Table of Contents
Table of Contents
Key Takeaways
- College costs have risen significantly over the past 20+ years, outpacing inflation. The average in-state tuition at public 4-year colleges is now over $28,000 per year.
- Parents need to determine how much of their child's college costs they are willing and able to pay for. This involves looking at their own finances and savings abilities.
- When multiple children are college-aged at the same time, parents must plan for overlapping expenses. Access to funds when needed is crucial.
- Rather than focusing on which college a child will attend, parents should emphasize how the child will pay for college. Consider type of school, distance from home, etc.
- Life insurance can be part of a college savings plan, through its tax advantages, death benefit, and potential for policy loans. But withdrawals may have tax implications and reduce the death benefit.
In today's fast-changing, technology-driven world, many jobs will require an education beyond high school — either a college education or specialty higher education training. And while higher education is a great investment, it can be expensive for parents if they choose to help pay.
The Cost of Education
College costs have risen continuously for over two decades, outstripping changes in the Consumer Price Index.
Average Four-Year In-State Tuition
Determine What College Costs You Will Pay For
Many parents put a high priority on supporting their children and preparing them to be successful adults. However, philosophies differ on how much responsibility parents should assume for their children's higher education expenses. Parents may want their children to earn part of their expenses or depend partially on scholarships.
- How much money do you believe you can accumulate?
- What methods do you think will help best accomplish your college education goal?
When Two Children Head to College
When one or more children are involved, parents must consider when college expenses will occur and any overlap if more than one child is in college at the same time.
- If there could be an overlap in expenses due to your children's ages, where can you save and invest that gives you access to funds when needed?
- Do you want to set up separate accounts for each child, or accumulate one large pot of money?
Emphasize How to Afford College
Rather than putting an emphasis on which college a child will attend, focus your attention on how your children will afford to go.
- What type of school might they attend?
- How far away from home is too far, for you and your child?
Calculate a Monthly Savings Goal for College
You must fully understand what college or specialty education might cost. Research options to determine the true cost of college
- Were you aware that the expenses might be so much in the future? How do you feel about the costs?
- Are you willing to adjust your current spending levels to commit to this monthly investment?
- Should you consider a plan that will meet your funding needs whether you live, die, or become disabled?
Make Your College Savings Plan Flexible
All families experience emergencies at one time or another; so, it's smart to build access and diversity into your plan.
- Are you more interested in an approach that offers a reasonable risk — or one that may offer a high return but in which you could also lose all your money?
- How important is flexibility and liquidity, or access to your money?
Life Insurance May Be Able to Help
Because of its tax-sheltering characteristics, life insurance can be a great option to contribute to college savings funds.
- The death benefit from life insurance could help fund college expenses in the event that the child's parents die.
- Generally, life insurance values are not counted as a resource with determining eligibility for financial aid. Also, life insurance can supplement other education funding methods like education savings accounts and qualified state tuition savings plans.
- Life insurance provides potential tax-deferred access to the cash value through interest-bearing policy loans. But, any withdrawals may be taxable and will reduce the death benefit and may cause the policy to lapse.2
Paying for higher education or specialty education may take multiple resources — but life insurance could be a part of the equation.
Save for the Future
Sources and Footnotes
- Trends in College Pricing and Student Aid 2022. https://research.collegeboard.org/media/pdf/trends-in-college-pricing-student-aid-2022.pdf.
- Loans will accrue interest. Loans and withdrawals may generate an income tax liability, reduce the Account Value and the Death Benefit, and may cause the policy to lapse. Sufficient premium and account value are necessary to cover insurance costs and charges.
