New ways of saving for your child's college education
When my two daughters were toddlers, their grandmother started giving them U.S. savings bonds each year intending that they use the money for college. The $50 bonds take a while to reach maturity and with inflation the bonds didn’t amount to much more than the cost of purchasing books for the first few semesters. Not that we didn’t appreciate it Mom!
Currently, if you invest $50 in savings bonds each year for 15 years, the expected interest rate of 1.00% will yield $862.89. Today, there are better ways to save for college.
We didn’t start saving for our girls’ higher education until they were in middle and high school when the federal government created 529 savings plans. Again our investment only helped with tuition payments for the first few semesters.
How much should you save for your child’s education? Remember college costs will not be the same as they are today when your child reaches college age. When I was attending the University of the Pacific in the 1970s, some people jokingly called it “U owe 5 grand.” Now tuition and fees for a full-time student are about $41 grand for two semesters at the private liberal arts college.
According to Mark Kantrowitz, publisher of Edvisors.com, the average cost of college over any 17-year period will go up by a factor of three from its current cost. Using your child’s current age, college start age and the number of years attending you can calculate an estimated cost.
What’s a parent to do? The best you can. Every little bit helps. The more you save the less your child will have to borrow to pay for higher education.
A survey released this year by Savingforcollege.com found that 70 percent of those surveyed didn’t have a college investment account for their children. According to the EdVest College Savings Planner, parents investing $100 per month at a 7% rate of return would be able to cover 19% of the estimated total education cost (at a four-year public university) for one child.
It may seem overwhelming, but you have to start somewhere. Wisconsin residents have two options for 529 college savings plans:
Even if you start small you may be able to increase your contributions later as your income increases. EdVest is urging parents to start with $25. Ask relatives to contribute or start their own accounts for your children.
What is your plan?