Making a snow cat, December 2018
I am not sure if my child will decide to go to college. It is very likely.
She is 8 and with determination she says that she wants to be a doctor. That means that there will be a college and maybe even a graduate school. If she chooses to go to college, it will be in about 10 years.
The college costs are rising. Per www.collegeboard.org the increase in college costs in the last ten years in 2018 dollars was $9,790 for private non-profit colleges and $4,910 for public colleges.
The estimated costs for 2018-19 year for private non-profit college is $48,510 and $21,270 for public college. This includes room and board.
I used an inflation calculator and it looks like the increase is in keeping with the inflation of about 3% per year, at least for this data for the last 10 years.
With the estimated 3% of inflation, the costs in the next 10 years will rise by approximately $20,000 to $78,740 for private college and by $9,000 to $35,183 for public college.
If the pace of cost increase will not change, then in 2028 the costs will be accordingly $58,300 and $26,180 per year. Take that x4 for the 4 years of college and you will get $233,200 and $104,720 respectively.
If you add medical school, double it.
The physician's profession becomes less and less attractive with the recent increase in paperwork, new compliance hurdles, increasing costs of education and decreasing pay. Does it still make financial sense to become a doctor?
Taking the approximate education costs of $400,000, you will start working 6-7 years later than, for example a dietitian. The average dietitian's salary (per web search) is about the same as the resident salary.
If as a dietitian you have approximately 45 productive years to work, as a physician you start later and have approximately 34 productive years. That is if you pick 65 as your retirement age.
If just as an example, you take a physician salary of $250,000 per year times 34 it will make $8,500,000. That is the money you will earn during the 34 work years.
The dietitian's salary of $50,000 taken x45, for the longer 45 years of working, will be $2,250,000.
Even including the high college debt the physician salary is still more attractive. These numbers are very approximate, not including inflation, raises or decreases. I did it just to see if the difference in total earnings even remotely makes sense. It looks like it still does.
Of course it is not just the money that makes you to choose a profession. When I told my mother that I have chosen pathology, she exclaimed sadly: "Why? Now I can't even tell the neighbors about that! Why do you like the morgue? Who do you have that interest from?" And my father added gravely: "Are you doing it just for the money?"
I told my father that since his engineering genes didn't cross over to me, I had to do what I can.
And since my mother opens every of her chickens that dies without an obvious cause, and calls me to ask what are the spots in that dead chicken's liver, I told her that she is basically "a chicken pathologist without a license".
My father agreed that you have to do what you can.
My mother was happy to discover that her interests are not that different from mine. And quickly everything was fine again.
I am curios what profession my daughter will pick. But in any case, there will be probably some college costs.
What are the options to save/pay for the college?
Before making any decisions about supporting the child with the college costs one needs to make sure that his own financial well being including retirement is taken care of. After that I see following options:
1. Child will pay all costs.
It would make sense to try to get stipends for which you need good grades and some outstanding extracurricular activities. The child's motivation to complete education will be high. Parents will have minimal or no costs.
2. Funding a 259 account.
That is doable but one needs to make sure there is enough motivation present to take the college seriously. One of the motivational ways may be the promise to pay for all college costs after college is competed but that will not work with the 529 account, because the costs have to be reimbursed in the same calendar year.
3. Using gift to finance college costs.
3a. Each of the parents can give a cash gift of $15,000 (IRS reporting limit for 2018). That should cover $30,000 per year. The tuition can be paid directly to the institution and then it will not count as a gift.
3b. Gifts over the IRS limit are an option. Also the IRS allows taxpayers to give $75,000 into a 529 plan without paying tax or reducing the $11.2 million lifetime limit (see post on gift tax).
4. Funding a custodial account.
There will be no penalty if the child doesn't go to college but the money will not be yours (like in 529 account) - you can't just take it back. It is officially your child's money. I have started one custodial account and which I plan to use for her wedding costs.
It also can be a combination of those methods.
