College savings plan
There’s no denying the benefits of a college education: the ability to compete in today’s competitive job market, increased earning power, and expanded horizons. But these advantages come at a price-college is expensive. And yet, year after year, thousands of students graduate from college. So, how do they do it?
Many families finance a college education with help from student loans and other types of financial aid, private loans, current income, gifts from grandparents, and other creative cost-cutting measures. But savings are the cornerstone of any successful college financing plan.
College costs keep climbing
It’s important to start a college fund as soon as possible, because next to buying a home, a college education might be the biggest purchase you ever make. According to the College Board, for the 2018-2019 school year, the average cost of one year at a four-year public college is $17,336, while the average cost for one year at a four-year private college is $35,374
Though no one can predict exactly what college might cost in 5, 10, or 15 years, annual price increases in the range of 5 to 8% would certainly be in keeping with historical trends. The following chart can give you an idea of what future costs might be, based on 2018/2019 cost data from the College Board (the most recent cost figures available) and an assumed annual college inflation rate of 5%.
FOCUS ON YOUR SAVING!!!
The more you save now, the better off you’ll likely to be later. A good plan is to start with whatever amount you can afford and add to it over the years with raises, bonuses, tax refunds, unexpected windfalls, and the like. If you invest regularly over time, you may be surprised at how much you can accumulate in your child’s college fund.
The above table assumes an average after-tax return of 6%. This is a hypothetical example and is not intended to reflect the actual performance of any investment.
Tip: Even though college costs are high, don’t worry about saving 100% of the total costs. Many families save only a portion of the projected cost – a good rule of thumb is 50% - and then use this as a “down payment” on the college tab, similar to the down payment on a home.