Saving for college — What’s the real cost of waiting?

Columbia Management, Investment Team | September 16, 2013

  • Just a few years’ delay in saving for college can dramatically increase the monthly savings needed to meet education funding goals.
  • Early saving for college can reduce the burden of borrowing and pressure on current income when the child attends college.
  • A “Cost of Waiting” calculator can help you see just how much it could cost you for each year you wait to start saving.

Given the skyrocketing cost of higher education, saving for college can seem overwhelming. Many people take a “wait until I can afford it” or “we’ll just borrow the money” approach. Yet doing nothing or waiting to start saving are costly mistakes. Starting now can significantly reduce the burden of borrowing and pressure on current income.

Meet the Wards

The Wards have many hopes for their daughter Emily, age 5. Among them is a college education, and the Wards plan for Emily to attend an out-of-state public school. They estimate the future cost of this to be $276,331; they have 13 years to prepare for this expense.

InvestingForEmily

Assumes a  hypothetical 6% annual return during the 13 years of saving, and a hypothetical 5% annual college cost inflation rate.*

The hypothetical chart above illustrates how much the Wards need to save on a monthly basis to target 100% of Emily’s out-of-state public college tuition.

  • Starting now, they will need to save $1,174 per month.
  • Waiting one year will mean an additional $141 per month is needed.
  • Waiting five years means an additional $1,076 per month – nearly double the monthly savings needed just five years earlier.

Savings strategies

  • Don’t be discouraged by estimated college costs. You may not need to target the full education expense. Many families use a combination of savings, current income and loans to pay college bills. But relying on current income or loans alone can be very costly and burdensome to parents and children. Remember that what you invest now can have an exponential effect on what you have to borrow or fund out of current income in the future.
  • Arm yourself with information and a plan. Significant goals, such as a college education, feel more manageable when you have a plan of action. Also note that implementing a savings plan can provide relatives who would like to help – such as grandparents – with a way to do so more effectively. Consider working with a professional financial advisor to develop a realistic savings plan specific to your needs.
  • Once you have a college savings strategy mapped out, don’t let it gather dust. A “Cost of Waiting” calculator can help you see just how much it could cost you for each year you wait to start saving. And that could be just the nudge you need to start saving today.

Related reading: How will you pay for your child’s education?

Visit our Calculators page for additonal College Savings calculation tools.

*Source: “Cost of Waiting” calculator