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Appropriately enough, I’m sitting here typing wearing a University of Minnesota (UMN) Dad sweatshirt.
Back when my son first started college in 2014, I was asked by Minnesota television station WCCO’s Heather Brown how my family was paying for his education. I told her that my wife and I had about a Cadillac’s worth of loans while my son said that he has a brand-new Honda Civic’s worth of loans. The $20,000 per year cost of his tuition in 2014 is now $35,000, not including books, lodging and other side expenses.
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According to BestColleges.com, four-year public colleges saw massive price hikes from 2000 to 2020, going from about $13,000 a year on average to over $21,000 annually. Adam Shell reports for AARP that in the past year, prices have soared even more.
If you are considering helping pay for your children’s or grandchildren’s college expenses, then you are probably searching for ways to fund a great education without spending all your retirement income paying for a degree that you won’t receive.
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In that interview with WCCO, UMN Vice Provost Bob McMaster advised, “Plan very early.” No doubt. Through the magic of compound interest, the longer you save money, the greater the result. That’s because over the years, you are not only gaining interest on your deposit, but you are gaining interest on the interest. For example, $100 earning a 4 percent return will grow to $200 in 18 years, about the amount of time that you have to invest for the newborn’s college plans.
When planning a college fund, the first question you need to ask yourself is: Are you ready to go? Financial adviser Dave Ramsey says before putting aside money for someone else’s education, you should:
1. Set aside a $1,000 short-term emergency fund for yourself, then …
2. Pay off all debt except your house, then …
3. Save 3–6 months of expenses in case of a loss of income, then …
4. Invest in your retirement, then …
5. Start saving for your loved one’s education
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