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| About Saving for College |  Parents should pay at least half to two-thirds of their children's college costs through a combination of savings, loans and current income. Grants, scholarships from the government, colleges and universities cover only about a third of total college costs. Accordingly, it is very important that parents begin saving for their children's education as soon as possible, even as early as the day the child is born. The sooner you begin saving for college, the more money you will have for a college.
If you start saving early enough, even a poor weekly or monthly investment can grow to a essential college fund by the time your child will be admitted to the university or college. For example, saving $50 a month from birth would result in about $20,000 by the time the child turns 17, assuming a 7% return on investment. Saving $200 a month would result in almost $80,000.
It is cheaper to save for college than to borrow. You can also set aside a portion of your income to pay for college. When you save, the money gets interest, while when you borrow, you're paying the interest. It will cost you much less to pay for college before your child becomes admitted to college than pay for college afterward. If you save $200 a month for ten years at 7% interest it would results in $34,818.89. If you borrow the same amount at 6.8% interest with a ten year term it costs you $400.70 a month. If you have 8.5% interest the payments increase to $431.70 a month. (If your return on investment is 4% instead of 7%, you'd pay $29,548.13. Borrowing this amount at 6.8% interest would costs you monthly payments of $340.04; at 8.5% interest the monthly payments increase to $366.35. If your return on investment is 10%, you'd pay $41,310.40, borrowing this amount at 6.8% would costs you monthly payments of $475.40 and $512.19 at 8.5%.) So if you select to borrow instead of saving, you will be paying 1.7 to 2.6 times as much per month.
It is never too late to start saving even if college is just a year or two away. There are tax benefits to saving in a section 529 college savings plan or prepaid tuition plan. If you save one dollar it means that you need to borrow one dollar less.
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