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Funding Your Children's College Education

While most parents dream of sending their children to the college of their choosing, the prohibitive and increasing cost of a college education forces many to settle for the most affordable schools or to go the community-college route. In fact, tuition goes up by an average of about 8% per year1, which means that it will cost a family with a child born today three times more to matriculate than it does a current graduate. By 2036, tuition is expected to consume 24% of a family's overall budget2.

It can be difficult to balance short- and long-term financial goals, but an abundance of guidance, information, individualized savings plans, and financial aid is available to help you accommodate the soaring cost of tuition and fund your children's dream of a quality education. Keep in the mind that you should also be contributing to your retirement plan now—not putting off this important task in favor of funding an education. You can always borrow to pay for a child's education, but there are fewer ways to borrow for your retirement.

Talk to your financial professional to learn about popular educational saving options such as bonds, college savings accounts, Coverdell Education Savings Accounts, IRAs, 529 plans, trust and gift funds, student loans, and financial aid. This will provide you with a broad-based sense of the types of savings vehicles available to you and their relative risks, returns, and limitations.

Read Paying for College: A Practical Guide for Parents.

1 "On average, tuition tends to increase about 8% per year. An 8% college inflation rate means that the cost of college doubles every nine years. For a baby born today, this means that college costs will be more than three times current rates when the child matriculates in college." (
2 Over all, the biennial report from the National Center for Public Policy and Higher Education found that college tuition and fees increased 439% from 1982 to 2007 while median family income rose 147%. Patrick M. Callan, president of the center, a nonpartisan organization that promotes access to higher education said that the middle class has been financing college through debt. "Projecting out to 2036, tuition would go from 11% of the family budget to 24% of the family budget, and that's pretty huge," Mr. Shulenburger, the group's vice president for academic affairs and co-author of the report.

The Prudential Insurance Company of America, Newark, NJ