Everyone knows that college tuition is rising well above the rate of inflation. But how much are costs going to continue rising over the long term? Say, 25+ years?
I'm wondering because I'm doing quite well as a 25 year old and am looking to take advantage of some tax-advantage college savings plans, probably a 529, which could help me pay for my unconceived child(ren)'s tuition or perhaps a spouse's graduate school tuition, or any other future descendants costs. The tax exempt earnings are pretty key because this money is also going to be growing for quite a while before being distributed and I feel tax rates are going nowhere but up in the future. It's more of a thought experiment than anything, let's not get hung up on my excessively forward looking plans here or my specific situation.
Anyways, college tuition's been increasing by about 8% annually, or about 1.7-1.8 times regular inflation.
http://www.finaid.org/savings/tuition-inflation.phtml. Private college costs per year are right at the average US household income- and wages haven't risen anywhere close to the rate of tuition inflation. At the current rate, a private college undergraduate degree will have a sticker price of $1.7 million in around 25 years. How long can this pattern continue?
There are a ridiculous number of factors to consider. College endowments are also rising, and lots of top schools are raising the minimum income needed to even be expected to actually pay/take out loans for, so hardly anyone pays the sticker price. Also you have this massive student loan debt that's already crippling a generation who can't get jobs and lots of people are defaulting on them (though can't discharge for the most part). The government could change student loan policies which make student's think twice before borrowing, which could reduce demand and encourage colleges to lower tuition or hold off on increases. So many college graduates being produced has diluted the value of an undergraduate degree and that's creeping into graduate degrees as well- a BA is the new HS diploma, a PhD is the new master's, PhD's typically need to be "post-docs" in many fields for another 3-4 years before being considered for a faculty position. At the current rate of tuition increase and the stagnant job market, the benefits of a college degree will be outweighed by the cost. Inexpensive online universities are coming into the picture. That could increase the number of graduates and further dilute the market, discourage people from paying for an expensive education, or have no effect at all as employers won't take them seriously.
So I'm really not sure what to plan for. If costs increase at 8% a year, there's really no way to expect to generate enough interest from an index fund to provide for college costs in 25 years short of investing a principal that's already the size of current college costs, since the stock market averages 8% a year, more or less.
I'll probably just put in the maximum I can deduct from my state's taxes this year, $4000. What are other people estimating as their child(ren)'s future college costs compared to the present rate?