Saving for College: How Much Will It Cost?

CASH FOR COLLEGE: SAVING THE WAY FOR YOUR CHILD'S EDUCATION Young parents, right now you may think your darling little Max's ability to fling his breakfast waffle clear across the kitchen means he's destined to get an full-ride to Dartmouth on an ultimate frisbee scholarship, and that Stanford will be banging on your door with tuition incentives to lure your little Isabella just because she was the first member of her nursery school class to ditch diapers. The reality is, your precious little snowflake will probably need to pay for college. Here's how to get started on the path to savings. What is a 529 Plan? A 529 college savings plan is a tax-advantaged, state-sponsored acocount designed to help you save for higher education expenses. Any earnings in the plans are not subject to federal tar ot, in most cases, state tax, if used for qualified educational expenses. You can start a 529 plan regardless of your income level, and anyone- including relatives and friends- may contribute to it, up to a limit established by cach plan (ranging from $235,000 to $380,000). If one child doesn't need the money for any reason, you can switch the plan to benetit ansther member of the beneticiary's family. 529 Plan Top Performing 529 Accounts Pecte kig Fues bed n20IQl data When selecting a 529 plan, check first to seeif there are any incentives to investing in your own state's plan, such as tax benefits. Don't forget to check the xpenses on your state's plan as wellL If you don't like your home state options, you are free to invest in any other state's plan. Here's a look at some of the best performing plans over different time periods, according to a study by savingforcollege.com One-year Performance Ranking 22.06 CollegeAcces 529 31.76 SD National College Sns Prig TRowehice AVIN PLAN 28.03 O LOSFA 37.78 ALASKA 28.13- COLLEGE SAVINGS PLAN START Three-year Performance Ranking 5.55 USAA sas Caege avings Pla EDVEST 29.90 Wi 0 sas Caege Savings Pla charles SCHWAD 23.88 NV KS COLLEGE SAVINGS TLANK OF HARLA College vestment Mam ALASKA COLLEGE SAVINGS PLAN 32.52 31.41 Five-year Performance Ranking 19.51 USAA sas Culege Savings Plan 32.09 mesp 30.73- charlesscWAB 29 College teng Pan NV KS COLLEGE SAVINGS TEIRELU er College vestest Plan 34.11 ALASKA O COLLEGE SAVINGS PLAN 34.60 Common College Saving Myths How will saving for the cost of your children's college using a 529 plan, for instance-affect your ability to get financial aid? Parents are often concerned that they will forgo free money for their children's education by holding too many assets in a college fund. This concem is a result of two mytts people have about financial aid: Myth Myth Financial aid will be free money In reality, the majority of federal financial aid offered is in the form oft Any savings will reduce my aid dollar-for-dollar A common misconception is that, "IH I save $5.000, my aid will be reduced by $5,000-and I don't want to miss out on this money." leans. Most federal aid consists of Stafford loans, PLUS loans, and other barrowed money. Additional lbans are available privately, but they are still det that you and your child take on. And all loans are maney that will need to be paid back. The Truth Most of the aid ikely wil be in the form of one or more loans, which means your choice is to save now or borrow later. The Truth Your savings has a minimal effect on the federal aid you would be offered. Federal aid is based primarily on your child's income and assets, and your income. At most, only 5.6 percent of your non-retirement assets is expected to be used for college expenses each year If you have $5,000 saved, the aid amount you'd be offered would be reduced by only $280. And the $5,000 saved is money you wor't have to borrow and pay interest on later So start investing for college earty and contribute often - and don't let the myths about financial aid concem you. Saving helps you avoid debt you probatly woukd prefer not to have, and the value of your assets only reduces financial aid offered by a minimal amount. Quite simply, you are more financialy prepared to cover college costs with savings than without. How Much Do You Need To Save Each Month? How much you must save for your child will of course depend on when your child will be attending college, and what type of university they will attend. Current National Average of College Costs $36,993 per year $16,140 per year Public University Private University The Following Scenarios Assume: 80% 6% $0 success rate (The percentage of certainty that your imvestment goal will be met. If you want to be 100 percent sure that your investment will succeed, you will most likely need to contribute more money). An estimated 6 percent annual inflation rate for college costs 4 YEARS No initial contribution of attendance Bobby Jenny Susie Age: Newborn Year expected to attend college: 2029 Age: Five (kindergarten) •Year expected to attend college: 2024 Age: 14 (high school freshman) •Year expected to attend college: 2015 Total Cost: $151,478 Purtfalio 2024 Amount To Save Monthly: $768.27 Total Cost $89,659 Partfalio 2015 Amount To Save Menthly: $1,824 Total Cost: $202712 Portfolio 2029 Amount To Save Menthly: $653 Total Cost $464,617 Portfolio 2029* Amount To Save Monthly. $1,497 Total Cost $205,500 Portfolio 2015* Amount To Save Monthly $4,188 Total Cost: $347.189 Portfolio 2024 Amount To Save Monthly $1,760.88 *All three scenarios assume savings is held in an enrollment-based portfolio that is managed according to the date when the child will be starting college. Your dedication to saving for your child's education has paid off! Time to send them to campus. But don't worry, theyl be back. SOURCE T. ROWE PRICE I SAVINGFORCOLLEGE.COM. mint.