Tips on How to Save More for College
College expenses can be daunting for any parent. If you have a child entering college today, the average annual cost can be around $30,000 for in-state public colleges, $50,000 for out of state public colleges, or up to $80,000 for private institutions. Unfortunately, these prices have consistently outpaced inflation for years with no signs of slowing down. For new parents, this means that 4 years of college could cost $250,000 - $800,000 per child in 18 years, assuming an inflation rate of 5%. We use 5% for illustrative purposes, but over the last 20 years, national tuition costs have grown more than 8% per year!
With these figures in mind, it is important to start saving early and often. Below, we have listed a few savings tips to help bolster your child’s college savings.
- Plan early: One of the most critical aspects of planning for college is to understand how much you need to save each month out of cash flow. The earlier you start saving, the less you will need to save thanks to compounding interest.
- If college cost $500,000 in 18 years, a parent who starts saving today would need to allocate a little over $1,000/month into a college savings account to hit their goal (assuming a 7% rate of return). If that same parent delayed saving for just 5 years, the monthly savings rate would need to jump to approximately $2,000/month to hit the same $500,000 goal.
- The parent that started to save right away allocated a total of $216,000 over 18 years while the parent who waited 5 years needed to allocate $312,000, over a 13-year period, to hit the same goal of $500,000.
If you need help finding ways to save for your child’s college expenses, please reach out to one of our advisors here at Wolf Group Capital Advisors.
Written by Kevin Ostergaard, Financial Advisor