Incredibly, as private colleges keep paying their to executives millions of dollars each year, they continue to hike tuition prices for thier students. And many are wondering if college is even a " good investment" anymore. Liberal arts degrees are not in demand on the Job Market like they once were and, for the moment, the best college investment is in a trade or hard sciences degree. Nonetheless, most parents still intend to provide for college funding - even if it's mainly to just expose thier child to new ideas and points of view - so we need to plan accordingly; Here's how to do it:
Step 1) Establish a goal. How much will it cost? Are you looking for IVY league savings or state college? Whatever hopes you have for your childs future education, you need to start by quantifying the cost.
Step 2) Consider your time horizon - how many years until your child will be attending?
Step 3) Foctor in your inflation assumption. 5-6% is reasonable.
With this data, we can now "back into" how much we need to invest each month or year (based on a reasonable return assumption) to have a high probobility of enough funds being availbale when needed. Then, you simply start your regular investments, perhaps into mutual funds or ETF's (exchange traded funds) either directly or via a " 529" savings plan.
The " 529" plan offers tax benefits not available elsewhere. While contributions are not deductable - your investment grows tax deferred and distributions come out federally tax free. Further, states may offer some tax breaks as well, such as an upfront deduction for part or all of your contribution. You should research which benefits you will recieve for investing in your own states.
Finally, there may be a silver lining in the cloud: Scolerships! While many of us joke about scholerships when paying for our childrens sporting activitis, the odds of this occuring are greater than you think. In fact, fewer than 12% of private college students pay the full sticker price! According to a recent survey by the national association of college and university business officers, 88% of all freshman at private colleges recieved scholerships to reduce thier cost. Keep your fingers crossed!