How Parents Can Save For Young Athletes’ College Education

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As part of a great American pastime, over three million kids in the U.S. play youth baseball. However, very few will enjoy the distinction of playing at the championship series. Youth baseball players are between 10 and 12 years old, which means that in the next six to eight years, many of these kids will be moving into dorms and starting college classes.

According to the National Center of Education Statistics, nearly 20 million U.S. students are currently enrolled in undergraduate colleges and universities. What percentage of youth baseball players will go on to play college baseball on a full athletic scholarship? The answer is statistically very few. 

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Only 7.3% of high school baseball players will play NCAA baseball with only 2.2% going on to play at the Division I level. The NCAA allows Division 1 baseball teams to grant 11.7 scholarships per year and division two teams nine scholarships per year. Thus, it’s likely that even if a player were to make it to the DI or DII level, their athletic ability may not pay the total cost of higher education. 

According to Sallie Mae, 92% of parents believe in investing in their students’ future. Yet the same study states that only 44% of families have a plan to pay for all years of college. U.S. News and World Report estimates average tuition of public colleges for the 2018-2019 school year to be $9,716 and $35,676 for Private Colleges. Cost was the single largest consideration for families in selecting a higher learning institution (74%). 

This reasoning is not unfounded, as the cost of college continues to outpace inflation. From 2005-2015 the average yearly tuition increased 5% annually for college versus 2.29% for general inflation (CPI.) If this tuition increase rate holds constant, the average first year tuition cost of a private college will be around $48,000 by the time today’s youth baseball step on campus in 2025. 

The best strategy to prepare for this is to start planning and investing early. Save early and often so that your interest continues to earn more interest and your money grows exponentially.  Once you have made the decision to save, you need to decide where your money should go and how it should be invested. Here are a few common strategies:   

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  1. 529 College Savings Plans are tax-advantaged savings vehicles used to pay for education. Over 30 states offer either a state income tax credit or a tax deduction for contributions. The assets grow tax-deferred and can be used tax free provided they are used for qualified educational expenses. These qualified expenses typically include things like tuition, room and board, and computer equipment. Additionally, only 5.6% of the 529 plan’s assets are considered the parents’ asset when it comes to financial aid calculations. Total allowable 529 contributions vary by state, but are between $235,000 and $529,000. Most plans offer an array of mutual funds and ETF’s that can provide low cost and strong diversification. Investment allocations range widely, but common tactics include investing more aggressively while a child is younger and more conservatively as a child enters the later years of high school.
  2. Coverdell IRAs also known as Education Savings Accounts, are another possible option. They also grow tax deferred and can be used tax free for qualified educational expenses. Compared to 529 plans they offer wider investment choices which can include individual stocks and bonds. However, the contribution limit is $2,000 per year and many high-income earners are ineligible to contribute, per IRS regulations.
  3. Custodial Accounts can be good supplemental vehicles for paying out of pocket college expenses. They are structured as investment accounts with a custodian (typically a parent or grandparent) and a beneficiary (minor/student.) One drawback is that any earning over $1,050 per year can be taxed at the Custodian (adult) tax rate.  Also, 20% of assets will be considered the child’s when applying for financial aid. Lastly the funds in the account must be turned over to the beneficiary when he or she reaches the age of majority (18 or 21 typically, depending on the state.) Thus, you potentially run the risk that the child could utilize the funds for non-educational purposes. 

Apexium Financial, an affiliate of Citrin Cooperman, provided the research and financial insight provided in this article. For more of their insight on personal financial planning, investment management and advisory, and more, please visit their website.