College is expensive. That probably does not come as a shocking revelation to you. But, don’t worry! You’re bound to get some serious shock value out of this post—from sticker shock to statistics that may well shock you right down to your socks. College tuition has risen faster than the rate of inflation and faster than health care costs . And costs balloon even further when students follow up an undergraduate degree with an advanced degree or go on to medical, law, business, or other professional school. How much are we talking about? It depends—and personal financial correlation is recommended (doesn’t that sound like something a radiologist would say?).
It’s hard to predict what your kids’ college costs will be when you don’t what college they will attend or what tuition costs will be in 18 years. And maybe you haven’t decided how much of the bill you’re willing to foot. That’s a personal decision that will depend on your values and other factors. Say, like the number of offspring you produce, for one.
When it comes to medical school, for example, most parents don’t pick up the whole tab. Hence, the majority of medical students graduate with some debt. Note: as a radiologist, it’s unlikely that your child will qualify for any need-based financial aid (gulp!).
While it may seem a teensy bit to the contrary, I’m not here to tell you how to run your life; it’s up to you to determine how much to contribute. This post is a little bit about current college costs and a lot about how to save for your kids’ college.
WARNING: sticker (and statistic) shock ahead!!! Symptoms may include: flushed face, excessive sweating, bulging eyes, steam eruption from the ears, skyward shaking of the fist, sobbing sounds emitted from the general location of your wallet/phone/bank account, and more.
Just remember, I’m here to hold you hand as you face the cold hard truth of the numbers and walk you through the process of how to lessen the trauma of sending your kids to college. Yes, as I mentioned, it’s called saving (but it’s a special kind of saving plan!). Read on to discover more:
How much does college cost TODAY?
Current and historical undergraduate and professional school tuition rates and costs of attendance provide a framework for predicting how much it will cost you down the road. Note: The reason I chose to talk about medical school costs wasn’t because all children of radiologists will pursue an MD degree (Yay! Darn! —take your pick), but rather because many do, and among professional schools, medical school is among the most expensive.
Undergraduate school
There is a striking difference between what many colleges say they charge and what they actually charge. For the 2019-2020 school year, for example, the average “published” tuition, fees, and room and board at four-year public (in-state) and private colleges was $21,950 and $49,870, respectively. But after accounting for grant aid and tax benefits, the real costs were $15,380 and $27,370. And what a student actually pays depends on other factors, such as federal aid and scholarships.
Costs can be reduced by attending an in-state public school and living at home. If you’re an academic radiologist, you and your family members may be eligible for tuition remission as an employee benefit. Careful management of debt (see here and here) can also minimize costs.
Keep in mind that costs are increased when it takes a student more than 4 years to graduate, and just 41% of first-time full-time college students earn a bachelor’s degree in four years. Only 59% earn a bachelor’s in six years—yikes! That does seem seriously shocking, right?
Medical school
Average 2020-2021 medical school tuition and fees range from $41,438 to $57,619 depending on whether the school is public or private and whether the student is a resident or nonresident.
Tuition, Fees, and Health Insurance, AAMC, 2020-2021
| Ownership | Residence Status | Median | Average |
| Public | Resident | $39,150 | $41,438 |
| Private | Resident | $64,053 | $61,490 |
| Public | Nonresident | $63,546 | 58,246 |
| Private | Nonresident | $64,494 | $57,619 |
Here are some extreme examples: Total out of state tuition & fees and cost of attendance at U. of Illinois College of Medicine (2020-2021) is $111,626. In-state tuition & fees and COA at UT Southwestern Medical Center 2020-2021) is $52,241. That’s per year .
76-89% of medical school students graduate with educational debt (43% with premedical educational debt). In 2020, medical school graduates owed an average of $200,000-$250,000 in total educational debt. For a bit of historical perspective, in 1978, the average medical school debt in the U.S. was a mere $13,500 ($53,648 adjusted for inflation).
Medical school graduates owe more than 6 times as much in educational debt as the average college graduate.
The average physician ultimately pays $365,000-$440,000 for an educational loan ($165,000-$240,000 is just from interest).
Those are some sobering numbers. If you’re earning the median radiologist salary ($509,447), you could potentially cash flow the entire cost of your kids’ education. But there are better alternatives that allow you to save for college while minimizing taxes.
How to save for college – 529 plan
Here I come to save the day! As Mighty Mouse would say. A 529 plan (from Section 529 of the federal tax code, also referred to as a qualified tuition program and Section 529 plan) is a tax-advantaged savings plan, typically established by parents or grandparents, to help pay for a child’s or grandchild’s education. Originally limited to post-secondary education costs, it was expanded to cover K-12 education in 2017.
You can open a 529 plan before your kid is born and list yourself as the beneficiary, and then change the beneficiary after birth since 529 plans allow the beneficiary to be changed to a member of the family of the old beneficiary. Because you’re the account owner, you (not your child) have control of when and how your money is spent, even after the person you’re saving for becomes an adult. The two major types of 529 plans are savings plans and prepaid tuition plans.
Savings plans
Savings plans, the most common type, allow for investing in mutual funds that grow tax-deferred. Withdrawals are tax-free if they’re used for qualified education expenses. These include tuition and fees, certain electronics (e.g., computer), books and classroom equipment, and some room and board costs. Withdrawals for any other reason are subject to taxes plus a 10% penalty, with exceptions for certain circumstances such as death or disability.
An investor can choose from a plethora of 529 plans. Every state has one. Many states offer either a state tax deduction or a state tax credit on contributions up to a certain amount. Your best choice is usually a plan offered by the state in which you live if that state has no income tax or offers a tax break. Otherwise, you should choose a plan based on fees and investment options. An excellent review of each state’s 529 plan was recently published on The White Coat Investor.
There are no limits on how much you can contribute to a 529 account each year, but many states put a cap on how much you can contribute to it in total. Those limits range from $235,000 (Georgia and Mississippi) to $529,000 (California). Keep in mind that the contribution limits apply to each beneficiary. For example, in Mississippi, which has a $235,000 maximum contribution limit, a set of parents contributing $150,000 for a beneficiary and a set of grandparents also contributing $150,000 to the same beneficiary would not be allowed. However, once you hit the maximum in one state you may be eligible to contribute more money in another state’s plan.
Outside of a 529 plan, contributions of more than $15,000 per year to any individual would trigger the gift tax. However, there is an exception made for contributions to a 529 plan. A 5-year gift tax averaging rule lets an individual make a lump sum contribution of up to five times the annual gift tax exclusion per beneficiary and have it treated as though it were given over a five-year period. This allows an individual to give up to $75,000 ($150,000 for gifts from a married couple) in a lump sum. A grandparent can, for example, give a $75,000 one-time lump-sum contribution to the plan with the understanding that it would cover five years’ worth of gifts. As long as Grampa doesn’t contribute again in the next five years, there are no tax consequences. There’s no restriction on how many people may contribute to a plan.
If you have money left over in a 529 plan—say the beneficiary gets a substantial scholarship or decides not to go to college at all—you can change the beneficiary on the account to another qualifying family member, such as a sibling, niece, grandchild, or even the person who opened the account. In addition, under the SECURE Act, passed and signed into law in 2019, a beneficiary can take out a lifetime maximum of $10,000 from a 529 to pay student debt. You can also use 529 assets for K–12 tuition of up to $10,000 per student per year at a public, private, or religious school. Finally, as a last resort, you can always cash in the account and pay the taxes and 10% penalty.
Prepaid tuition plans
Prepaid tuition plans allow family members—parents, grandparents, and other relatives—to pay for a student’s college tuition at designated colleges and universities at current rates, even if that student may not attend college for years. Prepaid plans are a good choice only if you are pretty certain your child plans to attend a specific in-state school. While most of the plans do allow funds to be used for out-of-state college tuition, there is often an accompanying penalty for doing so. Note: You also can’t use the account to pay for certain expenses, including room and board.
Contributions to prepaid tuition plans are made using after-tax dollars (usually eligible for a state income tax deduction) and can be made in regular installments or with a lump sum. The accounts grow in value over time, and withdrawals used to pay for tuition are not taxable. If the beneficiary decides not to attend college it may be possible to change the beneficiary or to have the contributions (but not any earnings) refunded. Note: Most plans require participation for at least three years before the money can be used, and the beneficiary must be no more than 15 years old when the account is opened.
While 22 states used to offer prepaid tuition plans, that number has dwindled to just nine as of 2020 (Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas, Washington).
If you don’t live in one of the states listed above, you have another option—the Private College 529 Plan. This plan isn’t run by any one state and it enables an individual to lock in tuition rates at ~300 private colleges and universities in more than 30 states and the District of Columbia. When you open up the account, you name your beneficiary but you don’t have to choose a school until the student actually enrolls.
Note: You (or anyone else) can open multiple 529 accounts for the same beneficiary, as long as you do so under different 529 plans (college savings plan or prepaid tuition plan). For instance, you could open college savings plan accounts with State A and State B for the same beneficiary, or you could open a college savings plan account and a prepaid tuition plan account with State A for the same beneficiary. But you can’t open two college savings plan accounts in State A for the same beneficiary.
Recap
College is (reeeally!) expensive. If you plan to foot the entire bill for your kids, they will be among the lucky minority. Even if you pay for only a portion of the costs, they will be lucky. As with other kinds of investing, the earlier you get started, the better. With a 529 savings plan, your savings can grow and compound tax-free. With a prepaid tuition plan, you’ll most likely be able to lock in a lower tuition rate, since many schools raise their prices every year. The biggest difference between the two is that prepaid tuition plans may have restrictions on which particular colleges they may be used for. The money in a savings plan, by contrast, can be used at just about any eligible institution.
There aren’t any student loans or scholarships for retirement.
Finally, a piece of advice:
A radiologist’s salary can pay for a lot of college, but you would be unwise to finance your children’s education at the expense of your own retirement. You won’t be doing your kids any favors by paying for their college if it means they will have to take care of you financially during your golden years. Make sure your financial plan includes a strategy to save for education and retirement. There aren’t any student loans or scholarships for retirement.
Okay, you’re right. I fibbed earlier. I am kinda trying to tell you how to run your life (by providing you with educational information, solid suggestions, and words of evidence-based wisdom!). Because I wish for you a successful, fulfilling career, and financially secure future; because I am rooting for you.
