Saving enough money for a child’s college education is a concern so great many parents began planning even before their first child was born. The escalating costs of a college education make such concerns wholly understandable.
According to the College Board, a nonprofit that aims to connect students to college success and opportunity, a year of tuition and room and board at a private four-year college in 2010 increased by nearly 5 percent to $26,273. Public institutions, where room and board and tuition cost nearly $7,000 in 2010, increased by nearly 6 percent.
Those numbers figure to increase dramatically for children born in 2010. While it’s impossible to predict exactly what a college education will cost for a child entering school in 2028, the College Board’s 2008 “Trends in College Pricing” report estimated the cost of tuition and room and board at a private four-year university to be roughly $85,000 in 2028, a cost that escalates to nearly $100,000 by the time the student reaches his or her senior year.
Such statistics can be scary, particularly in the current economic climate in which many families find themselves struggling to get by. However, the board recommends ways to save for college that can make the aforementioned figures and predictions far less daunting:
• Start now. As previously mentioned, many expecting parents started saving for college even before their first child was born. Such savings don’t need to be too complex. For instance, assuming an eight percent annual return, parents who simply put $100 month into a savings account for 18 years will earn $48,000 by the time those 18 years are up.
• Consider stocks when building a college savings portfolio. It might seem as though the cost of college is rising faster than inflation. This is actually true. As a result, portfolios that rely on stocks can be an investor’s ideal way to build the most savings long term. As a child’s first day of college draws closer, shelter any returns with less risky propositions such as bonds.
• Seek professional assistance. Television advertisements have increasingly noted the ease with which investors can handle their own portfolios. While portfolios might be more accessible than they once were, for many people the investment game is still as confusing as ever.
A mutual fund is managed by a professional in accordance with the fund’s investment objective. This allows investors to choose a fund that matches their own goals and objectives while affording them the freedom from watching the markets daily and worrying with each and every dip in the market.
• Open a 529 savings plan. A 529 plan is designed to encourage saving for the future higher education expenses of a designated beneficiary. Certain qualified withdrawals are now free of federal tax, and many plans allow account holders to save in excess of $200,000 per beneficiary. No income or age restrictions apply, so a 529 can start regardless of how much parents earn or how old their beneficiary is.
• Don’t forget to save for retirement. As daunting as the cost of a college education 18 years from now might seem, tomorrow’s college students will have far more resources for paying for that education than retirees will have for getting by in their golden years. When saving for the future, parents must remember to save for their own future as well.