Sticker Shock: Paying for College
With college costs soaring, the need to develop an effective college savings strategy has never been greater.
According to the College Board, college costs for the 2006-2007 school year are a whopping $145,000 for four years at a private school, and $71,000 at a public school. And here’s something really daunting: the U.S. Department of Education’s National Center for Education Statistics claims that only 40 percent of students graduate from college in the traditional four years.
College costs continue to increase – an average of about 6% a year. Here’s how that plays out…
If your child is just entering his or her teenage years, a college education could end up costing between $120,000 to over $245,000, depending on whether your child attends a public or private college. And if you have a newborn at home, that figure nearly doubles – to the $200,000 to $400,000 range. That’s serious money!
The longer you wait to invest, the harder it becomes to reach your goal.
Let’s suppose you decide to save $150,000 for college. If you studiously put away $311 each month from the time your child is born, your total earnings would be over $82,000 by college time.
But what if you wait until your child is in elementary school? The money hasn’t compounded, so it becomes that much harder. You would have to invest just about $800 a month – nearly triple – to reach the same earnings.
Disclaimers:
The examples above are based on an 8% return per annum, compounded monthly, and also assumes the child starts college at the average age of 18. Your investment experience may differ based on the investments you choose.
1 Source: The College Board for the 2006–2007 school year; adjusted for 6% inflation.
2 The assumption is that college costs will continue to grow an average of 6% a year. For illustration only.