College tuition and fees are on the rise. Shockingly, the cost for 4-year private schools now tops $36,000 per year on average.
But the investment is well worth it. According to the U.S. Census Bureau, individuals with a bachelor's degree earn more than double those with just a high school diploma.
The two most popular college savings programs are 529 plans and Coverdell Education Savings Accounts. Whichever you choose, be sure to start when your child is young. The sooner you begin, the less money you will have to put away each year.
Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for twelve years.
Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child's college education savings plan.
How Much Will College Cost? Based on the survey completed for the 2010 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2010-11 was:
$16,140 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.1% from 2009-10 findings.
$36,993 per year for 4-year private colleges and universities.
This is an increase of 4.3% from 2009-10 findings.
It should be noted that, on average, full-time students receive $16,000 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $6,100/yr for public 4-year institutions, and $3,400/yr for public 2-year institutions.
Gary M. DellaPosta is a CPA located in Falmouth. He has been in practice for over 30 years. Stay tuned next week to read about 529 Qualified Tuition Plans.
Cape Cod Moms