Grandma: How much will college cost?

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Q. I have three grandchildren and want to put money in a 529 plan for each. I’d like to fully fund four years of college. What’s your best idea of future tuition cost increases? Preferably real costs, after inflation.
— Grandma

A. Your grandchildren are fortunate to have such a generous grandmother!

Future tuition cost increases are very difficult to predict. Although we have experienced low inflation for most items in the U.S. over the past few years, college expenses have increased significantly beyond the national inflation rate, said Cynthia Aiken, a certified financial planner with RegentAtlantic in Morristown.

First, let’s talk statistics.

The College Board, a recognized non-profit organization, estimates that published tuition and fees for in-state students at public four-year colleges increased by 3.5 percent per year beyond inflation for the 10-year period between 2006 and 2016.

While more expensive than public institutions, private nonprofit four-year colleges had a smaller increase — 2.4 percent over the same time frame, she said.

Earlier 10-year time frames had higher inflation-adjusted increases, averaging closer to 5 percent annually after inflation.

Likewise, the Bureau of Labor Statistics estimated that from 2006 to 2016, the Consumer Price Index (CPI) for college tuition and fees increased 63 percent compared with 21 percent for the CPI for all items. College textbooks increased 88 percent, and housing increased 51 percent, she said.

Based on today’s costs, you can use online calculators to project what the expense will be by the time your grandkids get to college. The College Board offers this one, or try this one from Savingforcollege.org.

So looking ahead, Aiken said, it’s fair to assume that college costs will continue to have annual increases of 4 to 5 percent after inflation for the foreseeable future baring any significant changes in the economy.

If you want to fund 529 plans, keep in mind that the maximum annual gift allowed without tax ramifications is $14,000 per beneficiary, Aiken said.

529 plans have a special provision, though.

“You may be able to contribute a five-year lump sum of $70,000 per beneficiary,” she said, noting your spouse can also contribute the same. “However, if a lump sum is contributed, additional gifts to that beneficiary may not be made for the five-year period following the gift.”

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.