Wednesday, September 16, 2009

Saving for college

Reading this Sunday's Wall Street Journal article on saving for college, one might view our children's future ability to have a debt free education as hopeless. In the article, there were some important facts:

For the 2008-2009 school year, the average cost of attending a four-year public school for in-state residents -- including tuition and room and board -- rose 5.7% to $14,333, according to the College Board. The cost was up 5.6% to $34,132 for a private university. (These numbers aren't adjusted for inflation.)

Well, if you round up to $15,000 for public school and 6% per year, in 12 years that will double to $30,000 per year. If you have younger kids you might have a couple of extra years but let's assume those last few years won't get much interest as you pull the money out into conservative investments. It would mean that you have 12 years to save $120,000 per child. This is amazing to me and I can't even fathom at this point being able to save $10,000 per child per year. But, you have interest on your side, right?

Using an investment calculator, I figured that if you could save $430 per child per month for 12 years at 10% return per year, we could save our $120,000 in those 12 years. If you assume 12% return, you only need $375 saved per child per month. At 8% return, you need $500 per child per month. And that's just for an average public school!

What were we thinking having 2 kids only 1 school year apart? I can hope that we are able start saving $1000/mo within a couple of years for the kids but it can't be easy. I can also hope that we, as a society, get control of these college expenses and don't continue to let them grow at such a high rate assuming our children can bear the brunt of it through student loans. Until then - this is something to think about for sure..

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