Estimating the Future Cost of College: How Much You Should Save
The thought of paying for college is a big source of stress for many parents. From the day they bring their bundle of joy home to the day their child graduates from high school, the cost of college can be a significant burden on the shoulders of families.
One thing parents are concerned with is what the future cost of college is going to look like by the time their children graduate high school. Keep in mind that 18 years is a long time, and there’s a chance that college may cost more than you think. Families should remember that free college proposals have only intended to apply to tuition at public colleges and universities so far. Students will still need money to pay for room and board, books, a computer, and more.
Thankfully, there are still options for families to afford the future cost of college. It begins by knowing what to expect and how you can stay ahead when saving for school. Here’s what you need to plan for when you save for college, and the tools that can help you get there.
The Cost of College Is on a Steady Incline
Don’t get too overwhelmed about the future cost of college. Take a deep breath and remember that this isn’t anything new. The cost of college has risen steadily from one generation to the next for a while now. From the baby boomers to Gen Xers to millennials, each generation has paid more for school than the last.
Research shows that, on average, in-state tuition and fees at public colleges and universities have grown by 221 percent since 1999. There are all sorts of reasons why tuition continues to rise. Inflation is a major factor. Everything else costs more than it did 20 years ago, and so does college.
Taking inflation into account is important for parents as they start to consider college. While tuition and fees may get most of the headlines, there’s more to consider and save for.
More to Consider Than Tuition and Fees
Tuition is not the only thing contributing to the rising cost of college. The cost of living has also risen dramatically for both parents and students. It’s just one of the many costs of college parents must consider when saving for school.
In addition to tuition and fees, parents must also consider the following when it comes to saving for the future cost of college.
- Room and Board
- Computers and Other Equipment
- School Supplies & Health Care
- Travel Expenses
These expenses are a big factor in the overall cost of college. Be sure to account for future expenses like food, transportation, and more, to give yourself a more realistic estimate of your college expenses.
Financial Calculators Take the Fear Out of Paying for College
Now that you know there are many factors that go into the cost of college, it’s time to get organized. There are all kinds of resources and tools to help families pay for school, including financial aid when your student is a high school senior. In the meantime, be sure to use resources like financial calculators to help you estimate the cost of college.
The 529 Plan calculator helps families understand how much they need to save for college. With a few simple numbers, families can estimate how much they need to save to reach their goals. The savings calculator will take your estimated monthly savings and apply an interest rate over a set number of years to give you the future value of your account, and how much interest you’ve earned.
The interest earned function is one of the most exciting parts of the college savings calculator. That’s because it gives you a window into how much compound interest your NC 529 Plan is generating for you and your student.
Compound Interest with NC 529 Helps Cover College Costs
An NC 529 Plan is a tax-advantaged savings vehicle specifically designed to help parents save for college. Unlike a savings account, a 529 account is an actual investment vehicle. That means your money is invested on a track that works for you and your family. Choose from an aggressive investment strategy when your child is young, and switch to a more moderate or conservative track as your student gets older.
Another incredible thing about the NC 529 Plan is that you receive compound interest on your investment. What is compound interest? Compound interest is when, over time, your investments earn money on themselves.
For example, let’s say you have $5,000 in your 529 Account. If you earned 5 percent interest on your investment, that would be $250. Compound interest is when that $250 you earned gets added (or compounded) back into your principal (the starting $5,000). Now, you’re earning interest on $5,250.
That means if you earned 5 percent interest again, you would now earn $262.50. This is because you’re getting the same interest on a larger overall sum. Over time, compound interest can add up quickly and go a long way to covering the cost of college by the time your student graduates high school.
The best part about all this interest is that it’s tax-free! That’s right, all interest you earn on your 529 plan is tax-free when used for qualifying education expenses.
Save for Tomorrow with NC 529 Today
We know it can feel overwhelming when you see the number for the cost of college the first time. The most important thing parents can do is stop, take a deep breath, and remember that you have time.
The cost of college may rise, but so will the earnings on your NC 529 Account, thanks to compound interest. Find the right number for your college savings goals and start saving when you open your NC 529 Account today.Go Back to News