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The Art Of Saving For College In 5 Easy Steps

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Steve Pomeranz, Saving For College

Here’s something we all know from hearsay: College expenses have been steadily rising over the years.

For example, just annual tuition and fees (not counting room and board) for a four-year college degree at a public university cost $2,400 on average in 1975. That same four-year public university degree costs $9,400 per year in the 2015-16 school year (in 2015 dollars) which is still a bargain compared to the $32,400 in annual tuition and fees you would have paid at a private four-year college in 2015. But public or private, you’re looking at about a 3.5% annual increase in tuition and fees. And while that may not seem like a lot, it adds up quickly year-after-year, especially if you have a newborn and you’re looking at where fees might be 16 to 18 years from now.

So how do you plan ahead so you have enough to cover your child’s tuition and fees several years down the road??

Thankfully, it’s not that hard to figure out. With some thoughtful planning, you can come up with a reasonable estimate of your “magic number” for saving for college.

5 Things You Should Consider As You Start Planning Ahead

1. The type of school You’d Like Your Child To Attend

The cost of attendance varies greatly depending on whether you want a two or a four-year school and whether it’s public or private. Costs ranged from around $11,000 to about $44,000 (including room and board) per year in 2015, according to a recent survey from the College Board.

Also, you may have a sense of the kinds of students your children really are, even at a fairly young age. If you’re honest, you can make an educated guess whether the child is Harvard-bound or state college-bound, so you can plan accordingly.

2. Room And Board

Room and board, which accounts for a large portion of the cost of attendance, is one area where you can save money by having your child live at home for the first year or two if that’s feasible. Though let me warn you, that’s likely not going to go down well with your college-bound freshman who’d rather be on-campus enjoying the “college experience”.

3. Inflation

According to the College Board’s recent study, prices increased by about 3% from the 2014-15 school year to the 2015-16 school year. It’s best to err on the side of caution and choose a relatively high rate of inflation, say, 5%, as you calculate how much money you’ll need to save.

4. Price Actually Paid

Thankfully, many students don’t pay full price because of institutional and federal grants and tax benefits. So, depending on your financial circumstances and your child’s educational prowess, your child’s four-year degree could cost between 10% to 25% less, but I’d rather you not fall short, so save the full amount and consider money saved to be a bonus after the fact.

5. Your Child’s Contribution

Many parents believe that their children should help pay for school through work or student loans. If you decide to have your child contribute, make sure he or she is aware of the risk and burden involved in taking on debt.

Putting It All Together With An Example

Say you’re a newly married couple and want to plan for college for your new baby, and you already have a type of in-state school in mind. Figure out the estimated in-state cost of attendance for 2016-17 at that university—let’s say it’s about $26,500 in total per year. Now, figure out how much you’d like your child to contribute; say you decide your child’s share should be around $12,000 of that $26,500.

So, your contribution works out to $26,500 less $12,000, which is $14,500 for the first year. Increase that by 5% each year and you’re looking at $15,200 for the second year, $16,000 for the third year, and about $16,800 for the fourth year. Add it all up and you’re looking at about $62,500 in today’s dollars.

Now factor in college expense’s historic inflation of 5% over the next 18 years, so that may be $150,400 in tomorrow’s dollars 18 years from now.

Now, if all goes well, you may get somewhere from a 10% to a 25% discount on that number, so you could be looking at something in the range of $112,500 to $135,000 that you should have in your child’s college account 18 years from today.

Not Cheap!

If you experience a 6.5% average rate of return annually on the money you set aside for their college and re-investing your earnings, you’ll need to set aside about $300 per month to get to about $120,000 in 18 years, but that’s assuming you start saving soon after or even before your baby’s born.

If like most Americans, you don’t get a head start on saving for your child’s college as soon as they are born, you’ll have to set aside significantly more each month to catch up. For instance, if you have just 10 years to save for college, instead of $300 per month, you’d need to save about $700 per month, assuming the same costs and returns. So, clearly, the sooner you start, the better. The magic of compounding, as I always say!

The Importance of Being Flexible

Of course, if your child is smart and wants to go to the top engineering school in the country, say MIT or an Ivy League, your college bill will most likely cost more and living at home won’t be an option. So, plan ahead, set up a reasonable plan for savings, make periodic adjustments to your contributions, and make the most of what you have so you can give your child all the opportunities for success our great nation offers.

Think Of Saving For College As A Four-Legged Stool

  1. You save and pay
  2. You pay some out of current income while they’re in school.
  3. They take summer jobs and work a little while they’re in school and
  4. Student loans.

Also, consider the age you will be when they are 18 and the fact that you will want to be saving for yourself too. You will have fewer years to reach your retirement goals at that time, but they will have their whole life in from of them.


Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph, or marketing piece to make decisions. The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice.  Please contact your financial advisor with questions about your specific needs and circumstances.  There are no investment strategies, including diversification, that guarantee a profit or protect against loss. Past performance doesn’t guarantee future results. Equity investing involves market risk, including possible loss of principal.  All data quoted in this piece is for informational purposes only, and author does not warrant the accuracy, completeness, timeliness, or any other characteristic of the data. All data are driven from publicly available information and has not been independently verified by the author.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.