Saving for College: How Do You Start?

College Article

Charles Schwab & Co., Inc.

Call us at 866-232-9890

Send us an email

Printer-friendly
Type Size: A A A
Email to a friend

Saving for College: How Do You Start?
by Rande Spiegelman, CPA, CFP®, Vice President of Financial Planning, Schwab Center for Financial Research
Updated March 12, 2009

Sending children to college can be very expensive. Fortunately, the sooner you start saving and investing for college, the more flexibility you'll have and the fewer loan payments you or your child will likely owe. In fact, if you start early and invest regularly, you may be able to save all the money you need to pay for your children's college education and never have to worry about loan payments at all.

College gets more expensive every year
For the 2008-2009 school year, the cost of college (including tuition, fees, books, room and board and other expenses) averaged a little over $18,300 at an in-state public university and about $37,400 at a private school.¹ Over time, college costs have risen about 6% per year on average. If this trend continues, by the time a newborn is ready to head off for four years of college he or she will need about $242,000 to attend an in-state public university for four years, and about $495,000 to attend a private school.¹

But don't let these figures scare you. While they may seem outrageous, remember that saving for college is like saving for retirement—by starting early, investing regularly and contributing as much as you can afford, you give yourself the best chance to succeed.

And here's more good news: With today's tax-advantaged college savings accounts and tax credits, there's never been a better time to invest for your child's college education.

How much money will you need?
Just how much will it cost for your child to attend college? The table below shows what the average costs may be.

Projected cost of college

	Type of college
Your child begins college in	4 years public school (in-state)	4 years public school (out-of-state)	4 years private school
2 years	$95,500	$152,100	$194,800
4 years	$107,300	$170,900	$218,900
10 years	$152,100	$242,400	$310,500
14 years	$192,100	$305,900	$391,900
18 years	$242,400	$386,300	$494,700

Chart assumes a 6% average annual increase in tuition, fees, books, room and board, and other expenses.

Saving vs. financial aid
Do you really need to save so much money? Won't financial aid be available to help pay for college? It turns out you're almost always better off saving and investing as much as you can ahead of time, regardless of whether your child will be eligible for financial aid. Here are two reasons why:

It's better to save today than pay off loans tomorrow. Many parents think of financial aid as free money for college. However, financial aid often comes in the form of loans, which must be repaid with interest.
Your child may not qualify for significant amounts of financial aid. It's hard to know how much, if any, financial aid your child will be eligible to receive when he or she begins college, especially if you're planning far in advance.

Next: Strategies for successful saving

Important Disclosures

1. Current average costs and projected average costs of college tuition. Source: CollegeBoard.com

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, or legal, tax, or investment advice, or a legal opinion. Individuals should contact their own professional tax advisors or other professionals to help answer questions about specific situations or needs prior to taking any action based upon this information.

(0309-7901)

Return to Top

Start Saving Today

Talk with us about your college savings needs at 866-663-5247 or e-mail us.

Compare education planning accounts