For most parents, sending their child to college is at the top of the wish list. A college education can open doors to many opportunities and help your child compete in today’s competitive job market—but that diploma doesn’t come cheap.

College costs

According to The College Board’s 2018 Trends in College Pricing report, the average annual cost for the 2018/2019 academic year at a four-year public college is $25,890 for an in-state student and $41,950 for an out-of-state student. If attending a four-year private college, the average increases to $52,500 and is unaffected by student residency. These figures include tuition and fees, room and board, books, transportation, and personal expenses.

It’s likely that costs will continue to rise, but by how much? Annual increases in the range of 3% to 6% would be in keeping with historical trends, but the actual percentage increase could vary by year and by type of college (i.e., public or private).

How will I pay for it?

Many parents save less than 100% of their child’s education costs before college. Typically, they set aside enough to make a down payment in the same way you might purchase a home. Then, when classes begin, parents often supplement this down payment with one or more of the following:

  • Current income
  • Federal and college student-based financial aid (e.g., student loans, grants, scholarships, and/or work-study)
  • Investments (e.g., 529 plan, mutual funds)
  • Child’s savings and/or earnings from a part-time job
  • Federal Parent PLUS Loan
  • Home equity loan or other private loans
  • Gifts from grandparents

How much should I save?

Start by estimating your child’s costs for four years of college. Then use a financial calculator to determine how much money you’ll need to put aside each month or year to meet your goal. In many cases, the amount of money you set aside really comes down to how much you can afford to save.

Start saving as early as possible

Perhaps the most challenging time to start a college savings program is when your child is young. New parents face many financial demands that always seem to take over—the possible loss of one income, child-related spending, the competing need to save for a house or car, or the demands of your own student loans. Yet, this is when you should start saving.

When your child is young, you have time to select investments that have the potential to outpace college cost increases, though investments that offer higher potential returns may involve greater risk of loss. This table shows what a consistent monthly investment might grow to look like:

Monthly Amount Invested  5 Years  10 Years  15 Years
$100  $6,977  $16,388  $29,082
$300  $20,931  $49,164  $87,246
$500  $34,885  $81,940  $145,409


Note: Table assumes an annual 6% return. This is a hypothetical example and is not intended to reflect the actual performance of any investment. Rates of return will vary over time, particularly for long-term investments. Investments with the potential for higher rates of return also carry a greater degree of risk of loss. Fees and expenses are not considered and would reduce the performance shown if included.

You’ll also benefit from compounding, which is the process of earning additional returns on the interest and/or capital gains that you reinvest along the way. With regular investments spread over many years, you may be surprised at how much you might be able to accumulate in their college fund. If you can’t save hundreds of dollars every month early on, start with whatever amount is comfortable and increase it as you’re able. Every dollar makes a difference in your child’s future.

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