How to save for college using a college savings calculator

It may seem very daunting to save for college given the sticker prices for colleges. For example, the average 4-year in-state public college tuition costs $45,400 and total college costs, with room and board can come up to $115,360. A private college can go much higher with tuition alone coming to $116,160 and total costs coming in at $244,000. And these are just averages. Some colleges can go much higher.

So how does one get started with saving for college? A college savings calculator is a first step to helping you calculate how much to save for your child’s college fund.

What does a college savings calculator do?

The college savings calculator will let you know exactly how much you need to save to be able to afford college. It will also analyze the gap between where you are now, and where you need to be and will show you how much you need to put into your college fund to bridge that gap.

Factors contributing to calculating how much to save for college

A college savings calculator analyzes various factors including the following:

Age of the child 

One of the most important factors is the age of the child when you start saving for college. The younger the child, the more time you have until college. So you can save less and still achieve your college savings goal due to the power of compounding. Therefore, it is always good to start earlier, assuming you can afford to.

Expected costs of college

College costs vary based on in-state, out-of-state or private colleges. There are also opportunities for need-based or merit-based scholarships that reduce the sticker price and could possibly make college more affordable.

How much you have already accumulated in savings

If you started saving for college early and have already accumulated some level of savings in the college fund, this money can compound over the years until the child is ready for college.

Current monthly or annual contributions

You may already be setting aside a certain amount monthly or annually for your child’s college savings fund. This is an important factor determining how close you get to your college savings goal. 

Percentage of your child’s college education will you fund

Some people may choose to fund all of their children’s college education, provided of course that they can afford this. For others,it may make sense to fund the partial cost of college and rely on scholarships or loans for the rest. While this may saddle your child with loans when they graduate, it might let you save more for retirement or other more urgent goals. So it is worthwhile running the numbers to make these tradeoff calculations.

Rate of return for your savings

The rate of return at which your savings will grow affects the amount you need to save for college.

Fees growth rate

From 2000-2022, tuition and fees have been growing between 4 and 5%, based on data from the National Center of Education Statistics.

Modeling different scenarios with college savings calculators

A good college savings calculator can run different scenarios to help you decide how much you need to save. By modeling different scenarios, you can also understand the tradeoffs you may need to make. For example, how much does it help to start saving early vs holding off for a few years? What difference does it make if you choose public vs private college? What if you decided to pay only partially for college and relied on loans and grants to make up the difference?

Let us look at common college savings scenarios and analyze some common tradeoffs that need to be made.

The calculations below assume a net annual return on college savings of 5% and college fees growth rate of 4%. You can change these assumptions if you like.

Here are some key takeaways from modeling different scenarios in Planwell’s College Savings Calculator. 

1.It is better to start early to benefit from the power of compounding.

Consider a person who wants to save for a 4-year in-state public college with a total college cost of $45,040.

• Scenario 1: You start saving when the child is 1.
  • You will need to save $ 274 monthly
• Scenario 2: You start saving when the child is 8.
  • You will need to save $ 429 monthly. 

As you can see, it really pays to start early and give the college savings fund more time to derive the benefit of compounding. 

2. Type of college is a huge factor. You can save a lot of money by opting for In-state public colleges vs Private colleges.

• Scenario 1: In-state public college
  • The average cost of 4-year program at an in-state public school is : $45,040
  • If you started saving at age 5, you would need to just save $342 per month.
• Scenario 2: Private college
  • The average cost of a 4-year program at an in-state public school is : $166,160.
  • If you started saving at age 5, you would need to save $1263 per month.

3.Funding college partially can be an option if you want to deploy funds for other goals or expenses

You can consider paying for part of the college tuition instead of the full amount and supplement the rest with loans or try to obtain scholarships. Of course this may mean that your child may graduate with debt, and you have to trade this off against other ways you could deploy your money, such as retirement savings and decide which is more important.

• Scenario 1: Pay for 50% of private college
  • If you pay for just 50% it will cost $631 per month.
• Scenario 2: pay for 100% of private college
  • If you pay 100%, it costs it will cost $1263 per month.

Use Planwell’s free college savings calculator to figure out how much you should plan to savebe saving to achieve your college goals. You can model all the above scenarios and many others to find out your own personal college savings amount. This approach will make the process of planning finances for college less daunting and help you make clear decisions after considering all the tradeoffs. 

Snapshot of College Fees

Here is a snapshot of college fees to help you plan for college.

Note that these are averages and the numbers can vary significantly by college.

Source:

Trends in college planning and student aid by College board

Saving Beyond College 

Are you ready to save beyond your student’s future college fund? Check out our top recommended books on financial literacy and financial tips for young adults.