By Janet Stanton Burt
How much will you pay for your child’s college education? If you’re like the parents profiled in a recent CNBC article, you intend to save enough to cover the cost of tuition in full – though your current savings may not be on track to accomplish that target.
But is that a realistic, or even a necessary goal? The vast majority of full-time freshmen, 88%, received grant aid – financial aid that doesn’t need to be paid back – from their college in 2016-17, according to a 2017 study from the National Association of College and University Business Officers.
Before you can set an achievable college saving goal that fits your budget, you need an accurate picture of how much those expenses might be.
Published Prices vs. What You’ll Pay
Parents have gotten the message that they need to save to help their kids afford college. A Fidelity study on how families are saving for college, summarized in the CNBC article, found that more parents were putting away money for college than ever before, with 73% of parents surveyed saving a median of $300 per month.
These parents had saved significant sums:
- Parents with kids ages zero to five said they had saved an average of $20,700.
- Parents with kids ages six to 13 had saved $39,300.
- Parents with kids ages 14 to 18 have saved $52,300.
Despite that progress, the article’s author suggests that these parent savers will fall far short of their goal, citing an estimate from Vanguard that a 4-year degree at a private, nonprofit college might cost nearly $500,000 in 18 years. But that estimate is discouraging, and possibly misleading.
At most private colleges, families may pay less than the published sticker price because these institutions use tuition discounts, also known as merit aid, to attract their desired pool of students. The average price break for first-time freshmen was 49.1% off the sticker price for tuition and fees, according to the NACUBO report. Among all undergraduates, the tuition discount rate averaged 44.2%.
Note: While discounting is widespread at private colleges, you typically won’t see top-tier schools like the Ivies and the most selective private colleges doing it. Those schools admit only a small fraction of applicants, so they don’t need to offer tuition discounts to attract students. Instead, they offer financial aid based on family income.
And not every student will attend a private college. If your child chooses an in-state, 4-year public college, lower tuitions mean your overall costs would be far lower than at a full-price private college, according to the College Board. Students starting at a local community college for two years might earn a degree spending even less.
Start Saving Early
How much to save for college inevitably involves some guesswork, especially if your children are very young. But you don’t need an exact figure to get started. The most important takeaway for parents is to begin saving as early as possible in your child’s life, so your investments have as much time as possible to benefit from the power of compounding.
If possible, start saving for college when your child is born, and consider investing the money in a 529 plan or other investment account, rather than keep it in a low- or no-interest savings account. Even if you aren’t able to put away the entire published cost of tuition in full, every dollar you manage to save is a dollar you won’t have to borrow, and later repay with interest.
Rely on “Net Price”
Once your child is old enough to start shopping for colleges, say, junior year of high school, net price calculators can help your family comparison shop. “Net price” is the difference between the “sticker price” and what you’ll actually pay after accounting for college grants and merit aid your student may qualify for.
A pricy, private college could potentially cost less than a public university, if the private school offers your child a large grant and generous merit aid.
Though helpful, net price calculators give you estimates, not promises. You can’t know exactly how much financial aid your student will get until she’s actually applied to college and filled out the financial aid forms, including the FAFSA (or Free Application for Federal Student Aid), and for about 300 elite colleges, the CSS Profile form.
Even if you think you make too much to qualify for federal financial aid, colleges use these forms to determine the institutional aid they award, so be sure to submit them. Once your student is accepted, the school will put the offer in writing and you can compare all the offers.
All Saving Is Significant
It may not be realistic to aim to save the entire cost of your child’s college tuition, particularly when you’re juggling other life goals like investing for retirement and paying off your own student loans. But don’t let scary statistics deter you from setting up a plan and starting to save. You may discover that college is more affordable than you think.
Get a clear picture of what you can do now to help pay for your child’s college education by setting a college savings goal. Even if your child is already in high school, it’s not too late to save enough to significantly offset your child’s college costs.
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