Here is What the Average American is Saving for CollegeNovember 01, 2017
According to Business Insider, college costs will continue to inflate at a rate of about five percent a year for the foreseeable future. That means tuition, room and board, and fees could end up costing parents somewhere in the vicinity of $90,000 in 2030 compared to 2014's $39,500 average.
This news could be distressing for middle class and lower income families striving to give their children that better life through higher learning. Even as college costs continue to crawl to all-time highs, families struggle to save. Sallie Mae's most recent study reveals over 55 percent of American parents are saving for college, an increase of almost 10 percent from the previous year.
But the question is how much are Americans savings? Sallie Mae's study says the average family has managed to put away $16,380. About 37 percent of those families are using education-specific tools like the 529 Plan.
A separate study by Fidelity show results that are a bit more encouraging. The investment giant's findings says that somewhere in the vicinity of 70 percent of families are saving for college. Of that number, 41 percent are using 529 plans. Additionally, the College Savings Plan Network says families using these plans, on average, have a balance close to $21,000. This is a record high.
Still, these encouraging numbers aside, if the American family hopes to catch up with skyrocketing college expenses, we still have a ways to go.
Escalation of College Expenses Keep Climbing
College expenses are rising faster than inflation, making it harder for even the most dedicated saver to have hope of bearing the future cost of higher education. Here is what college tuition on average currently costs for the 2015-2016 school year.
Four year in-state public college $9,410
Four year out-of-state public college $23,893
Private non-profit four year college $32,405
While these are good numbers for gauging general college costs, as we all know, tuition is not the whole story behind paying for college. What follows are estimations of what the entire college package might end up costing for the 2015-2016 semesters, after factoring in tuition, fees, room and board, and other fundamental expenses.
Four year in-state public college $19,548
Four year out-of-state public college $34,031
Private non-profit four year college $43,921
With these adjusted numbers, the idea that the American family on average currently has around $16,000 saved means they would not even be able to cover a full year of college costs at an in-state institution today, let alone the costs when their children are ready to go.
There is good news though. If one commits to saving, does so consistently and utilizes smart strategies, we all increase the possibility of raising balances significantly. That means, when it does come time to fill out college applications, everyone will be in a better position to manage the bills.
Drawbacks of Savings Accounts
The typical savings account is not an efficient way to save for college or a retirement fund for that matter. These facilities offer extremely low returns for the investment compared to other options. The only promising thing of note about a savings account is they are probably the safest option. Unless each depositor manages to put away over a quarter million dollars, there is no real risk of losing your principal. But with a savings account, you do risk all-important investment growth. Savings accounts on average offer a rough one percent return on the investment. A 529 plan, by comparison, might give depositors a five percent return, even with fees. This means one could put away $200 a month over a decade in 529 Plan and have $30,000. In a savings account at one percent, the depositor will yield $25,000.
The 529 Plan is not your only option. You can consider municipal bonds - small risk and tax free interest - or a Roth IRA, which can be both a college savings resource and a retirement account. You will have to meet income requirements, but these options are a great way to save.
Of course the best ways to increase the possibility you will save for college efficiently is to start putting away money early. The smart planner even starts before children are born. Imagine putting aside $200 a month for college under these circumstances:
5 Years $13,000
10 Years $30,000
15 Years $52,000
18 Years $67,000
The longer period of time we save, the more sizable the college fund.
Trying to establish how to pay for college is something every parent struggles with. It is also something that many families never manage to accomplish. As college expenses continue to grow, start saving and credit yourself for doing the best you can for your family regardless of the amount you accumulate. With luck, you will have a solid head start when your children are ready to begin their college careers.
- Finish 2017 with Extra Cash in Your Pocket...
- Ultimate Guide to Cut Your Taxes...
- Will Obamacare Self Destruct Through Market F...
- Date Like A Gentlemen On A Budget...
- Government Assistance For Utilities And Weath...
- Consumers Urged To Understand Their Credit Sc...
- Free Cell Phones, Unlimited Talk & Text from ...
- Best Bank Accounts To Reduce Fees...
- Ways of Becoming an Investment Banker...
- Citibank To Issue $3.75M Student Loan Refund ...