Is College In Your Child’s Future?

Posted: April 30, 2014

It’s no secret that the cost of sending just one child to college for four years can be staggering.

The College Board Advocacy and Policy Center reported that over the past decade college tuition and fees have rapidly increased. However, this year the average increase is smaller than it has been in the past.

The table to the left shows how average college costs would continue to increase at national average annual inflation rates.

Rather than sending your student into the world with a burden of student-loan or private debt, consider saving options to help cover at least a portion, if not all, of higher-education expenses.

Start saving early. It’s common to assume that saving will be easier in the future when you’re earning more, but as your family and income grow, so do your expenses associated with your standard of living.

If you wait until your student is closer to college age, you may find you’ve waited too long and may face the prospect of scaling back the family’s finances in other ways to save for hefty tuitions, fees, and living expenses.

Put time on your side. When you start saving early, college savings can earn substantially more over time through the power of compounded growth.

For example, suppose you start putting aside $100 every month for an 8-year-old child. Assuming a 5 percent annual growth rate, you’ll save $15,592 by the time your child is ready for college but will have invested only $12,000 out of pocket.

If you wait until your child is 15 to start saving, you’ll have to put more money aside each month to save the same amount, and your out-of-pocket investment will be much greater.

For example, at the same 5  percent annual growth rate, it would take $400 per month to save $15,556 in time for college, and you’d have invested $14,400 out-of-pocket.*

Know your options. Fortunately, parents and grandparents who intend to cover or contribute to a child’s education costs have more choices today than they’ve ever had. If you’ve not yet looked into an education savings plan, a financial adviser can help you choose among a variety of savings vehicles, including 529 plans, Education Savings Accounts, and custodial accounts.

*This information is hypothetical and is provided for informational purposes only. It is not intended to represent any specific return, yield or investment, nor is it indicative of future results.

This article was written by Wells Fargo Advisors and provided courtesy of Adam Miller, financial adviser, in Harrisonburg at 434-9926