Easing the Shock of College Costs

Baby Hand.jpeg

An undergraduate degree from the University of Texas will cost about $232,604 in 2036 for a Texan born today.

Shocking? Then you may want to sit down before reading further. Out-of-state students, or anyone planning to go to a private school can plan to shell out over half a million dollars!

These figures are based on the current cost of tuition, room, board, books, and supplies from the National Center for Education Statistics Integrated Postsecondary Education Data System (IPEDS)[i], projected at the Higher Education Price Index (HEPI)[ii] average growth from 1961-2017 of 4.7%.

This HEPI figure is important, as it is the basis that some schools use for determining tuition increases. I came to understand this recently when my son was asked whether he preferred the Locked-Rate or Variable-Rate tuition plan when he accepted admission to Texas A&M University.

At Texas A&M, the cost of opting for the Locked-Rate was an extra $309 per semester for 12+ hours in the College of Engineering in 2018. We have this choice due to a law passed by the Texas Legislature back in 2013[iii] that stipulated that all “public state colleges” in Texas offer a fixed tuition price plan.

Like any good financial planner, I felt compelled to determine whether spending the extra money now was worthwhile.

Is a Locked-Rate Tuition Plan Worth It?

The short answer was yes.

For the Locked-Rate Tuition Plan to be worthwhile, price increases would have to exceed an annual average of 3.26% over the next 4 years. That didn’t seem unlikely given the long-term HEPI average or that the 2018 A&M tuition rate was based on the 2017 HEPI increase of 3.7%. But that wasn’t enough words for a blog article.

School 2018 2036
Baylor $240,932 $550,725
SMU $289,632 $662,045
TCU $251,880 $575,750
Texas A&M $113,904 $260,362
Texas State $90,500 $206,866
Texas Tech $94,532 $216,082
Rice $252,632 $577,469
University of Texas $101,760 $232,604
Source: National Center for Education Statistics (IPEDS)

The Class of 2036

So, while I had my calculator out, I decided to see what a 4.7% inflation rate would do to the cost of some other popular Texas schools over the next 18 years, when those born this year will be faced with similar decisions.

Projecting those costs yields some sobering news for today’s parents. While public schools in Texas are still a relative bargain, the prospect of needing to save $250,000 or more is daunting, but not out of reach. It will, however, take some planning and commitment to get there. Fortunately, there are some tools that may make it easier.

Texas Tuition Promise Fund®

The State of Texas offers the Texas Tuition Promise Fund®, a prepaid tuition plan that allows Texans to lock in tomorrow’s Texas public tuition and required fees at today’s prices. Using their Tuition Planning Calculator, I determined that it is possible to prepay 4 years of tuition at the most expensive Texas public four year college for a child born this year for $55,168. If you don’t have that much saved, you can also buy units as you go. A unit costs $137.92 each this year (100 units = 30 semester hours).

The good news is that this locks in the price of tuition, no matter how high the rates climb. The bad news is that it only covers “tuition and required fees”, not room, board, books, or supplies.

If the student decides to attend a private or out-of-state school, the “Transfer Value” is limited to the lesser of:

  1. the costs the unit would cover at a Texas public college; or,
  2. the price paid for the unit, plus or minus the Plan’s net investment earnings or losses on that amount.

The funds can also be transferred into another 529 Plan using the criteria above, or if the funds are needed for another purpose, they can be withdrawn using the “Refund Value”. The refund “is subject to the actuarial soundness of the Plan” and “depends upon a number of factors, including the timing of the refund and the reason for cancellation.”

529 Plans

If you aren’t sure your student will want to attend a Texas public college, or just prefer more control over how the money is invested, a more traditional 529 plan may fit the bill. The earnings of 529 plans are tax free if spent on qualified education expenses, such as:

  • Tuition and mandatory fees
  • Computers, peripheral equipment, educational software, and internet access
  • Books, supplies, and required equipment
  • Room and board for students enrolled at least half-time
  • K-12 tuition expenses at public, private, or religious schools

529 plans offer the ability for parents, grandparents, or anyone for that matter, to contribute towards the costs of college. There is even a unique feature that allows "superfunding" by accelerating up to five years worth of annual gifts into a plan (up to $75,000 per individual or $150,000 per couple for 2018). However, the earnings may be subject to taxes and penalties if not used for qualified education expenses.

Since Texas doesn't offer any incentives to use their 529, the Texas College Savings Plan®, it may be beneficial to shop around for a plan the best meets your needs. Fair warning though, the choices can be overwhelming. A good place to start is savingforcollege.com.

The ATX Portfolio Advisors Education Commitment

Before investing in any college savings program, make sure you read the Program Description in its entirety for more information. You should also consider things like your investment objectives, risks, charges, and expenses.

For our Accountable Wealth Management clients, we will help you plan, invest, and manage 529 assets for no costs other than what you pay the 529 plan directly. If you need help determining what options may make sense for your student, get in touch for a free college savings assessment.




[i] https://nces.ed.gov/collegenavigator/?q=university+of+texas&s=all&id=228778#expenses

[ii] https://www.commonfund.org/wp-content/uploads/2016/10/2016-HEPI-Report.pdf

[iii] https://legiscan.com/TX/bill/HB29/2013