For most people, a child’s college education is the second most expensive purchase (after that of a home) they will ever make. Estimating a college education’s cost, and the required savings to pay for it, is difficult, but the following tables can help you make an educated guess.
According to The College Board’s Trends in College Pricing 2008, the average annual cost for in-state tuition, fees, room, and board at a four-year public institution is $14,333 for the academic year 2008–2009. For a private institution, the cost of tuition, fees, room and board is $34,132. Both public and private colleges and universities experienced an increase of over 5.5% from the prior year, 2007–2008.*
If the cost of a college education continues to increase 6% annually, and your child enters a private college in the 2020–2021 academic year, the estimated tuition will be $69,996. Based on the projections below, a four-year education would cost approximately $280,000. For young families, skyrocketing cost projections can lead to sticker shock, but there are strategies that can help you keep pace with tuition hikes. The College Board reports that almost 75% of undergraduate students receive some type of financial aid. * In addition, the federal government offers tax breaks for education savings, as well as other credits and deductions for taxpayers currently facing college costs.
Use the table below to estimate the approximate annual cost of tuition, as well as room and board, for a four-year undergraduate education based on the year a child will enter college, the inflation forecast, and the choice of a public or private institution.
|Public Colleges & Universities||Private Colleges & Universities|
|School Year||3% Inflation||6% Inflation||10% Inflation||3% Inflation||6% Inflation||10% Inflation|
Figures are estimated projections based on the average cost of tuition at public and private universities for the 2008–2009academic year.
How Much Do You Need to Save?
By starting a disciplined savings plan now, you are better positioned to meet your child’s future education needs. The following table shows the return of a variety of monthly savings contributions, earning 6% interest, for intervals of 5, 10, and 18 years—the average college age. This example assumes a 25% federal tax rate and 3% inflation.
|Save per Month||5 Years||10 Years||18 Years|
For illustrative purposes only. Not indicative of any particular savings vehicle or insurance product.
Many parents postpone planning education funding because the task seems overwhelming, or they think saving the required amount of money will force them to severely compromise their current lifestyle. While these are legitimate concerns, they need not stop you from establishing and maintaining an effective college funding plan. Whether considering a public or private college for your child, the key to effective planning is to begin saving as early, and as much, as possible.
*Source: The College Board, Trends in College Pricing, 2008.