With the rising cost of college, it is more important than ever to start saving early for your child’s college education. And, many students do not qualify for financial aid, resulting in the need for student loans to pay for college and heavy debt for the student post college. Look at the example below to see the cost difference between borrowing and saving.
College Savings Profile
(Borrowing vs. Investing) |
Mary and John Smith are reviewing their financing options to see which is the most cost-effective way to fund John Jr.'s education in 10 years. Assuming he attends a public college that will cost $55,000 over four years*, clearly the cost to invest is substantially less than the cost of a loan.
OPTION 1
COST OF INVESTING $39,190
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| They will need to invest $3,910 a year over 10 years assuming a 6.5% annual return compounded monthly to reach their goal of $55,000. |
OPTION 2
COST OF BORROWING $75,953 |
| If they decide to fully finance his education with a loan, assuming a fixed rate of 6.8% Federal Stafford Loan, his monthly loan payment will be $633 over 10 years. By choosing this option, Mary and John Smith will add $15,810 in accumulated interest to the total cost of their son's education. |
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Look at the example below to see the cost difference between borrowing and saving.
PROJECTED TUITION AND FEES
(excludes room and board and other expenses) |
TODAY
(enrolling 2010) |
IN 18 YEARS
(enrolling 2028) |
| 4-Year Private College |
$121,800 |
$347,700 |
4-Year Public University
(in-state resident) |
$32,600 |
$92,900 |
2 Years Community College
and 2 Years Private College |
$63,300 |
$199,800 |
Source: savingforcollege.com, 2010
Based on average tuition and fees for 2009-2010 as reported by The College Board ® and assumed to increase 6% annually.
