The College Funding Surprise

Much has been written in this space and many others about the ins and outs and ups and downs of college planning. Information is available virtually everywhere, but typically the searching is being done years too late. Doing research into how much you need to save for college when you’re shopping for high school graduation announcements simply doesn’t cut it.

A more and more common occurrence in my life as a young parent is having fellow parents ask what they should be putting away for college at this early stage. For those that ask, I applaud them for thinking about the question at the right time. From there, a response somewhere between utter shock and sheer terror occurs when I tell them what they might want to consider stashing away for Billy and Sally’s tuition, room & board.

I thought it would be worth spending a few minutes ignoring the in depth how’s and why’s of college planning and just look at some basic numbers. How much do you really need to save? 

For the sake of argument, we’re going to assume that you want to pay 100% of four years tuition, room and board for one child at a public, in-state university. We’ll say that cost comes out to around $25,000 per year in today’s dollars and that those costs will increase at a rate of 6% from now until your child starts school. We’ll also assume that you have no college savings to date and that whatever you do put aside for your child will grow at 8% per year, a generous expectation over the last several years.

With all those assumptions, you would need to save the following, per month, to meet your savings goal based on your child’s age:

Clearly, these numbers can vary widely depending on where you live, how much of your child’s education you actually want to provide, and any savings you may already have. Any current savings or unforeseen scholarships can have a positive impact on the numbers. Out of state tuition or private schooling can send them into the stratosphere.

These basic estimates are not to shock so much as serve to provide a reminder the next time there’s an urge to splurge. When taking on a bigger car payment, looking at a little more house or even day to day spending that doesn’t necessarily fall into the “need” category, keep in mind this often ignored savings need. It’s not your obligation to pay for your child’s college education, but if it’s an important goal to you, procrastination could force some very unwelcome decisions down the road. Make 2012 the year you set up a 529 plan or other savings vehicle to begin preparing for your child’s future.