Average undergraduate student loan debt runs about $40,000 and graduate students frequently owe over $70,000. (Contributed)
“College graduates enjoy lower unemployment rates and higher incomes than do those without college education…those with college degrees consistently score higher in life satisfaction and happiness surveys. They are more likely to marry and less likely to divorce. College graduates even live longer and healthier lives,” writes Ann Garcia, author of “How to Pay for College.”
Nevertheless, University of California Admissions estimates yearly prices one must pay: $15K-30K in tuition plus $25K of living expenses. In 2022, the U.S. Department of Labor showed average earnings of high school graduates at $44K, bachelor’s holders at $75K and professional degree holders at $108K. With these facts in mind, college planning must be part of life planning.
Advanced Payments
Imagine that your truly divine 3-year-old girl is a genius engineer who will go to MIT, while her twin male dreamer wants two years of community college and a UCLA acting degree. With the present value of college estimated at $200K, you can pay before, during or after college and the burden is lightest with advanced payments in 529 plans. Over 20 years, savings may double or triple per the rule of 72 and educational withdrawals are tax free. Unused 529 funds might be transferred to family or converted to Roth accounts.
Americans started 16 million 529 accounts but saved balances of only $27K. 529s are more flexible than pre-paid tuition plans with significantly higher average returns than Series EE or I savings bonds, and lower annual fees than whole life insurance or annuities. Coverdells have low limits on contributions—$2,000 annually—with $195,000 income limits (married filing jointly). College savings inside Roth IRAs will diminish retirement savings and Roth withdrawals, unlike 529s, get added to FAFSA income. 401K loans demand immediate repayment and HELOC loans have harsher terms than student loans. 529 plans are best.
Timely Payments
Parents and students fill out Free Application for Federal Student Aid forms to evaluate eligibility for grants and loans. FAFSA income will include pre-tax and non-taxable retirement distributions, stock options, municipal bond interest and untaxed income, but parents and students get income protection allowance based on family size and official poverty levels. Frequently, colleges expect payments of 15-25% of income for college contributions after $30K income protection. Applicants download income from IRS forms and record wealth as of the filing date.
Naturally, parents strategize to decrease their out-of-pocket expenses with scholarships universities provide, VA Benefits or income-based PELL Grants. The U of California claims nearly 70% of students get an average of $20K of grants, and most of these are not athletic. The salariat can shift retirement savings to Roth contributions or decrease itemized deductions in FAFSA years. Business owners have flexibility to draw down business assets, change the timing of payments or hire children, and even students get $7K FAFSA income protection.
Tax credits encourage timely college financing. Four-year collegiates pursue studies with American Opportunity Tax Credits, 40% refundable, that cover up to $2,500 of qualified tuition and related expenses, but married filers lose this credit after $180K of income and MFS filers lose it completely. Graduate students optimize use of Lifetime Learning Credits of $2,000. Students usually divide college funding between scholarships, parents, work and loans.
Loan Payments
The Supreme Court challenged Biden’s loan forgiveness, but workers may get non-taxable Public Service Loan Forgiveness after 10 years of payments or income-driven repayments with forgiven interest under the court-contested SAVE Plan. Employers now can match student loan payments. College costs keep spiraling in response to better student aid from a lender with infinitely deep pockets and minimal underwriting: “You wouldn’t qualify for a mortgage for a house you couldn’t afford,” writes Ann Garcia, “but you will be offered student loans for colleges your family can’t afford” (p. 34).
Average undergraduate student loan debt runs about $40,000 and graduate students frequently owe over $70K. Students who failed to graduate or who chose un-lucrative majors (drama?) suffer most. In 2025, student loan interest averaged 6.53% and payments were $568 per month on $50,000 loans paid off over 10 years with $18K total interest. Student loan creditors may bolster or wreck credit scores and eventually garnish wages or seize houses. As bankruptcy laws discourage discharges, long, hard payments are students’ best hope.
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals.