Saving for College
How Much Does a College Education Cost?
According to a study from the College Board the average total cost for a year of college (tuition, books, fees, room, board, transportation, and other expenses) was over $20,000 at public universities for in-state students, and over $45,000 at private colleges. And costs continue to rise. (PDF available at this link: Trends in College Pricing 2016.)
Over the past decade, the cost of getting a college degree has gone up about 6% per year on average. If this trend continues, and all indications are that it will, the cost for a year of college will double in 12 years and triple in 19 years. And remember, increasing numbers of students are spending more than four years in college.
Start Saving for College Early
One of the keys to accumulating the money needed to pay for college is to start saving early. Let's use an example of a seven year old (11 years until college) that will attend a state university as an in-state student. The estimated total current cost of a year at that university today is about $20,000. Assuming that costs increase 6% annually, their first year will cost almost $38,000. In order to have saved all of the college costs by the time they begin, they will need to have accumulated over $166,000 by the time they enroll.
Let's assume their funds earn 5%. Starting a college fund at age four would require saving about $1,136 per month in order to meet the goal of having saved all of the costs of college by enrollment for Freshman year. Starting at age seven would increase savings needs to $1,222 monthly. Waiting until age 10 to start saving would bump that up to $1,419 per month, while waiting until they turn 13 increases the monthly savings needs to $1,919.
Scholarships and financial aid can help lower the costs of college. Investment and long-term savings accounts can help increase the rate at which you save, and some offer tax advantages. Making a plan and starting to save early is key. Saving early not only enables you to spread your saving over a longer period, but you also get the benefit of the earnings on the funds for a longer period of time. Talk to a financial advisor about the savings programs that are best for your situation. But don't wait—the sooner you start saving, the more you'll save.