TAKE THE FIGURES from the College Board—the $21,950 average cost for a child at an in-state university for the 2019–20 academic year and the $49,870 for a private college. Multiply those sums by four years and you’re looking at some $87,800 for an in-state university and $199,480 for a private college. That’s how much it might cost to send today’s toddlers to college—figured in current dollars.
Now, suppose you can earn investment returns equal to the annual increase in college costs—perhaps 4% or 5% a year. To amass the sum needed for an in-state university, you would need to save some $400 a month in the year your kid was born, and thereafter increase the sum you save each year along with college costs and you’d need to keep that up for another 17 years. Meanwhile, for a private college, you’re looking at saving more than $900 a month in the year your child was born and then keeping it up for 17 additional years, boosting the annual sum socked away along with college price inflation.
For most parents, that simply isn’t doable, especially because they also need to save for their own retirement. In fact, retirement should take precedence: Your kids can take out loans to pay for college, but for retirement you’ll need to start out with a heap of cash.
Still, save what you can. When it comes time to pay those college bills, you’ll be grateful for any cash you have set aside. Where will the rest of the money come from? If you’re like most parents, you will muddle through, paying college costs out of current income, perhaps getting some help from the grandparents, asking your children to take on loans and also borrowing money yourself, and—fingers crossed—your kids will receive some grants and scholarship money.
If you put aside at least some savings, it may allow your children to graduate without crippling amounts of student debt that could create heaps of financial stress and limit their career choices. But that still leaves two questions: How should you invest your children’s college savings—and what sort of account should you use?
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