The ever-rising cost of college is common knowledge. Depending on the school a student chooses, the cost of tuition, room, and board for an undergraduate
degree can easily exceed six figures. With costs so high, many parents are simply overwhelmed. Saving enough to cover all of a child’s college education expenses may seem like an impossible goal. Many parents don’t get started, or if they do save, they don’t save enough.
If you want to help your children pay for their college costs, you need a clear savings strategy. Below are some simple guidelines for determining how much you really need to save.
According to data from the College Board, a year of tuition, room and board in the 2018-19 academic year costs $21,270 at a public institution and $48,510 at a private nonprofit institution. Assuming future increases of 3% annually, that means in 18 years, a year of college will cost more than $36,000 at a public
school and roughly $82,000 at a private school.
Those estimates are staggering. Of course, it’s possible college costs will level off or increases won’t be quite so steep. But in any case, the young children of today will likely face much higher college costs than students do today.
Why does all this matter? Because you need to get a sense of what it might actually cost your child to attend college. If you have a baby who was born this year and hope to send him/her to a private four-year college, you’d need to save about $328,000 to cover all the costs.
Decide How Much You Want to Save
Once you have an idea of how much your children’s college might cost, you can set realistic savings targets.
Say you want to be able to cover 80% of the cost at a four-year, private college for your child, with the expectation that your child will either obtain grants or scholarships or take out loans to pay the remaining portion. That means a savings goal of $262,000 at the end of 18 years. To hit that target, you’d need to set aside about $728 a month, assuming annual returns of 6%. If you want to cover 80% of the costs of a four-year education at a public college (estimated
at $144,000), you’d need to save $115,000. To reach that goal, you’d need to save about $372 a month, assuming annual returns of 6%.
If your initial savings estimates are high, consider tweaking your goals. Meeting 80% of your child’s estimated college costs may be unreachable, but 70% may be a more achievable goal.
Also, consider other sources you can tap to boost savings. Grandparents may be willing to make contributions. Monetary gifts your child receives for birthdays and other milestones can be added to a college fund. Finally, don’t count out the possibility of financial aid.
Create a Plan
The estimates above are just that — estimates. Unfortunately, many parents have little idea how to get started saving.
Sticking funds in a low-interest savings account reduces risk, but means you’ll have to save more. A 529 college savings plan, which offers tax advantages and access to investments, could be a better way to reach your goals.
To create your own college savings plan, you’ll need to think carefully about your family and your situation.