December 15, 2011
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: