The estimated cost of putting a newborn through public college 18 years from now is nearly equivalent to buying a median-priced home today for all cash. Saving that much, especially for more than one child, is impossible for most families. Nobody wants their children to start their adult lives stuck with a crippling amount of student debt. We aren’t told how to begin and it’s often hard to find any room in the budget, particularly when you’re already paying a mortgage (or rent), child care, health insurance — and maybe even a student loan of your own.
Who Should Save?
If you can afford to save something, you should — every little bit can help.
Don’t think about saving for your child’s future college education if you currently have a pile of high-interest credit-card debt or don’t have any money set aside in an emergency fund. Deal with that first.
Everyone else who can afford to save something should.
The debatable part of this question is how to prioritize saving for your own retirement versus your child’s college fund. You can borrow for college, but you can’t borrow for retirement. And if you’re well-positioned after they graduate, you can always help with paying your children’s loans.
Ultimately, you’ll need to consider how to balance the two goals of retirement and college saving. Financial planners suggest testing varying rates of savings — for retirement and college — to see the impact of dialing one up and dialing down another. You can play around with online retirement and college savings calculators to get a general sense, or pay a professional financial planner for their time for a more precise outlook.
Note: If you believe saving for college will hurt your eligibility for financial aid, you can safely cast those ideas aside. The truth is, when the federal government determines what you are expected to contribute, your income matters far more than your savings.
How Much Should You Be Saving
It’s important to understand your goals, and your current situation, as you plan for the future.
There are several philosophies on what you should save, but then there’s the hard reality of what you can afford to. There is also no easy way to know exactly what you will have to pay out of pocket.
Once you’ve thought that through, there are several practical ways to put together a savings plan. A well-known expert on all-things college finance, advocates the following strategy:
- Save one-third of the costs of a four-year public college in your home state over your child’s first 18 years.
- Attempt to pay a third out of your income while they’re attending college.
- Finance the remainder (with federal loans).
Other experts suggest variations of that theme, like saving a quarter of the cost, paying a quarter and borrowing the rest split among family members.
Regardless of what you decide to save, there are big benefits when you save early on: If you start when your child is a newborn, roughly one-third of the savings will be generated from the earnings on your investments. If you wait until high school, less than 10 percent will come from earnings.
