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College has gotten really expensive. Read on to see how much you might need to save.
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Sending a child to college is hardly an inexpensive prospect these days. And if it’s something you’re eager to pay for, you may need to start saving when your child is very young.
Americans want to save $55,342 on average for their child’s college expenses, according to the Education Data Initiative. But that may not come close to covering the cost of a degree, depending on the path your child opts to take.
How much does college cost these days?
There are a lot of different factors that go into the cost of college, such as the school your child chooses and the amount of money they’re awarded in scholarship form. But you should know that based on recent data from U.S. News & World Report, the average cost of college for the 2022-2023 academic year was as follows:
$39,723 for private colleges$22,953 for out-of-state public college$10,423 for in-state public college
Again, these are just averages. But if your goal is to save about $55,000 for college like the typical American, it may not be enough to cover tuition if your child opts to attend a private college or a public college outside their state of residence.
And remember, these numbers simply represent the cost of tuition and fees. They don’t account for the cost of living in a dorm, buying books, and the other peripheral expenses that come with getting a degree. And so you may want to raise your savings target if your goal is to have your child graduate from college without debt (or without too much of it).
How to save for college
You have options when it comes to saving for college, but no matter which one you choose, it’s important to invest your college fund so it grows into a larger sum over time. This means that sticking to a traditional savings account probably isn’t the best bet. Instead, you should open an account that allows you to invest your money, whether it’s a taxable brokerage account or a 529 plan. You may also want to consider saving for college in a Roth IRA.
As far as how much and when to save goes, well, that’s a matter of what you can swing. But know this: The stock market has delivered an average annual 10% return before inflation over the past 50 years, as per the performance of the S&P 500 index.
If you sock $200 a month away for college over an 18-year window and your investments deliver that same return, you’ll end up with close to $110,000 in savings. That’s about double what the typical American is aiming to save.
A college fund that large might make it possible to cover your child’s education costs in full. So if you’re willing to start saving when your child is first born, you have the potential to amass a lot of money for college without having to part with many thousands of dollars per year.
Of course, it’s not easy to allocate money to college savings, so do your best if money is tight. But know that if your goal is to cover your child’s costs in full, starting early and investing your savings to take advantage of growth is really key.
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