BEWARE: The Future Cost of College

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In my most recent book, The Debt Free Degree (become a subscriber to get it free), I have researched the crazy increases in the costs of college. Did you know that college tuition has consistently been increasing at a rate of 7% each year?! With this increasing cost, it has become even more difficult for students to pay off those pesky student loans, even many years after they receive their college diploma!

With the projected future cost of college,  it’s incredibly important to start investing in your child’s college tuition now! Imagine that you invest $10,000 today for your child’s education and it earns 7% for 18 years. You’d think that that ten grand would really turn into a big chunk of change right? Well, yes and no. That $10,000 will become $35,000 when your kid reaches college, which seems like a lot, but if the cost of college continues to increase at that 7% rate, then you still have the equivalent of $10,000 (after the future inflated costs), which might get that child through one semester at college….

In order to cover your child’s tuition bills in the future, you’ll need to save up at least $100,000, if not more. That sounds like a ton right? Well, if you’re committed to making consistent deposits into your college investment funds, it is 100% doable. But, before we can find out how much you’ll have to put away each month, you’ll first have to get an estimate on what a 4-year term will cost in the future.

(Current 4-year Tuition Cost) x (Inflation Factor) = Future Tuition Cost

What does your local institution cost over the course of 4 years? For our local state college, I’d say the total bill is about $15,000 per year, which means that a 4 year degree will cost about $60,000. So let’s say I have a kid that’s 3 years old right now. That means I have 15 years before they’re off to college. Utilizing the table below, I find that my inflation factor is 2.76. Plunk these numbers into the equation and I quickly discover that college will most likely cost:  ($60,000) x (2.76) = $165,600 .

So now I know that in order to put my 3 year old (for those of you that are wondering, no I don’t have any children – this is purely for example purposes) through college, I’ll need to acquire $165,600 in the next 15 years. How in the world will I earn that much dough? Well, let’s refer to the next handy-dandy table:

 

I’ll need to earn approximately $160,000 for that tuition, and I have 15 years to earn it. If I match those 2 numbers into the table above, I know that I need to put away about $455 per month into a 529-Plan for my child. I understand that you might not have an extra $455 floating around each month, so feel free to download my free eBook: 101 Ways to Earn More Money.

Want to Know More About Investing For College? Subscribe and read my book, “The Debt Free Degree”. Enjoy!

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Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

10 Comments

    • I would hope that the costs begin to inflate more slowly. And, I hope that it can be done without government intervention. They have their fingers in too many things already….

    • That’s absolutely right. If you wait until your kid is 15 or 16 years old, there’s going to be no possible way to pay for their college education – well, unless you receive some kind of inheritance or something….

  1. Very cool chart, Derek! I think tuition costs will slow down a little bit. I know that the university that I work at only increased 4% this year, and that is on the high end. I think the average is 2-3%, but that is also because they are one of the most expensive already in the country. That’s good news for parents!
    20’s Finances recently posted..Why a Wagon is Better than SUV

    • It would definitely be good to see the rates slow down, but with such a high demand of students attending college these days, I could see the rates jumping up and up for at least the next 5 years. It will certainly beat out the rate of inflation, that’s for sure.

  2. I am not thinking about at the moment.Its very too far and I just let it be what future brings to us. I know we have a stable job that can support them.

    • Some parents decide that their kids can handle their own costs in college, and that’s ok. I did it and I don’t have any student loans now. Plus, I feel like I took my classes much more seriously because I knew it was my resources going into them. If you think you might want to help out your kids though, I would strongly suggest putting some money away now so that it grows into something more substantial in the future.

  3. Cool chart, although I for one have no intention of saving up for the entire cost of my (currently not existing) kids’ college educations. Once I do have kids I think I will want to put something aside to help them, but will certainly not be paying for the whole thing. (unless I’m filthy rich… then maybe :p)
    Renée (@nickelbynickel) recently posted..Fresh

    • Haha. I hear ya Renee. I’m back and forth on providing my kids a free ride to college. All I can picture is a huge, continuous party for 4 years on my dime… 😉 I guess I’ll have to gauge it on how responsible they are when they’re 18.


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