There is one thing that seems to catch headlines on a near daily basis and that is the cost of college. The cost has been on a steady increase for decades and at present doesn’t appear to be slowing down.
Today we are going to look at how you might approach saving for college for a child, grandchild, or some really lucky kid that you happen to know that you want to save for college on their behalf.
Reviewing the Options Available After Post Secondary Education is Complete
The first step to get a handle on things is to determine where the individual might attend college. There are thousands of options. To keep things as simple as possible let’s outline a few buckets below of options and then we will select one to work through this exercise.
There are a number of options when it comes to college and a few of them happen to be:
- 4 year public college on in state tuition costs
- 4 year college that is private where state of residency doesn’t apply
- 4 year public college where part of the college experience will be paid at the out of state rate and the other at the instate rate
- 4 years of college where the first 2 years are done at a community college and the remaining are done at a university
- Enrollment in a trade program
The good news about saving for college is 529 plans can be used for any higher education. So even if the individual you are saving for decides not to go to a college and they go to a trade school you are covered.
Now that we have some of the options outlined let’s select one so we can work through the financial resources we want to invest on a monthly basis to pay for this education.
While we will work through details today about setting a goal for college savings we always encourage you to visit the financial goal planning worksheet and work through it for all of your goals.
Reviewing the Costs of College or Post Secondary Education
To keep things as simple as possible let’s say your child wants to attend public university and you happen to live in the state of California.
Your child loves the beach so they have selected the University of Santa Barbara. Side note that we looked at that school many years ago however our mom said “Joey you can’t go here however Jamey you can”. This stems from the fact that Jamey was and probably still is vastly more responsible.
To take a look at what this university costs we visit a college calculator over at Vanguard. There are 100’s of these college calculators all over the Internet. What we would encourage you to do is to make sure that you include room and board and not just tuition.
In order to get to a target amount for saving we want to see how much this college experience is going to cost so we plug into the calculator the following info:
- 10 years till they start college
- 4 years in college – because you are telling your child they get 4 years 🙂
- 5% increase in college costs rise
- The handy calculator tells you that UCSB will set you back $29,911 in today’s dollars so let’s see what we get
Information in the chart below was run using the Vanguard college calculator.
10 years from now you are staring at over $221K in college costs. One year alone will set you back over $51K.
Please take a deep breath and realize it’s all going to be ok. Now that we have an estimated cost of tuition we can determine how much we want to help save for this experience and education.
Setting a Goal for How Much You Want to Help Save For College
Big numbers can seem very scary so let’s break it down into some smaller segments to see what we can do about it.
- College Cost: $221,000
- Financial Aid at 20% of the cost: $44,200
- Scholarships at 15%: $33,150
- New Total Cost: $143,650
Why are we estimating financial aid and scholarships in our projection? We are doing as the majority don’t pay 100% of the cost and receive some financial aid. The scholarship portion is that we would recommend everyone get involved in filling out scholarship paperwork to reduce the total cost. You would be surprised how many scholarships are available when you start looking.
For this exercise you determine that you want to make sure to cover at least one full year of tuition and as close to two years. The thought is your child could attend a more affordable junior college for two years first if necessary.
You need to save $68,250 for these two years. You have $3,000 saved up to start and you are committed to saving $250 monthly.
10 years from now you will have saved $63,984. So you are really close to the number you need.
How did we arrive at this savings amount?
We headed over to the Vanguard college savings planner. We plugged in some information to get to where we needed.
A couple of items that we want everyone to be aware of:
- The earlier you start saving for a child’s college the lower the monthly investment required to reach the number you need
- Communicate with your child about the cost of college and involve them in the process
- You don’t have to use the Vanguard college savings calculators. We used them because we find them easy to use and allow you to use them without entering any personal information
