Alfond vision brings college costs into focus

It pays to be born in Maine. For those whose parents have the foresight to give birth in Maine, a $500 savings account earmarked for higher education will now be established in every new baby’s name. The question will be whether or not education institutions will be affordable by the time these future scholars graduate from high school. Based on the rate of “college inflation”, an in-state public university education for the class of 2036 will begin at about $46,000 per year if trends continue.

The recent announcement that the Harold Alfond Foundation’s College Challenge will streamline enrollment of newborns is great news for Maine. The challenge for parents is to keep funding that account from every paycheck and let investment returns do their magic.

In the five years since the foundation began making grants, 23,000 NextGen education accounts have been opened via the College Challenge. However, because parents had to opt-in by opening an account, many more children were missing out on the support. By revising their strategy, the foundation will now use birth records to set aside the $500 grant in the name of the child. The program will be administered by the Finance Authority of Maine and managed by Merrill Lynch. The objective is to disburse $6 million to cover grants for 12,000 babies every year. It’s a good start and focuses attention on college costs.

Take a look at a college cost calculator and see where your expectations and reality intersect. The good news is that scholarships and loans are available depending on your income and the student’s performance. An article in the New York Times in 2012 studied merit scholarships at more than 650 colleges. It showed that on average 14 percent of incoming freshman received grants covering 44 percent of tuition and fees. The danger, however, is having students and their families assume so much debt for the difference that it makes repayment a decades-long struggle. Student loan debt in the United States now exceeds $1 trillion.

While the all-in average cost for a private college TODAY is about $42,000 per year and in-state tuition-room-board at a public university is in the low 20s (University of Maine ~ $23,000; UNH ~ $21,000), the class of 2036 can expect annual costs that are roughly double current prices.

(Calculations from SavingForCollege.com)

The cost of attending private universities and colleges has consistently outpaced the rate of inflation by approximately two to three percent in recent years making higher education one of the most expensive life-time costs for American families.

As parents contemplate what to do, two actions are highly advised:

1) Keep saving. By budgeting a fixed amount of your income to add to your children’s college savings and investment accounts, you can defray the cost of college by tens of thousands of dollars.

2) To insure your children have a chance at higher education should you die or become disabled, you also should discuss your objectives with a financial advisor and insurance agent. Income replacement or death benefits can make a world of difference for the future of your children.

The other near-certainty is that higher education will have to change. Already, some leading universities are putting their entire course content online and available to anyone. Others are shortening the amount time it takes to earn a degree. Many institutions also are delivering degrees completely online and at a far lower cost.

Of course, education isn’t the only necessity for which we are responsible.

With retirement and health care costs staring us in the face, it is hard to imagine having to pay annual college costs that today are nearly as much as the average annual household income. That is why the advice of a financial planner and a discussion with an insurance agent makes so much sense. As they often say, without a defined destination, any road will take you there. For most everyone, though, the destination of higher education is known so a road map will make getting there much easier.