Sending Your Child to College

Sending a child to college is at the top of the wish list for most parents. A college education can open doors to many opportunities and help your child compete in today's competitive job market. But that diploma doesn't come cheap.

College costs

For the 2023–2024 school year, the average annual cost is: $28,840 for a four-year public college (in-state student), $46,730 for a four-year public college (out-of-state student), and $60,420 for a four-year private college. Total figures include tuition and fees, housing and food, books, transportation, and personal expenses. Costs for the most selective private colleges are substantially higher. (Source: College Board, Trends in College Pricing and Student Aid 2023)

It's likely that costs will continue to rise, but by how much? Annual increases in the range of 3% to 5% would be in keeping with historical trends. But the actual percentage increase in any year could be higher or lower, and the rate could vary from public to private college.

How will I pay for it?

Year after year, thousands of students graduate from college. So how do they do it? Many parents save less than 100% of their child's education costs before college. Typically, they put aside enough money to make a down payment on the college bill (in the same way you might purchase a home). Then, at college time, parents supplement this down payment with:

• Current income
• Federal and college student-based financial aid (e.g., student loans, grants, scholarships, work-study)
• Investments (e.g., 529 plan, mutual funds)
• Child's savings and/or earnings from a part-time job
• Federal Parent PLUS Loan
• Home equity loan or other private loan
• Gifts from grandparents

How much should I save?

You'll want to save as much money as you can in your child's college fund. The more money you set aside now, the less you or your child will need to borrow later. Start by estimating your child's costs for four years of college. Then use a financial calculator to determine how much money you'll need to put aside each month or year to meet your goal. In many cases, the amount of money you set aside really comes down to how much you can afford to save. You'll need to take a detailed look at your finances. Every family's situation is different.

Start saving as early as possible

Perhaps the most difficult time to start a college savings program is when your child is young. New parents face many financial demands that always seem to take over — the possible loss of one income, child-related spending, the competing need to save for a house or car, or the demands of your own student loans. Yet this is the time when you should start saving.

When your child is young, you have time to select investments that have the potential to outpace college cost increases (though investments that offer higher potential returns may involve greater risk of loss). This table shows what a consistent monthly investment might grow to over a certain period of years.

You'll also benefit from compounding, which is the process of earning additional returns on the interest and/or capital gains that you reinvest along the way. With regular investments spread over many years, you may be surprised at how much you might be able to accumulate in your college fund.

Don't worry if you can't save hundreds of dollars every month right from the beginning. Start with a small amount, and add to it whenever you can.