on Nov 29th, 2009College running number
The cost of four-year colleges tends to rise steadily at 7 percent, while inflation is a steady 3 or 4 percent. Assuming that your child has seventeen years to go before entering a four-year school that today costs $20,000 a year, for room, board, tuition, and so forth, the total cost of sending your child to college, in today’s dollars, will be $280,499. If it is your plan to pay for a four-year college education for your child, here are the numbers.
If you begin investing now for your one-year-old’s college education, assuming you’re earning 8 percent interest, each year from now on until freshman year you will have to add $7,384 to your savings. By the time your child starts college, you’ll have just enough to cover your costs without adding any more.
If you plan to continue paying the same amount during each of the college years, you will have to start adding to your savings, beginning now, $6,860.
By changing the assumptions, you could also start putting aside an extra $3,968 a year. This lower amount assumes that as college costs rise, so will your income and ability to set aside money. Here, we are assuming you’ll increase the $3,968 by 7 percent, the same inflation rate you assumed for college costs, straight through to graduation. This approach, however, is less conservative, and it does not benefit as much from the power of compounded interest.
The most conservative approach, if you could afford it, would be simply to set aside another $67,355 today. Based on these assumptions, you’d never have to lay out another penny for your child’s college education.