The Surprising Cost of a College Education

female graduate hugging her mother

It’s no secret that attending college is expensive and that education costs are rising quickly. The rate at which college expenses have increased is astonishing and many parents of young children don’t fully realize the enormous cost that lies ahead.

The current annual cost of attending an in-state public university (including tuition, fees, room and board) is about $20,800. For private universities, the average cost is just about double at $42,000. Over the past decade the average annual increase in college expenses has been roughly 5%. That means the total cost to send your child to a four year public university beginning today will be around $95,000 and $190,000 for private university.

Over the longer term,  let’s assume you have a newborn, and he or she will be attending college in 18 years. Given the 5% per year pace that college costs have increased, the first year cost could be around $52,700 for an in-state public school and $107,000 for private. The total cost for all four years would come to about $227,000 for a public university and about $460,000 for private. If you are the parent of a young child, these numbers may be terrifying!

The good news is if you start saving early, you can do a lot to prepare for the cost of college. To fully fund the cost of four years of college for a newborn, you will need to save about $450 a month for an in-state public school, and $900 a month for private school. This assumes an average investment return of 8% per year and continuing 5% increases in college costs.

These savings estimates may be overwhelming, but young parents should not be discouraged from saving what they can. Not everyone has the capacity to fully fund college, but you can still prepare by saving something on a regular basis. If you start early and get into a habit of saving regularly, you can make great progress in helping your children with their college costs. For example, saving $100 a month could grow into roughly $48,000 in 18 years with an 8% average rate of return. This will not pay for everything, but it will still help a lot.

You have a few options on the type of account you use to save, but the most popular savings vehicle is the 529 College Savings Plan.  A 529 Plan allows you to invest your savings and provides significant tax savings along the way. As long as the plan is used to pay for qualified college expenses, all of the income and gain in the plan is tax free.

We expect college costs to continue to rise for the foreseeable future. If funding a college education for your children (or grandchildren) is one of your financial goals, we recommend starting to save as soon as you can. We regularly help our clients with preparing for the cost of college education and creating a plan to help them meet their goals. If you would like to learn more about saving for college, please do not hesitate to contact us.

___________________________________________________________________________________________________________________Horizon Advisors is a Houston based fee-only wealth management firm. Horizon specializes in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

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