Contents
College Savings Fundamentals
How Much Will College Cost?
Prepaid Tuition 529 Plans
State 529 College Savings Plans
Private 529 College Savings Plans
Coverdell Savings Accounts
College Savings Withdrawals
How to Choose a College Savings Plan
Alternatives to College Savings Plans
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How Much Will College Cost?
To decide which type of college savings plan to choose, you need to have a sense of how much college will cost when your beneficiary enrolls—expenses include much more than just tuition. College-related costs break down into two main types: pre-college costs and actual college costs.
Pre-College Costs
Though most families focus on saving for tuition, room and board, and other actual college-related expenses, the pre-college period also involves expenses that can easily add up to thousands of dollars. You must plan for these costs regardless of the type of college savings account you use. But note that only Coverdell savings accounts—not 529 plans—can be used to pay for pre-college costs. The main pre-college costs you should expect to incur include:
- Standardized test fees: Nearly all college-bound students must take at least one standardized test, such as the PSAT®, SAT®, ACT®, or AP® exams. It costs roughly $15–85 to take each test, and retakes cost the full amount. Students with demonstrated financial need can qualify for fee waivers or reductions. For more on PSAT, SAT, and AP fees, see www.collegeboard.com. For more on ACT fees, see www.actstudent.org.
- Test prep courses and materials: Most students prepare to take standardized tests by using some form of test prep, which ranges from books ($20–50 each) to private tutoring ($50–100 per hour and up) to taking an entire test prep course ($500–3,000 and up).
- College application fees: Most colleges charge a nonrefundable application fee of $50–250. Even the 300 schools that use the Common Application (a standardized application form) still require that you pay an application fee for each separate school to which the student applies. Not all schools charge application fees, and some students with demonstrated financial need can qualify for fee waivers. For a list of schools that accept fee waivers, or that don’t charge fees, search for “fee waivers” on www.collegeboard.com or www.commonapp.org.
- Campus visits: Students generally visit each college or university to which they plan to apply. These visits, which usually take place during the junior or senior year of high school, include hotel, food, and gas or airfare expenses (though the actual campus tours that colleges conduct usually are free). Expect to spend at least a few hundred dollars per campus visit.
- Tuition deposits: Expect to pay a fee of $100–2,000 or more—known as a tuition deposit—to guarantee the student’s spot at any college to which he or she gains admission. In the best-case scenario, the student will be admitted to at least one school and will choose one to attend. In that case, you’ll pay just one deposit, and the school will credit the amount you pay against tuition fees you pay once the student enrolls. In the worst-case scenario, the student will be accepted to some schools but remain on the waiting list at others. In that case, you may end up having to pay several nonrefundable tuition deposits at once, only one of which will count toward the student’s actual tuition.
- Moving: Most parents manage to move their kids to college by packing up the car and driving to the school. In this case, expect to spend money on gas, food, and maybe an overnight stay—probably a few hundred dollars total. If air travel is involved, though, you’ll have to pay for plane tickets and shipping costs, which may add several thousand dollars or so, depending on the distance, number of travelers, and so on.
- Personal expenses: This catch-all category includes all the expenses you’ll incur to get your child set up at college—clothes, a computer, bed linens, and more. Though you’ll likely be able to bring some of these items from home, you should still expect to spend at least another $500–1,000 on personal expenses before college starts.
The final tally will vary considerably based on the number of schools to which your child applies, the distance from your home to the school, and so on. Altogether, though, you can expect to spend roughly $1,000–5,000 on pre-college costs.
Actual College Costs
Most college-related expenses arise while your child attends school. The five main costs are tuition, room and board, books and supplies, transportation, and personal expenses.
Tuition
Tuition, the cost of the actual educational instruction your beneficiary receives at college, is almost always the largest college-related expense. The cost of tuition varies widely depending on whether the student attends a two-year community college, a four-year public (state) college/university, or a four-year private college/university. The following table lists average tuition costs for the 2005–2006 academic year at each of the three main types of schools. The projected amounts in the table increase each year at a rate of 5%, the actual tuition inflation rate for 2005–2006.
Type of School |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Total |
|||||
Community college |
$2,020 |
$2,120 |
n/a |
n/a |
$4,140 |
|||||
State college/university |
$5,040 |
$5,292 |
$5,557 |
$5,834 |
$21,723 |
|||||
Private college/university |
$19,810 |
$20,800 |
$21,840 |
$22,932 |
$85,382 |
Room and Board
Room refers to costs paid to rent a dorm room or an off-campus apartment; board refers to the cost of meals. The following table lists average room and board costs for the 2005–2006 academic year. Since community college students usually don’t live or eat at school, the table includes costs for state and private colleges only. The cost increases reflect an assumed annual inflation rate of 5%.
Type of School |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Total |
|||||
State college/university |
$6,200 |
$6,510 |
$6,835 |
$7,177 |
$26,722 |
|||||
Private college/university |
$6,520 |
$6,846 |
$7,188 |
$7,548 |
$28,102 |
Books and Supplies
College students spend an average of $800–1,000 per year on textbooks; students pursuing technical majors, such as engineering, often spend considerably more. Though it’s sometimes possible to buy used books at a discount, textbook publishers and professors often require students to use the latest—and most expensive—editions. Supplies include everything from notebooks to calculators to study guides. Students spend roughly $300–500 per year on supplies.
Transportation
For students who attend college in major metropolitan areas, transportation costs might mean fares for buses or subways, which typically run $300–1,000 per year. If your child plans to have a car at school, expect to spend at least several hundred dollars a year on gas and auto maintenance, and another $1,000–2,000 for auto insurance. Students living on compact, walkable campuses may not need a car and therefore may spend considerably less on transportation.
In addition to on-campus transportation, costs for train, bus, or air travel to come home for holidays and breaks between semesters can add another few hundred to several thousand dollars to the mix.
Personal Expenses
The personal expenses category covers the spending money the student needs for everyday expenses such as haircuts, personal care items, snacks, and so on. Costs can vary considerably depending on the school’s location and on the budget you set, but expect to spend about $2,000 per year on your child’s personal expenses.
The Total Cost of a College Education
The following table shows the total cost of a college education for all three types of schools, with a total cost for each main category of expense as well. It also shows the total costs projected out 10 and 20 years, assuming an average overall inflation rate of 5%. These costs are intended to give you an approximate sense of the amount of money you’ll need to save to fund the student’s college education now or in the future.
Cost |
Community |
State |
Private |
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Pre-college expenses |
$1,000 |
$3,000 |
$3,000 |
|||
Tuition |
$4,140 |
$21,723 |
$85,382 |
|||
Room and board |
n/a |
$26,722 |
$28,102 |
|||
Books and supplies |
$2,000 |
$4,000 |
$4,000 |
|||
Transportation |
$1,000 |
$4,000 |
$5,000 |
|||
Personal |
$1,000 |
$8,000 |
$8,000 |
|||
Total (current) |
$9,140 |
$67,445 |
$132,484 |
|||
Total (in 10 Years) |
$14,888 |
$109,861 |
$215,802 |
|||
Total (in 20 Years) |
$24,251 |
$ 178,952 |
$351,520 |
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