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The
Changing Landscape of College Costs
 Judging
from the rising cost of tuition, which routinely outpaces inflation, it might
seem that most institutions of higher learning would be flush just from what
they charge students.
Yet private and public colleges rely heavily on philanthropy and government
appropriations to keep doors open. The problem is that these sources are
beginning to dwindle as the economic slump and flagging financial markets pinch
private and public budgets. Many schools are passing on the shortfall in the
form of higher tuition and fees.
Here are some recent developments that have affected the cost of higher
education.
Challenging Times
 | Contributions to U.S.
colleges fell in 2002 for the first time in more than 15 years. The falloff
was due to a 14 percent reduction in alumni giving. Corporate and foundation
giving remained level.1
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| Going into the current
fiscal year, 46 states were facing a combined $58 billion budget deficit.2
To close the gaps, some legislatures have pared down education
appropriations.
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| For the 2002–2003
school year, the average tuition charged by four-year public colleges and
universities rose nearly 10 percent. At private institutions, the average
increase measured nearly 6 percent.3
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Keeping
Pace
Given the rising tuition increases, more than just a simple bank savings account
may be needed to accumulate money and keep pace with college costs.
Tax-advantaged college funding vehicles such as the Section 529 plan or the
Coverdell Education Savings Account provide a way to help families boost their
college savings.4 These plans are fairly
flexible and often can be tailored to meet individual circumstances.
Today, a college degree is
practically a minimum requirement, much like a high school diploma was a
generation ago. Because college costs are becoming so steep, it may take a
little extra planning and preparation to help your family members achieve this
important milestone.
1, 2) The Wall Street Journal, March 13, 2003, and October 7, 2002
3) The College Board, 2002
4) As with other investments, there are generally fees and expenses associated
with participation in these college savings plans. In addition, there are no
guarantees regarding the performance of the underlying investments. The tax
implications of a Section 529 plan should be discussed with your legal and/or
tax advisors because they can vary significantly from state to state. Most
states offer their own Section 529 plans, which may provide advantages and
benefits exclusively for their residents and taxpayers. The tax-free qualified
withdrawal provision of Section 529 savings plans is scheduled to expire after
December 31, 2010, unless new legislation is enacted by Congress.
© 2003
Emerald Publications
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