How Much Do You Need To Save For College?

by Silicon Valley Blogger on 2008-08-2623

Do you know how much you need to save for your children’s college education? Here are some simple tools to help.

How much have we thought about our children’s future? To be honest, we’re not sure where our own kids will be going yet; it may be way too early for that. Of course, we all wish they’ll be eligible for the Ivy Leagues, but that won’t become apparent until they’re much older. And even if they have a shot at attending such universities (and that’s a BIG IF, based on parameters such as how competitive the admissions landscape will be by the time they apply for college and our children’s “credentials” at that point), the question arises: can we afford a high-end university education?

Basic Strategies To Save For College

There are many ways to save for a kid’s education. Here are a couple of scenarios:

  • Pay up now, and cross your fingers. Many people spend their funds on the best private elementary schools money can buy early on, in order to prepare their kids for possible entry into top-notch schools later. Once their kids are ready for college, they hope that their kids qualify for financial aid.
  • Save now and pay up later. Others scrimp and save to meet the longer term goal of funding a college education for their child, while having their kids attend public schools at the lower grade levels. They make the sacrifices today to afford the costs of a high quality education at a prominent university later on.

For now, we’ve chosen the road from “public/semi-private school to top-rated college” (the latter route), although how much money we save will have an impact on the type of college or university our children will be attending.

saving for college

Tools To Help You Save For College

To help us see just how “on target” we are about these financial goals, I’ve referred to a few college savings calculators for answers. Here’s one that supplies a lot of details, while this one is the “world’s simplest college cost calculator”.

Of course, a lot of the results you’ll get from these calculators will depend on certain parameters you enter as well as the assumptions you make. For instance:

  • How much are college costs projected to increase each year? They’re projected to go up by twice the inflation rate, which has resulted in historical rate increases of 5% to 8% annually.
  • How much do you expect to earn after taxes each year? A 6% return after taxes may be a reasonable estimate.
  • How much is a college education today and how much would you need to save for this goal? Here are a few sample recommendations for savings plans based on your child’s age:
Monthly Savings Goal* Through Final Month of College
Type of school Public Private Ivy
Current annual costs** $15,000 $35,000 $45,000
Child’s Age Newborn
$405
$994
$1,214
Four
$456
$1,064
$1,369
Eight
$542
$1,265
$1,626
Twelve
$708
$1,653
$2,125
Sixteen
$1,148
$2,678
$3,443

* Assumes 6% annual college cost increase and 6% annual investment return.
** Current annual costs are approximated based on College Board data and include tuition, fees, room, board, and books.

Well, these numbers add some truth to the statement “reality hurts”. But there are ways to alleviate it: by investing in the right savings vehicles, like a tax-advantaged 529 plan, you’ll nudge those savings up faster. Also, I’m a fan of Upromise and have been a member since 2001, if you can believe it. We’ve saved several thousand dollars through Upromise already (just by virtue of our spending activities throughout the years) and it’s all done invisibly, automatically and most of all, painlessly. We don’t notice a thing.

College Savings Tip: You can apply for a Bank of America Upromise World card, which is a rewards card that allows you to build up savings when you use your card. This card can be linked to a 529 savings account.

Finally, I also want to mention that Upromise often regularly holds promotions for its members. They’ve had summer promotions in the past and have been giving away scholarships on occasion. Check here for the latest promotion at Upromise. If you’re already a Upromise member, you’re automatically entered. If you aren’t yet, then you can enter and take part in any giveaway by joining the Upromise savings program through this link.

So how are you doing with your college savings plan and goals to fund your kids’ education? Are you satisfied with your progress so far?

This article is part of The Money Writers’ Back To School and College Savings group project. Check out these great entries that are part of this series:

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 16 comments… read them below or add one }

The Happy Rock August 26, 2008 at 11:43 am

SVB,

Option three would be neither I guess.

Currently I don’t feel an compulsion to save money for my child to attend college. Although I think the benefits of an amazing younger education outweighs a top notch college.

My goal is to instill the type of character and values in my child that they can make decision about college later in life. College isn’t something they have to do or even should do. Depending on their passions I would love to raise children with enterpenurial spirits and they may or may not need college for that.

I pray that my children also know that money isn’t everything and chose careers not based on money at all. My mother chose option 1 and I paid for school and got a great education for about 30k for 4.5 years and I am grateful for the financial and life education that came choosing and paying my own way afforded me. It had a huge positive impact in my life in more than one way.

Silicon Valley Blogger August 26, 2008 at 11:52 am

@The Happy Rock,

Your comment has intrigued me greatly. Your sentiments are definitely in the minority. But what I’m assuming is that you are leaving it up to your children to determine if they will decide to go to college or not.

Well, there are many people who go to college, then never use the degree they worked hard and paid for; however, the life skills and character building experiences we get from going to college are those things that stay with us and that we draw upon as we go forward in life. It probably depends on what kind of talents, strengths and skills your children possess, and whether you see and feel that they’re a “fit” (based on your careful and reasoned judgment) for the university environment.

AmeriGlide August 26, 2008 at 12:00 pm

Cool article. I think no matter if you are saving for college or for retirement, it is important to make good economic choices.

You mentioned vehicles and investing in a good vehicle can make or break you. My friends sister bought a new Buick Rendezvous without doing any research and has payed out several times the cost of the vehicle, which is yet to be paid off, in repairs. It is far better to buy a slightly used car, which protects you from the value that is lost as soon as a car leaves the lot.

jim of Blueprint for Financial Prosperity August 26, 2008 at 2:16 pm

UPromise is pimp, I set up an account there and linked my grocery store loyalty cards to get small bonuses on my purchases. I don’t really know how their business model works but it’s so much set it and forget it for me that I don’t question it.

Paying for college is such a bear of a question though, I have to admit I glossed over the article simply because when my kids do go to college, in 20+ years, I can’t imagine what the landscape will be like then.

Stacey August 26, 2008 at 2:19 pm

I can’t help but point out that these suggested savings amounts are for an entire four-year education. I certainly hope my children will be “smart” enough to avoid paying full sticker price!

Private colleges offer state and private grants and scholarships. Public colleges offer state grants and a smaller amount of scholarships.

Bottom line: Don’t be intimidated by sticker price. Save what you can, and encourage your children to do well in school and apply for lots of scholarships.

And don’t put college money in an account in the student’s name. A 529 is a great investment tool, because while the money is for the child’s education, it isn’t counted as the student’s asset for financial aid purposes.

Austin Real Estate Guide August 26, 2008 at 8:57 pm

This has been one of the larger questions we have faced when thinking of children. While I be happy if my children are entrepreneurs I can’t really make those decisions for them now. And unfortunately for most corporate jobs college and what college you go to is pretty important.

Its seems a little bizarre that where you get your degree from is so important since frequently it has more to do with the parent’s financial status than the abilities of the child.

Also while I paid for part of my college with the current expenses of college I dont wish to saddle my children with massive debt at a young age.

Austin Real Estate Broker August 27, 2008 at 9:49 am

I’m kinda glad I don’t have kids. I have a buddy who just had twins and they are going to have to cut back on spending and be thrifty just to cover the $1800 per month they will spend on day care.

To add another $1000-$2000 per month in savings for college seems like a lot to ask from most people except the already wealthy.

I suppose you can always just hope and pray for scholarships and ultra smart kids. :)

Joe

Miss Thrifty August 27, 2008 at 1:44 pm

Good grief! I had no idea that higher education in the USA was so expensive(I’m a UK blogger).

Is it worth it?

AndyS August 27, 2008 at 3:12 pm

Wow – you need to save that much to go to college! I have a 2yr old and was surprised at the figures. Better start saving now. Or, in time it may become too expensive to go to school in the USA and may have to send my kid overseas for an affordable education. Can they outsource education?

doctorS August 27, 2008 at 7:27 pm

The best way to save for you child’s future college plans is by having them do very well in high school. Building good habits at an early age will pay off big time in the future. I went to a private institution into a 5 year program and now I have heaps of student loan debt. But I have a decent job and it will take me a few years to pay off, but I wish I knew the information I now know so that I could have made much wiser decisions.

Effektz September 2, 2008 at 9:28 pm

College is crazy expensive, and if you try to save for too long, you might never end up going! If you want to go to college, don’t let money be the only thing to hold you back

Bill September 3, 2008 at 5:47 pm

My kids will have to pay a significant part of their tuition.

I went to the most expensive private college in my state and saw too many treat it like a 4 (or more) year vacation at their parents’ expense.

College might not be for my kids, but they’re going to put in enough sweat equity to make that determination before I end shell out 6 figures for each kid’s tuition and fees.

JoshuaSBK September 25, 2008 at 2:17 pm

Think about a High Yield Savings Account as well. They’re a great savings tool if you want to keep that money a little more liquid. ShoreBank, whom I work with, currently offers one of the nation’s highest rates at 3.5% APY. Check them out at shorebankdirect.sbk.com.

Alice January 26, 2009 at 8:33 pm

Ultra expensive private universities are proven to be a poor investment for kids that need student loans. If you are rich go to Yale if you need to pay your own way there are great state schools to consider. As chatotic as the current financial environment is there are FDIC insured bonds getting issues with solid rates, and guaranteed by the government (like everything else these days).

Also, shop around for college textbooks as there is a great variance in price between local campus bookstores and online sites.

Jennifer May 28, 2009 at 3:48 pm

College is really expensive. With cost of living increasing as well as the tuition. And this does not even include going out with your friends to have a good time. It adds up. I read somewhere that college students are racking up credit card bills faster than any other generations have. It’s unfortunate, but I think besides getting and education, the school should teach students about controlling their spending. College Stories

Roll Off NM September 10, 2009 at 9:26 am

Wow, a lot of research must have gone into this. Great post, and very helpful. Both of my kids are starting college this year, and it’s been a financial headache.

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