Now that I clarified my stance on parents' responsibility for college expenses, the next step in my research of college saving is to define the goals. At a very high level, the set of goals include: first, the amount of money we want to set aside by 2020 (it's the year when my kid will turn 18 and be ripe for college), and second, to achieve the optimal financial structure to maximize my kid's eligibility for financial aids -- the latter is very important to us because if we become successful in worth accumulation as planned, we will be sitting on top of more than $1 million assets. If this $1 million is predominantly in the form of cash, financial aid officers will want to show me the door very soon.
To spell our the amount we like to contribute, I need to project the future college cost. I used the College Cost Projector from FinAid.org. Although the calculator referred to College Board by saying "the 2002-2003 average costs were $12,841 for students attending public colleges and universities, and $27,677 for students at private colleges and universities," I choose to put $40,000 as the current one-year costs -- it's still not enough to send my kid to Harvard, but should land him in a good private college anyway. I found the tuition inflation rate of 7% to be reasonable so I left it there. Plus, I put 15 to the third box -- my kid still has 15 years to go before entering college.
The result: I should expect the total college bill to come at between $110,000 and $135,000 for each of the four years. It might sound like a heartburning number at first, but it is the result of 15 years of inflation -- for the same reason, our household earned income, if both my wife and I will still be working, will be higher than $300,000 (yes, I'm mindful that in the history salary increase was slower than trail tuition increase and $300,000 reflects the adjustment).
We found it is probably reasonable that we prepare to offload around a third of the expenses, which, based on the above numbers, amounts to a total of $160,000 between 2020 and 2023. There is not much science in determining this number, but let's keep it for now.
The second goal -- "to achieve the best financial structure we should set in place to maximize my kid's eligibility for financial aids" -- is an important aspect of the process. (If you want to know what I mean by "financial structure," check out my previous post of Philosopher's Stone.) In the next part of this series, I will discuss some more details on this topic by looking into how financial needs are being defined in the system; such analysis will help to choose the right financial tools to move forward.
(This article is a component of the 10-part "Saving for College" series at PFBlog. If you want to read from the start, follow the links at this Table of Contents page.)
