Financial Aid Wisdom â€“
Practical Tips about Paying for College
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Tips about Saving for College
College costs double every decade and triple in the 17 years
from birth to college enrollment.
It is cheaper to save than to borrow. If you save $200 a month
for 10 years at 6.8% interest, you will accumulate $34,433. If
instead of saving, you borrow $34,433 at 6.8% interest with a
10-year repayment term, you will pay $396 a month, almost
twice as much.
Time is your greatest asset. Start saving for college as soon as
possible. If you start saving at birth, about a third of the college
savings goal will come from interest on the contributions. If you
wait until your child enters high school, less than 10% will come
It is never too late to start saving. Every dollar you save is about
a dollar less you will have to borrow. Every dollar you borrow
will cost you about two dollars by the time you repay the debt.
The one-third rule: Plan on saving a third of projected college
costs or the full 4-year costs the year the baby was born. Like
most life-cycle expenses, college costs will be spread out over
time, with about one third coming from past income (savings),
about one third from current income and financial aid, and
about one third from future income (loans). Since college costs
increase by about a factor of three over any 17-year period and
3 x 1/3 = 1, that suggests that your college savings goal should
be the full 4-year cost of college the year the baby was born.
You might not be able to predict which college your child will
attend, but you probably can predict the type of college, such
as an in-state public 4-year college, out-of-state public 4-year
college or a non-profit 4-year college. For a baby born in 2012,
this means saving $250/month, $400/month and $500/month,