How To Cut The Cost Of College

There’s a surefire way to cut the cost of college in half.

Just start saving early.

The sooner you start to save, the cheaper the overall bill.

Baltimore-based investment management company T. Rowe Price confirms that “families who begin saving for college through a 529 savings account when their child is young will pay half as much as those who borrow” later on, reports business journalist Carolyn Bigda in the Baltimore Sun.

Chalk it up to the miracle of compounding.

When you start saving earlier, your savings have more time to compound and grow. Compounding does most the work for you, so you don’t have to save that much.

Start saving at birth

For example, if you start saving $200 per month for your child starting at birth, and you earn an estimated 7% per year, your nest egg could grow to over $86,000 says T. Rowe Price.

Start saving at age 5

If you wait, and don’t start saving until your child turns 5, you’ll need to save $340 per month to end up with the same amount.

Start saving at age 9

Put it off until your child is 9, and you’ll need to save $500 per month to tie those results.

Start saving at age 13

Procrastinate a few more years, and you’ll see why 13 is considered an unlucky number.  It will take savings of $1,200 per month to generate that same $86,000.

That’s why starting early is key. 

Wait until your child is in middle school and you’ll have to save six times as much each month to end up with the same amount of money.

There’s another reason that starting early results in the lowest bill.  When you start to save late in the game, or don’t save at all, your college-age child has to borrow money. And just like with a credit card or car loan, the interest you pay over the course of the loan piles up, and up, and up. By the time you’re done, that college diploma will cost you a lot more than if you just paid “cash.”

And don’t think, by the way, that saving money – especially in a tax-favored plan like a 529 – will hurt your child’s chances of getting financial aid. That’s an old wives’ tale.

Explains T. Rowe Price:

“Some parents think that saving for college will affect their ability to receive government-funded financial aid. In reality, the amount you’ve saved in certain accounts will have a minimal impact.”

In reality, it’s your current income, and not the amount you’ve saved, that has the greatest impact on financial aid calculations.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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