Ready to start saving for college? This calculator can help you estimate how much you'll need to set aside so that the money will be ready when the universities come knocking. The goal in using the calculator is to end up with positive results in the final expected year of college in the Amount Remaining column of the results.
The Investment Side
This portion of the calculator was modified from the Investing: Future Value calculator. One important consideration in using this calculator is to consider only the effective after-tax rate of return for your investment. For instance, if you expect you'll be in the 25% tax bracket for the duration of your investment, you should reduce your investment rate of return by this percentage to obtain the rate of return you should enter into the calculator. Alternatively, there are a large number of tax-free investment options for supporting education costs, such as 529 plans and Education Savings Accounts, among others, where you could simply enter the full rate of return for the investment.
About the College Cost Data
The number for the current cost of college comes from Florida State University, which made its undergraduate degree basic cost data easy to find on its web site, and should be fairly representative of many public universities' student costs. The number represents an in-state student's annual tuition cost for 30 credits and associated boarding, food and textbook costs. Since your expected costs may differ, use a figure that best reflects your particular situation.
The college cost inflation rate comes from FinAid, and typically, college tuition increases at a pace nearly twice that of inflation, with annual increases ranging between 5.0% and 8.0%. The rate of 7.0% has been entered for the sake of erring on the conservative side, although you may alter the figure as you see fit.
About the College Investing Calculator
The calculator doesn't account for scholarships or student loans, which might reduce the amount you would have to save to pay for college. The calculator assumes that the costs for a full year are paid up front and that the student will attend college for the full year, both of which simplify the math involved. Likewise, the calculator also assumes that the neither the rate of return for your investment nor the rate of tuition inflation varies over the term of your investment.
Labels: education, investing, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
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