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April 10, 2014

Day care's cost can exceed college tuition in some states

College costs loom large in the parental mind. According to a 2013 report by Sallie Mae, half of parents are putting away money for their kids' education. Those who aren't are fretting about it, saying that they feel "frustrated," "overwhelmed" and "annoyed" when they think about college savings.

But most parents will deal with an even larger kid-related expense long before college, and it's a cost that very few of them are as prepared for: day care.

A report by Child Care Aware of America, a national organization of child-care resource and referral agencies, found last fall that the annual cost of day care for an infant exceeds the average cost of in-state tuition and fees at public colleges in 31 states.

The biggest gap is in New York, where day care will set you back nearly $15,000 a year but in-state college tuition averages just $6,500 — a difference of over $8,000.

Maryland, Massachusetts, Colorado and Oregon also have large gaps. Maryland, for instance, is ranked fifth in the nation when it comes to the annual cost of putting an infant in day care, at $13,055. But it's in the middle of the pack with regards to in-state college tuition, at $8,220 per year. This means Maryland parents will pay nearly $5,000 more per year, on average, to put a kid in day care than they will to put the child through college.

At the other end of the spectrum is South Carolina, where in-state tuition is higher than the cost of day care by about $4,000 a year. This is in part because the state cut funding for higher education by 67 percent from 1980 to 2011, according to the American Council on Education, forcing parents to pick up the slack in the form of higher tuition.

In addition to differences in the size of their higher-education budgets, states rise and fall on the list because of variations in overall cost of living and — more importantly — the stringency of regulations and licensing requirements for day-care providers. Stricter rules may mean safer toddlers, but they are also likely to mean bigger monthly day-care bills.

Unlike the high cost of college, the high cost of day care may come as a bit of a shock to the family wallet. While couples have years to prepare for college costs, there is little if any time to save for child care. A baby is born, and parents typically have to go back to work in just a few weeks.

It typically takes 18 years to sock away a sufficient college nest egg. Considering that child care is an equivalent, if not greater, expense — and that the average maternal age at first birth is now 26 — this suggests that people should start putting away money to care for their future children by the time they're roughly 8 years old.

Sorry, kids: Half of your third-grade allowance is now going to be set aside in the day-care fund.

This may not be a realistic solution. But it does raise the question: How do people cover the enormous cost of child care? A report out Tuesday by the Pew Research Center finds that an increasing number of parents are simply avoiding child-care costs by staying home.

Nearly 30 percent of moms now drop out of the workforce or never enter it, up from 23 percent in 1999. For many families, it simply makes more financial sense for a parent to stay home with a young child than it does to incur thousands of dollars in day-care costs.

Who are these stay-at-home moms? Pew reports that just 5 percent of "U.S. married stay-at-home mothers (with working husbands) had at least a master's degree and family income exceeding $75,000."

"Stay-at-home mothers are younger, poorer and less educated than their working counterparts," Pew reports. " For example, 34% of stay-at-home mothers are poor, compared with 12% of working mothers. They are also less likely to be white and more likely to be immigrants."

This suggests that stay-at-home motherhood is primarily driven by people having too little money, rather than having the luxury of an expendable second income.

What can be done? For the college-bound, there is always the solace of myriad sources of potential financial aid for students who need or deserve it. Some day-care providers also offer sliding-scale payments based on income.

So far, however, no matter how smart the kid may be, there are no merit-based scholarships for day care.

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