Being able to send your child to college is a common goal for most parents, but a diploma doesn’t come cheap. The best thing to do to achieve your goals is to start saving as early as possible, even if you’re able to save only a small amount at first.
HOW MUCH DOES COLLEGE COST?
For the 2023–2024 academic year, the average annual cost of attendance for college is:
- $28,840 for four-year public colleges (in-state students)
- $46,730 for four-year public colleges (out-of-state students)
- $60,420 for four-year private colleges (many private colleges cost substantially more)
The total cost of attendance includes direct billed costs for tuition, fees, room, and board, plus a given sum for books, transportation, and personal expenses, which will vary by student.
It’s a likely bet that costs will continue to rise, but by how much? Annual increases in the range of 3% to 6% would certainly be in keeping with historical trends, but keep in mind that the actual percentage increase in any year could be higher or lower, and the rate could vary from public to private college.
HOW WILL I PAY FOR IT?
Year after year, thousands of students graduate from college. So how do they do it? Many parents save less than 100 percent of their child’s education costs before college. Typically, they put aside enough money to make a down payment on the college bill. Many people utilize 529 accounts, well-known investment vehicles that offer tax benefits when used for college. Then, at college time, you can supplement this down payment with:
- Current income
- Federal Direct PLUS Loan
- Private loan
- Investment Accounts
- Federal and college need-based or merit financial aid (e.g., student loans, grants, scholarships, work-study)
- Child’s savings, investments, and/or earnings from a part-time job
- Gifts from grandparents/family
When your child is young, you have time to select investments that have the potential to outpace college cost increases, and in addition, you can benefit from compounding, which is the process of earning additional funds on the interest and/or capital gains that your investment earns along the way.
HOW MUCH SHOULD I SAVE?
You’ll want to put aside as much money as possible in your child’s college fund. The more money you put aside now, the less you or your child will need to borrow later. Your BWFA team can help analyze how much you should save in order to fund your goal, but the first step is for you to start by estimating your child’s costs for four years of college, then decide how much of the bill you want to fund — 100%, 75%, 50%, and so on.
In many cases, the amount of money you should save each month comes down to how much you can afford, and every situation is different. You’ll need to take a detailed look at your family’s finances in order to determine what you can afford to add to your child’s college fund each month. To increase the amount of money that you’re able to save, consider these options:
- Cut back on nonessential spending
- Reduce your standard of living (e.g., own only one car, eat out less often)
- Add unanticipated windfalls like bonuses, raises, or an inheritance to your child’s college fund
- Increase your work income, either at your current job or at a new job
- Have a previously stay-at-home spouse return to the workforce
- Ask grandparents or family members to contribute to your child’s college fund in lieu of gifts
When your child is young, you have time to select investments that have the potential to outpace college cost increases, and in addition, you can benefit from compounding, which is the process of earning additional funds on the interest and/or capital gains that your investment earns along the way.
START A SAVINGS PROGRAM AS EARLY AS POSSIBLE
Perhaps the most difficult time to start a college savings program is when your child is young. New parents face many financial strains that always seem to take over — the possible loss of one income, child-related spending, the competing need to save for a house or car, and the demands of your own student loans. Yet, this is the time when you should start saving.
When your child is young, you have time to select investments that have the potential to outpace college cost increases, and in addition, you can benefit from compounding, which is the process of earning additional funds on the interest and/or capital gains that your investment earns along the way. With regular investments spread over many years, you may be surprised at how much you may be able to accumulate in your child’s college fund.
But don’t feel bad if you can’t put aside hundreds of dollars every month right from the start. Start with a small amount, say $25 or $50 a month, and add to it whenever you can. You’ll have a head start and can feel good knowing you’re doing the best you can. As always, your team at BWFA is happy to meet with you to review your financial goals and help achieve them.
TYLER KLUGE
CFP®, CPWA®, CDFA®, CEPS
Financial Planner
trkluge@bwfa.com