A stork carrying a baby flies in front of a pink background.

Field Work

Parents: College Saving Not Optional

New parents: you have been warned.  Mainstream media have rolled out one horror story after another about college graduates and their parents burdened with $40,000, $50,000, even $100,000 in student loans.

Not everyone plans to pay for their children’s education.  But those who do need to think early about saving, because college has become extremely expensive – tuition costs are rising much faster than inflation.

The good news is that figuring how much to save for college is not nearly as complex as planning for retirement.  While retirement strategies fill hundreds of books and fuel vigorous academic debates, new parents can be reasonably certain about one major factor in calculating how much they’ll need: when the child will attend – age 18.

“There are a lot fewer moving parts” to calculating college costs, said New Orleans financial planner H. Jude Boudreaux, who has been thinking about this issue more since his daughter, Lucy, was born about 15 months ago.

Here are two steps to figuring out how to save each month.

First, what will it cost?  Students usually don’t pay the “sticker” price for tuition and fees.  They pay “net” costs after grants, and these figures are easier than ever to find.  In October, individual institutions were required to put a net price calculator on their websites.  They are often located in the “admissions” or “financial aid” section of the website, though some were hard to find, says the Institute for College Access & Success.  The National Center on Education Statistics also supplies tuition costs for specific colleges and universities on its website.

With costs in hand, it’s not difficult to estimate the monthly savings required to reach that goal.  Readers should consult a financial planner for more accurate estimates, but the following table is a good start.  It assumes that parents start saving when the baby arrives:

 

 

 

 

 

 

 

 

 

 

4 Responses to Parents: College Saving Not Optional

  1. Zvi Bodie says:

    The use of 4.5% as the real return assumption is highly questionable. It assumes taking significant risk in the portfolio funding college tuition. But in your graphic there is no indication of the monthly savings required in a worst-case scenario. If instead one assumes a safe investment strategy of investing in U.S. Treasury Series I Saving Bonds then the real rate of return to assume is zero rather than 4.5%. This makes a huge difference in the monthly savings required. There are 216 monthly contributions over 18 years. Each one would have to be $926, not $600, for the $200,000 total tuition estimate shown in your graphic. Visit the U.S. Treasury’s Savings Planner.

  2. Bob Y. says:

    What? No mention of 529 plans?

  3. Jeff Young says:

    Effective planning is going to require cooperation and synergy among various family members. And remember, when you start planning for one, there may be a few more down the road for whom you will have to do the same.

  4. Robert Uphaus says:

    A 4.5% real return?! Let’s get REAL.