Ask Terry Questions 529 College Savings Plan –How MUCH to save?

529 College Savings Plan –How MUCH to save?

By Terry Savage on January 19, 2020 | College Savings / Student Loans

I’m starting a 529 for my grand daughter who is 10 months old, thus would enter college probably in about 18 years. I’ve invested $5,000 in a Vanguard growth fund that has performed over time at about 7% annually. I calculated that at that rate the investment would double every 9 years thus the initial investment of $5000 would be about $20,000 for her freshman year tuition. If I do that same invesment for four years likely $80,000 saved in total. Sounds great but that won’t come close to what college will cost by that time and I’d like to cover much more of the cost, and likely contribute more. How can I find out what would be the likely cost for college in 20 years so that I have a realistic goal? Thanks!

Terry Says

Honestly, there is no realistic way to estimate what college will cost 20 years from now! In the past, college tuition has outpaced the Consumer Price Index — because there was such a demand and also because of the prevalence of federal student loans. But in the past few years that situation has changed. Families are more aware of the burdon of student loans. And many students have stopped applying to the most expensive colleges –unless they can get a lot of financial aid from them. So prices have remained pretty stagnant. Still, if inflation returns you can be sure college costs will rise too.

Bottom line: Save as much as you can for college, and don’t count on the outstanding stock market returns of the past decade. We’ve had a very unusual time this past decade. It’s good of you to contribute, but don’t impoverish yourself.

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