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Financing Your Child's College Education


How to Prepare for the $100,000 Price Tag

If you're the parent of a newborn or young child, you've probably heard the depressing estimate of the cost of a college education when your child is ready to enter college 18 years from now. The cost of four years in a public college is expected to cost in excess of $100,000; a private school, over $200,000. What's a parent to do?

Start Now!

The sooner you start investing for your child's education, the better. As with any other investment goal, time is your best friend.

Have a Plan

The first step in making a plan is to estimate what the total cost of your child's education is likely to be. The average in-state tuition for a public school now averages over $10,000 per year. At five percent inflation per year, the estimated cost per year 18 years from now would be around $24,000 (10 years from now the cost would be approximately $16,000). Private schools can be two to three times as much.

Don't let these numbers scare you into inaction. Some of your child's education can be paid for through scholarships, financial aid, and student loans. It's possible to save the rest if you start early, contribute regularly, and invest wisely.

The only thing worse than not saving at all is putting your money in a passbook savings or money market account. In order to amass enough money to finance four years of college, you need to not only start early, but invest aggressively. Stock funds historically have almost always exceeded other investments over periods of ten years or more. Look for no-load (no fee to purchase or sell) mutual funds with low expenses. Refer to Money Magazine's semi-annual mutual fund listing that includes information on expenses and performance for thousands of funds.

Don't just park your money in a fund or two and leave it. Review the performance of the funds at least annually, and make adjustments as necessary for under-performing funds. When your child is five years from starting college, begin to shift your money into growth and income stock funds and bond funds, reducing your exposure to market ups and downs while still aiming for high returns.

Two to four years before your child is due to start college, cash in enough stocks and bonds to pay for the first year, and put it somewhere safe and accessible, like a money market fund. If you wait until just before you need the money, you may be forced to take it out at a time when market performance is down, thus losing some of your earnings.

Page Two: Coming Up With the Money

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