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The earlier you save for your child's education, the
better. Since 1979, college tuition has increased about
8% per year. This means that the cost of college could
double every nine years.
That's why it's important to save early, and
to set a concrete savings goal based on the estimated
costs of college by the time your child gets there.
Why save early?
Because you'll need to save a lot. On average,
financial aid and scholarships cover only 1/3 of the
costs of college. Only 7% of students nationally receive
scholarships, and grants cover only 10% of the total
cost of tuition and room and board, on average.
Because time is on your side. That means you
gain the benefit of compound interest. Here's an example:
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If you begin saving $150 per month when your
child is born, and continue until age 18, earning
4% interest, your savings will grow to $47,496.66
- that's $32,000 that you've contributed,
plus $15,096.66 in interest.
If you begin saving when your child enters high
school and save for four years at 4% interest,
you'd have to contribute $911.07 every
month to reach the same total. And, of your total
$47,496.66, only $3,766.49 is interest
you've earned - the other $43,730.17 comes from
your pocket.
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Some things to consider in your college planning:
Tuition costs. Average tuition costs for 2004-2005:
Four-year private college - $20,082
Four-year public college - $5,132
Two-year public college - $2,076
Source: College Board, Trends in College Pricing 2004
College costs currently rise at an average of 8%
per year, so take inflation into consideration in
your tuition estimates.
Other costs. In addition to tuition, college
brings with it other expenses, which may include transportation,
off-campus housing and spending money for your student.
While some of these may be hard to estimate when your
child is young, it may be helpful to consider them as
part of your overall long-term savings goals.
Estimating
College Expenses will help you identify the bigger
picture of college costs
Savings plans. There are numerous ways to save
for college. Each has advantages and disadvantages.
Our College
Savings Plans section will give you an overview
of your savings options
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