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A college education is one of the greatest gifts you can give a child. It’s also expensive. For many families, the dream of funding this fun, career-enhancing experience, and ensuring their child’s adult life won’t begin hindered by debt, requires a lot of sacrifice and planning.
How Much Should You Save?
Scott Bishop, managing director and co-founder of Presidio Wealth Partners, recommends starting at $50 or $100 a month and trying to increase that amount a bit each year. He says the key is starting as soon as the child is born, as there is a lot to save and it’s important to take advantage of compounding as much as possible.
For a more precise idea of what you’re up against, identify how much colleges cost, add all associated expenses such as room and board, books, and living expenses, and then account for inflation.
T. Rowe Price compiled costs for various types of colleges in 2024 and anticipated expenses 18 years later, assuming annual average inflation of 5%. As you can see below, the price difference is substantial.
| The average cost one year of college | ||||
|---|---|---|---|---|
| Two-year public (in district) | Four-year public (in state) | Four-year public (out of state) | Four-year private (nonprofit) | |
| Tuition and fees1 | $4,050 | $11,610 | $30,780 | $43,350 |
| Housing and food1 | $10,390 | $13,310 | $13,310 | $15,250 |
| Total 1 | $14,440 | $24,920 | $44,090 | $58,600 |
| Estimated total 18 years from now2 | $34,752 | $59,972 | $106,108 | $141,028 |
T. Rowe Price used this information to calculate how much to save during each year of a child’s life. Two options are provided: a monthly flat amount and a ramp-up strategy that involves gradually contributing more each year.
The flat option looks like this (the benchmark figures represent that year’s contribution as a percentage of the current cost of one year of college):
And the ramp-up strategy, which assumes the savings rate increases 3% annually and that contributions continue while the child is at college, looks like this:
Warning
T. Rowe Price’s estimates are based on covering 50% of college costs. To contribute, say, 75%, you’ll need to multiply the original age-based benchmark by 1.5.
To determine how much you need to save, estimate the current total cost of one year of college at the targeted type of school, and then multiply that amount by the relevant savings benchmark shown in the second column. The number you end up with represents what you should have saved by now.
Remember, these calculations are based on covering 50% of the cost. If you want to aim higher, you’ll need to save more.
How To Boost Your College Savings
Saving enough for college doesn’t just depend on putting money aside straight away. Where the money is placed is equally important.
To achieve T. Rowe Price’s 6% annual return assumption or more, savings need to be invested in assets such as stocks, at least at the beginning when there’s still plenty of time to spare in case of a market downturn. Another option is to invest via a 529 savings plan. With these accounts, any withdrawals made for education-related expenses are tax-free.
The Bottom Line
Paying for a child’s college education isn’t easy. Based on T. Rowe Price’s estimates, a four-year in-state public college, the cheapest option for many, will cost about $60,000 in 18 years. To cover those costs in full, you’d need to have generated about $3,300 a year through savings and investment returns for those 18 years.
