How much should I be saving for college?
Even though college costs are rising rapidly each year and could reach $334,000 by 2018, fewer families are saving for it than last year, according to a new survey from student loan servicer Sallie Mae.
Just 48% of U.S. families are saving for their children’s college education, compared to 51% last year, MainStreet reports.
Families are saving less for college
Not only that, they’re saving less than they have since Sallie Mae’s annual “How America Saves for College” study began. The average family put aside just $10,040 for college this year.
This is only slightly more than the average tuition cost of just one year at an in-state public college ($9,139) and $21,000 less than the cost of one year at a private university ($31,231).
And when you factor in the cost of room and board, textbooks, travel, and other expenses each year (along with multiple kids potentially attending college), the savings don’t put much of a dent in the average family’s college costs over four (or more) years.
How much to save for college
So how much should your family be saving for college?
Experts like Mark Kantrowitz, senior vice president and publisher at financial aid site Edvisors.com, tells MainStreet that families should follow the “one-third rule,” and plan on saving about one third of future college costs.
He recommends that families spread out saving for college over time, with one-third coming from past savings, one-third from current income and one-third from future income or loans.
Plan for rising college costs over time
And since college costs increase by about a factor of three over any 17-year period, according to the site, Kantrowitz says that families should aim to save the full cost of a college education in the year the child was born.
For a child born in 2015, parents should save $250 per month if the child will enroll at an in-state public college, $400 per month for an out-of-state public and $500 per month for a private non-profit college, according to MainStreet.
Using a college savings calculator can also help you figure out how much to save.
While these amounts may not be practical for many families, particularly as other costs of living rise, experts say anything your family can save will help reduce your future college costs.
As Kantrowitz says,
Every dollar saved is a dollar less borrowed.
Every dollar borrowed will cost about two dollars by the time the debt is repaid.
Get tax savings with a 529 plan
For families that do save, most experts recommend using a 529 plan, which allows families to put aside money for college and withdraw from the plan without paying any income tax on the amount.
Some of these work like retirement plans by investing your contributions in mutual funds or similar investments, while others allow you to pre-pay all or part of the costs of an in-state public college education.
If you’re considering one of these plans, it’s best to consult with a financial advisor or a 529 plan manager. A list of 529 plans by state can be found here.
Reducing college costs
While saving more for college will certainly help you avoid taking out more loans to pay for college, what many experts don’t address is how to reduce your college costs in the first place.
That’s where we come in. We help families avoid paying high prices for college, which reduces the need for savings and college loans.
If you want to learn how we can help you maximize your financial aid packages and make college more affordable, call us toll-free at 1-888-234-3907 or contact us using this form and we’ll get back to you right away.