Sending your kids to college can be a financial planning nightmare for parents. But a college education is important, so we at DadLabs offer a few strategies on how to pay for tuition and other school expenses. Savings, financial aid, and a 529 plan are all options for financing higher education. If you start early enough, sending your children to the colleges and universities of their choice is possible. Before long, you'll be watching your kid receive their degree from their university. DadLabs Ep. 46 The Lab.

DADDY BRAD: Daddy Clay, I’ve crunched the numbers, and I’ve come to a conclusion.

DADDY CLAY: Okay.

DADDY BRAD: I am going to ensure my children’s financial future by NOT sending them to college.

DADDY CLAY: Uh.

DADDY BRAD: Consider this -- the College Board claims that a BA will double your lifetime earnings, bringing in an extra million dollars over an average person’s working life. Which sounds pretty good, BUT, my kid’s private college is going to cost $250,000.

If I put that in a mutual fund and send the kid off the University of Quiznos at 18, by the time he’s ready to retire from making Steakhouse Beef Dips he’d have 5.8 Mil waiting for him. Even adjusting or inflation, the stock market is a better bet than college.

DADDY CLAY: Dude, aren’t you being a little extreme. I mean where would guys like Michael Dell and Bill Gates and LeBron James be without their college degrees?

DADDY CLAY: So it’s clear that college is not just about money, a better job and a fancier house. A college education is not just a commodity. It’s an experience that enhances their lives. That brings them...

DADDY BRAD: Like a bill for a quarter million dollars!

DADDY CLAY: Okay, okay, it can be expensive. But before you lay out a strategy of how you are going to pay, I think you have to articulate some values.

DADDY BRAD: I value a quarter million dollars.

DADDY CLAY: For example, is a good college education for your kids more or less important than where you live or what you drive?

DADDY BRAD: I don’t see the connection.

DADDY CLAY: How much freedom should your child have to pick the college of his or her dreams?

DADDY BRAD: He or she can pick any college called Austin Community College that they want.

DADDY CLAY: And are you comfortable with your child carrying debt after they graduate.

DADDY BRAD: I’m pretty comfortable with that.

DADDY CLAY: Let’s try creating a financial model. You know your kids are going to see this.

DADDY BRAD: Here are the ugly numbers, current average annual tuitions -- public, fifty-eight; private twenty-two. Add in books, living expenses and travel, then spin the wheel. Assuming a five percent rate of annual tuition increase, by the time your nine year old is ready for private college, 200K. Your five year old girl going to State? 100K. Little three year old to private? 250K. Total cost for all three. Five hundred and fifty thousand dollars.

DADDY CLAY: That’s funny because my kids are nine...and five...and three.

DADDY BRAD: Yeah. But it’s not about the money. College education is not just a commodity.

DADDY CLAY: Let’s take the 200K it’s going to take to send my 4th grader to private college and break it down. First of all, I’m going to take 10% off the top. Nobody pays sticker price for college. After all it’s a buyers market.

50% of US colleges take all qualified applicants, and with the demographic decline in teens predicted over the next twenty years, colleges are going to be chasing good kids with grants and scholarships in hand. 10% is average today. For the balance, families will pay with a mix of savings, current income, and loans.

DADDY CLAY: Sorry about the...

DADDY BRAD: No worries. For simplicity sake, let’s assume a third, a third, a third.

DADDY CLAY: Current income. What you pay out of what you make every year. Sixty grand total, fifteen grand a year may seem like a lot, but what do you pay in daycare? Assume five percent tuition increase a year and I bet college isn’t more expensive.

DADDY BRAD: Most “Financial Aid” given by colleges is in the form of loans, which you have to pay back, by the way. You’ve got sixty grand to cover here. The average student today graduates with twenty grand, so let’s say you split this with junior. Good for him to have some skin in the game. He gets cheap government loans. You get private PLUS loans. 30K means a payment for you of $371 over the next 10 years.

DADDY CLAY: That leaves sixty in savings. To save sixty thousand dollars over eighteen years, assuming 7% of compounding interest, put away $160 a month. 529 funds have tax advantages, but you give up some flexibility, which may be a good thing.

DADDY CLAY: Okay, so 160 a month for 18 years, then 15K a year for four, then 371 a month for ten more years. I think...I think we can just about swing that.

DADDY BRAD: Don’t you have three kids?

DADDY CLAY: Why do I do this with you?

DADDY BRAD: A couple things to remember, always pay off debt before you start saving. And conventional wisdom says it’s easier for a twenty-one year old to retire debt than a fifty year old cramming for retirement.

DADDY CLAY: All so they can read Proust and smoke dope.

DADDY BRAD: That’s all for us, from here in the DadLabs.

DADDY CLAY: Most CEOs of fortune 500 companies are from state universities, which shows that those schools are creating more crooks.