By Whitney McDaniel
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 below shows how average college costs would continue to increase at national average annual inflation rates.
|Estimated annual college costs*|
|2014 $19,598 $42,170|
|2019 $22,609 $50,814|
|2024 $26,083 $61,231|
|2029 $30,091 $73,784|
|*Total yearly costs for in-state tuition, fees, books, room
and board, transportation, and miscellaneous expenses.
Base is 2013-2014 school year. Costs for all future years
projected by Wells Fargo Advisors in November 2013 assuming
a 2.9% national average annual increase for public and
a 3.8% national average increase per year for private.
Source: Trends in College Pricing. ©2013 collegeboard.com, Inc.
Reprinted with permission. All rights reserved. collegeboard.com.
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 eight-year-old child. Assuming a 5% 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 years old 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% 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 haven’t looked into an education savings plan, Wells Fargo Advisors can help you choose among a variety of savings vehicles, including 529 plans, Education Savings Accounts (ESAs), and custodial accounts. Visit wellsfargoadvisors.com/school for more information.
*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 Whitney McDaniel, CFP® Financial Advisor in Beaufort, SC at 843-524-1114. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.