I have been writing a lot about how to get into college and how to save for college. Now is the time to write about how much to save for college. This is an important question to ask so that we are well prepared when it’s time to pay those tuition bills.

The first question comes to people’s mind is: should the children not pay for college themselves? By paying for their college, are we not setting them up for an entitlement trap? That’s a good question. I am of the opinion that the responsibility can be shared. I, as a parent, am willing to pay for my kids’ education, provided the kids exhibit good performance, discipline and an eagerness to share the burden.

How can kids share the burden? The kids can share the burden by working harder in High School and/or in the first years of college. There are many things they can do. Here are a few items (what works best depends on the temperament of the child):

- Go to a community college for the first two years and then transfer to a 4-year school at the end of their sophomore year.
- Take college credits in High School by attending a community college while also attending High School and then transfer some of those credits to their 4-year college. This requires understanding what classes their prospective colleges will accept.
- Take AP (Advanced Placement)/IB (International Baccalaureate) classes in High School and transfer those credits to college when starting the 4-year program. Again, which classes will be accepted at the prospective college, has to be found out in advance.
- Enroll in a Middle College instead of a traditional high school in the 11th grade. This way, the child will earn a lot of college credits while in middle college. An example of such a program in my area is Tri-Valley ROP.

The moral questions aside, let’s run the worst-case and best-case numbers, provided you are a high-income family who will not receive any means based scholarship. I will write a separate post regarding the means based scholarship strategy.

Starting with worst-case:

Let’s say, my son who is 3 right now, will attend Stanford University (private, expensive school) when he goes to college at 18. I have already saved a lot for his college but for the purposes of this worst-case simulation, let’s assume that I am starting with ‘0’. Running the numbers on Vanguard College Cost Estimator,

It seems that I will need $407,640 to cover his cost of college. Again, assuming the worst-case that he does not receive any scholarships and he does not get any credits transferred, I will have to save $13,176 every year, invested in an index fund with 6% returns, while the college cost is increasing by 3% every year. $407,640 includes tuition, books, room, board and everything else.

Now, the best case:

Let’s say, my daughter who is 10 right now, first goes to a community college for the first two years and then transfers to an in-state school the University of California- Berkeley for the remaining two years. Let’s also say that somehow she manages to stay with us at home this entire time and also get’s some partial merit scholarship (say 25%), while at University of California- Berkeley (we live fairly close to Berkeley). The math will work out like this:

Cost for 2 years of community college eight years from now: $9180. Need to save $720/year for that in the 6% Rate of Return index fund.

Cost for 2 years of University of California Berkeley: $36857 (tuition & fees only) Only $27,758 needed to cover 75% of the tuition if she gets a 25% scholarship. Let’s say I am starting from 0 (which I am not), I only need to save $1710/year to cover this.

If you are having your child now, you only need to save $348/year for the first two years of community college and $1176/year for the two years of UC Berkeley, totaling ~$1500/year.

Hence, in this best-case scenario for a family like mine, we need to save $2430/year for the next 8-10 years, if we are starting when our child is 10 years old and has everything working out for her. The total amount needed is roughly $37,000.

The worst-case scenario for a high-income family is that you have to save $13,176/year for the next 15 years if you are starting out when your child is 3 years old and has to stay on the campus and does not get any scholarships and goes to an expensive private school for all 4 years. The total amount needed is $408,000.

You can see that this is a big range $37K-$408K, so what should you target for? Of course, the paramters I chose were a little arbitrary as well. For the purposes of this analysis, I chose the ages of my children and started with “0” as the starting point. I chose a 3% increase in college costs annually and I chose a conservative 6% index fund return. However, the important point is that you can use the tools above and estimate your target costs. You should first look at your target schools and their costs and go from there. In general, in today’s dollars, $90,000 is the average cost of a 4-year college degree at an in-state public school (room and board included) and the corresponding number for a private school is $200,000. It is worth highlighting that the average out of state cost at a public school will be roughly $160,000 in today’s dollars. Now, depending on your children’s ages, you might have to save either conservatively or aggressively.

Let’s say your parameters are:

- Average 4-year in-state public school.
- Room and Board included.
- No scholarships expected.
- Starting when your child is born.
- 3% increase in college costs expected annually.

Putting the numbers in a regular FV calculator in an excel spreadsheet will give you ~$153,000. (18 is the number of years, 1 is the number of terms/year since I am using annual rate increase)

College Cost |

$90,000 |

3.00% |

18 |

1 |

$153,219 |

However, assuming a more aggressive annual increase of 5% in college costs, the numbers bloat to ~$217,000.

College Cost |

$90,000 |

5.00% |

18 |

1 |

$216,596 |

So, this is tricky. It is better to oversave than undersave. The right number depends on various parameters and you have to estimate those parameters based on your judgement and the information available and put them in some of the calculators suggested above.

My next post will be on how to win scholarships for college, so stay plugged in. Having high income works against you for scholarships and we will go over some of the options with both low income and high income.