Saving for College: How Do You Start?
February 2, 2012
Rande SpiegelmanCPA, CFP®, Vice President of Financial Planning, Schwab Center for Financial Research
Key Points
- Saving early for college offers greater flexibility and reduces the need for student loans.
- We'll cover college costs and how best to achieve your savings goals.
- Helpful information for anyone with children.
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 2011-2012 school year, the cost of college (including tuition, fees, books, room and board and other expenses) averaged about $21,450 at an in-state public university and about $42,225 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 $284,000 to attend an in-state public university for four years, and about $558,000 to attend a private school.2
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
| Your child begins college in | 4 years public school (in-state) | 4 years public school (out-of-state) | 4 years private school |
| 2 years | $111,800 | $177,000 | $220,000 |
| 4 years | $125,600 | $198,900 | $247,200 |
| 10 years | $178,200 | $282,100 | $350,600 |
| 14 years | $224,900 | $356,100 | $442,600 |
| 18 years | $284,000 | $449,700 | $558,000 |
Chart assumes a 6% average annual increase in tuition, fees, books, room and board, and other expenses. The examples provided are for illustrative purposes only. The actual rate of increase will fluctuate with market conditions.
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.
Important Disclosures
1. Source: CollegeBoard.org
2. Projected average cost assumes 6% average annual increase and is based on the current average cost for the 2011-2012 school year as reported by the College Board.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
