Building a College Fund | Planning Insights

Anne Hussman |

Building a College Fund

According to Sallie Mae, U.S. families with one or more college students spent an average of $24,164 on tuition, housing, and linked expenses in 2015. That was 16% more than in 2014.1

Statistics like these underline the importance of saving and investing to fund a university education. In its annual How America Saves for College survey, Sallie Mae found that only 48% of U.S. families with at least one child younger than age 18 were saving for college at all. 1,2

If you want to build a college fund, save with realistic assumptions. Be sure to have current data and future projections. Consider a tax‐advantaged account. Remarkably, Sallie Mae’s 2015 survey found that just 27% of households saving for higher education had chosen 529 plans or similar vehicles. Nearly half of the households building college funds were simply directing the money into common savings accounts, giving those dollars no chance to significantly grow or compound through equity investments.2

Explore your options with regard to these accounts. You can participate in any number of state‐operated college savings plans, not just the one in your state. Another state’s plan may offer you different tax breaks or incentives. Many of these plans now offer more investment choices than they once did, in addition to the traditional age‐based options. You can also change the way you invest assets in these plans, sometimes as often as twice a year.3

Keep your retirement savings earmarked for retirement. In a 2014 Sallie Mae report, an alarming 30% of parents saving for higher education expenses said that their retirement savings would be their number one resource to pay college costs. Is this idea generous or merely foolish? Sensibly speaking, eliminating your debt, starting a rainy day fund, and building up your retirement savings should all take precedence over amassing college savings.4

The biggest blunder is not saving for college at all. Most schools offer Net Price Calculators on their websites to help estimate the costs. While financial aid is certainly available, it rarely absorbs 100% of college costs. If you save $300 per month for college for 10 years and that money earns 7% a year, your college fund will grow to $52,228 a decade from now. If you borrow that much in Stafford Loans, you will owe about $600 per month for the next ten years and pay about $20,000 in interest along the way ‐ a notable contrast and an argument for building a college fund.3,4

Use the Cost Savings Calculator or other college calculators in the Calculator Library on our website, or contact us for more information on the best way for you to save.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note ‐ investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal
advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 ‐‐tools/america‐pays‐2015 [2/4/16]
2 ‐‐tools/america‐saves‐2015 [2/4/16]
3 ‐ [6/9/15]
4 ‐‐common‐college‐savings‐mistakes‐many‐parents‐make/ [2/24/16]