Saving For College

You thought about it a hundred times but never started saving for your children's college education, and now you're scared to death. There is plenty of reason to be concerned, but you're not alone. Despite good intentions, most parents procrastinate until it's impossible or impractical to put anything away to cover college costs. We all know it's never too early to start saving for college, and with today's tuition rising faster than inflation, the sooner parents get started, the better.

The facts of the matter are, according to The College Board, the average cost of a four-year education at a public college or university today is $41,832 and for private colleges it's $90,132. Consider what it will cost 10 or 15 years from now when your child is ready for college as costs rise at an average rate of 5 to 6% annually.

Even though many states have taken initiatives to freeze tuition, the costs of room and board continue to rise, negating any savings. A recent story from Virginia News Graphic reports that public universities in Virginia cut tuition by 20% for this coming school year ,but increases in fees and dormitory costs will offset any savings.

Private colleges and universities continue to fight rising costs, handing back 36% of published sticker prices in the form of financial assistance according to U.S. News and World Report, up 40% from 1990. Yet today's average aid package still leaves families looking at thousands of dollars in college bills. No matter how you slice and dice it, paying for a college education is a daunting task.

So how much do you have to save? The traditional college savings calculations are fairly simple. First, the future cost of college when your child reaches age 18 is determined. Second, based on the current rate of return, the future value of your investments and savings is calculated. Then future investment value is subtracted from future college costs which gives you the amount you'll need to save in the given time period.

Based on what you need to save, how long you have to save it and what your investments are returning, a monthly figure is calculated. The following gives you an example of monthly savings figures at a public college or university without taking into account any current savings or investments:

Child’s Age	Estimated College Costs*	What You Need to Invest Monthly**
Newborn	$91,314	$224
5	$75,124	$311
10	$61,805	$429
15	$50,847	$737

*Based on averages for tuition, room, board, books & personal expenses. Assumes 5% annual increases.

**Assumes compounded investment earnings of 7% per year. No adjustment is made for income taxes, which can be significant.