State Treasurer of Iowa

Two big questions about college: What will it really cost, and how much should you save?

There's no getting around it: College can be an expensive proposition. But it might not be as costly as you've been led to believe. Although the average published prices--the sticker prices--shown below might seem scary, they don't reflect what most students actually pay.

 
 
  Public college, in-state student Private college
Average sticker price 2015-2016 $19,548 $43,921
 
 
Source: The College Board, "Trends in College Pricing 2015,"http://trends.collegeboard.org/sites/default/files/2015-trends-college-pricing-final-508.pdf, p. 10. The costs calculated by The College Board include tuition, fees, and room and board.


 
Help to recover from sticker shock
 
A year of college education--like a car on a showroom floor--has a sticker price, but it also has a net price, which is the sticker price minus any scholarships or grants that your student receives and doesn't have to pay back. When you're considering how much to save--and how much you'll eventually pay--for your child's college, focus on the net price.
 
  Public college, in-state student Private college
Average sticker price 2015-2016 $19,548 $43,921
Average net price 2015-2016 $14,120 $26,400
 
 
Source: The College Board, "Average Net Price over Time for Full-Time Students, by Sector," https://trends.collegeboard.org/college-pricing/figures-tables/average-net-price-over-time-full-time-students-sector 
 
That's still a pretty big net
 
One of the keys to saving for college is elegant in its simplicity: Be realistic. Just as few students pay the full sticker price, most families don't save the full amount to send their children to college. Rather, they set out to save some percentage of the four-year cost--maybe a third--33% with the plan that a combination of aid from the school, current income, and loans will cover the remainder.
 
That 33% goal is in line with what parents actually pay, according to latest data from Sallie Mae. In 2016, parents paid 29% of their students' college costs from their current income and savings; grants covered 34%, with the rest coming from student income, loans, and help from relatives and friends.
 
For the sake of illustration, assume you have a three-year-old daughter and you haven't saved anything for her college education, which you expect she'll begin at age 18. Let's calculate the net price of a college education for your daughter, assuming a 5% annual inflation rate.
 
Net price of college, calculated for a three-year-old
 
 
  Public college, in-state student Private college
Average four-year cost $126,520 $236,556
Your 33% saving goal $41,752 $78,063
 
 
Calculated using the Vanguard College savings planner at https://vanguard.wealthmsi.com/csp.php. The average four-year cost of college for this hypothetical three-year-old can be calculated by using the current net prices of $14,120 for a public college and $26,400 for a private college, and a 5% expected average rate of return. This hypothetical example doesn't represent the return on any particular investment.
 
How much would you need to save each week, month, or year in a tax-deferred account, like a 529 account, to reach your 33% goal? Maybe not as much as you'd think.
 
Weekly, monthly, and yearly savings goals necessary to pay 33% of a three-year-old's college education
 
  Public college, in-state student Private College
Weekly $28.15 $52.62
Monthly $122 $228
Yearly $1,464 $2,736
 
 
Calculated using the Vanguard College savings planner at https://vanguard.wealthmsi.com/csp.php. Calculated by using the current net prices of $14,120 for a public college and $26,400 for a private college, a 5% expected average rate of return, and an annual inflation rate of 5%. This hypothetical example doesn't represent the return on any particular investment.
 
Every little bit helps
 
Sallie Mae reports that parents with a plan to save for college through vehicles such as a 529 plan save 3.5 times more than non-planners, which means their children can take less in loans. So if the 33% goal doesn't make sense for you, set a more realistic goal for your family. No matter how much you save, your child will benefit.
 
i. Sallie Mae, "How America Pays for College 2016," https://www.salliemae.com/plan-for-college/how-america-pays-for-college/. 

 

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