to focus on the positive side of higher education. An educated society will help us stay competitive in the global economy, driving innovation and inspiring more efficient ways to improve our quality of life. So we’re here to share some good news about the financial aspects of college.
1. Lifetime earnings may be higher for grads.
In spite of rising tuition costs, studies show that a college degree still pays off over time. According to a 2013 report from the U.S. Bureau of Labor Statistics, bachelor degree holders earn $1 million more over their lifetimes than high school graduates.
2. Annual earnings may be higher for grads—and that means they’re likely to save more, too.
Average annual earnings for a high school graduate vs. a college graduate are $33,852 vs. $57,616, respectively. That’s 70% greater pay per year for those with a 4-year degree. Bonus: If your children invest a portion of those earnings in tax-advantaged retirement accounts starting in their mid-20s, they’ll be well on their way to significant retirement savings.
3. If your child is gainfully employed, there may be less pressure on you for financial support.
A recent study from the Georgetown University Center on Education and Workforce predicted a shortage of 5 million college-educated workers in 2020, which means that your college-educated child may not have a problem finding a job post-graduation. Your child’s gainful employment means that there’s a lower chance they’ll require financial support from you—allowing you to save more of your hard-earned income for retirement.
4. There are plenty of ways to accelerate your college savings.
Saving for college through a 529 plan, also known as a Qualified Tuition Plan (QTP), may be the most tax-efficient way to maximize the impact of your savings. These plans are typically operated by states or educational institutions, and they’re specifically designed to help families save for college. Like a Roth IRA, contributions to a 529 plan are made with after-tax dollars, but their potential growth and future distributions are tax-free (as long as the money is used for qualified education expenses).
5. You may even get a tax break.
While your contributions to a 529 plan aren’t deductible from your federal taxes, many states, including Wisconsin, allow you to use these contributions to offset your state taxes. Spoiler alert: Minnesota sadly isn’t one of them.
The advantages of secondary education also apply to alternatives to a 4-year degree. A trade school, for instance, can provide students with a quicker route to the workforce while still providing a pathway to a 4-year degree through degree-transfer programs. Not only do trade schools tend to be less expensive, you can also use savings in your 529 plan to help pay for their costs.
Despite what you may read in the news, it isn’t all doom and gloom when it comes to the state of higher education in America. If you’re concerned about how to address college costs, talk to a financial advisor to see what may be the best savings plan for your unique situation.
This article originally appeared on August 30, 2015 in the St. Paul Pioneer Press. You may view the article here.
