A few weeks ago my wife and I had the ultimate of blessings – Mrs. FV gave birth to our adorable baby girl – we’ll call her Little FV.
It was a rough pregnancy at the end, and we are happy that both Mrs. and Little FV are doing great and back at home after several days in the hospital.
Now that we are adjusting to having our new addition to our family (and first child) and getting into a routine, it’s hard to believe that Little FV will be all grown up and going to college before I know it. I’m going to enjoy every minute of it, because as everyone tells me, the 18 years from newborn to college will go by before I know it.
Paying for Little FV to go to college is very important to me. With skyrocketing tuition rates year over year, the average student loan debt is now $37,172. The average law student borrows $112,776 to finance their degree.
I had academic scholarships for both college and law school, but even so, had to borrow $80,000 to finance 7 years of higher education and room and board.
I don’t want Little FV to graduate with crushing student loan debt. I want her to be able to start out her career (whatever it may be) with the freedom to start saving for her financial independence, not trying to get out from under a mountain of debt.
As a result, even though Little FV doesn’t have a social security number yet, I have been researching saving for college options including 529 investment plans so that I can get started building her college fund in a tax advantaged account as soon as possible.
Vanguard has a very helpful college cost calculator that helps you project the total cost of 4 years of college.
Assuming you are doing a traditional 529 savings plan, you can pick general categories of schools (such as public in-state, public out-of-state, private or expensive private) or individual schools and see what it costs to attend these schools today.
You can then play with variables on the amount of your investment contributions, the rate of return and the rate of tuition increases to see if you will meet your funding goals, and if not, the additional amount you need to contribute to get there.
According to Vanguard, the average combined tuition and room and board at a public in-state college in 2018 is $20,700, while an expensive private school is $58,273.
Using Vanguard’s default assumption of annual tuition increases of 5%, the 4 year cost of attending a public in-state school will be $215,443 by the time Little FV goes to college. If I don’t front-end any savings and finance her education through only monthly investment over 18 years at Vanguard’s default investment return assumption of 6%, I’ll need to save $451 per month to pay for her 4 years of college.
Using the same default rates, the 4 year cost of attending an expensive private school will be $604,456, with tuition costs ranging from $140,000 to $162,000 per year in 18 years. Yikes! If I don’t front-end any savings, I’ll need to save $1,265 per month for 18 years.
Hopefully tuition rates won’t continue to rise at 5% per year, and the investment returns will be better. However, I am not planning on it. It’s better to save early to maximize compounding, and then adjust as needed over time.
Readers: How did you plan to handle saving for college for your children?