College Q&A: How Early Is Too Early to Start Saving?

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Welcome to MainStreet's newest series. Each week, we will answer a real question from readers on education costs and how to pay for college. If you have a question, feel free to send it to editors@mainstreet.com.

Q: "How much should I be saving monthly for college?" - Claudia, Rumson, N.J. (two kids, ages 1 and 4 years old)

A: The costs of a lifecycle event like college should be spread out over time, with one third coming from past income in the form of savings, one third from current income and financial aid, and one third from future income in the form of loans. (Ideally one shouldn’t borrow at all, but the one-third rule is a realistic reflection of most family finances.)

Let's assume a goal of saving one third of projected college costs, a 6% tuition inflation rate and a 4% average return on investment in a 529 college savings plan with an age-based asset allocation. According to the College Board’s annual publication Trends in College Pricing 2009, current one-year costs are $15,213 for an in-state public four year college and $35,636 for a private one.

For the 1-year-old child you should save $210 a month for a public four year college and $485 a month for a private four year college. For the 4-year-old child you should save $230 a month for a public four year college and $540 a month for a private one. These figures are higher than the $200 and $430 monthly figures for a newborn because you didn’t start saving at birth. If you wait another year before you start saving, the monthly savings will have to increase by $10 and $20, respectively, for public and private four year colleges.

—Mark Kantrowitz is president of MK Consulting Inc. and publisher of the FinAid.org and FastWeb.com. He has testified before Congress about student aid on several occasions and is on the editorial board of the Council on Law in Higher Education.

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