Paying for College

College is expensive, and the price continues to increase. In the 2008-2009 school year, the average cost associated with attending a private four-year college was up 5.9% to $25,143, and 6.4% or $6,585 for public four-year schools.* The cost is rising faster than inflation, and there is no indication that this trend will stop.

But college is also an investment — perhaps the greatest investment that you can make. According to 2006 U.S. Census Bureau information, a person graduating with a 4-year college degree can expect to earn about 60% more over the course of their lifetime than a typical high school graduate. So investing in a college education makes good economic sense. The key is to educate yourself, plan carefully and do your homework, so you and your child can choose the best college possible.

College Costs Today

When evaluating the true cost of college, you need to factor in the total cost of attendance. The figures below include tuition, fees and room and board for attending one year of college in 2008-2009. Add to these numbers books and computer equipment, cars and transportation, food, the cost of furnishing a dorm and spending money for social activities and clubs, and you will get a more accurate picture of today's college costs.



Tuition &

Room & Board


Prior Year % Change

Public Four-Year in State





Public Four-Year out of State





Private Four-Year





Source: The College Board, 2008/2009 Annual Survey of Colleges


Financial Aid

The good news is: you may be able to receive help from the government and possibly from the college itself in the form of financial aid. Financial aid is intended to fill the gap between what your family is expected to pay and the actual cost of college. It can take the form of grants, loans and work study.

The amount that your family is expected to pay, called your Expected Family Contribution (EFC), is derived by applying a formula based on information that you provide in the Free Application for Federal Student Aid, or FAFSA. The FAFSA form, which is completed every year, includes questions concerning your income, assets, family size and the number of people in your household currently attending college.

Your EFC does not change — regardless of the college your child attends. For example, if your EFC is $10,000, you'll be expected to contribute $10,000; it doesn't matter if the college costs $12,000, or $25,000.

Generally speaking:

Cost of Attending School - EFC = Financial Aid Award

For this reason, you and your child should not necessarily rule out higher-priced colleges. But you should also be aware that a majority of financial aid packages contain loans which need to be repaid. And it stands to reason that your child will need to borrow more money to attend a $25,000 college, than a school that costs $12,000.

The Value of Starting Early

To reduce your child's reliance on student loans, it's important to start saving now. It can be very easy to put off saving, especially if your children are young. Yet by starting early, with the power of compound interest, your savings will grow. By making systematic monthly contributions in the form of direct deposit or recurring transfers to your savings plan, time can be your ally.

Monthly Savings Accumulation after 5 Years Accumulation after 10 Years Accumulation after 15 Years
$50 $3,400 $7,764 $13,364
$100 $6,801 $15,528 $27,729
$150 $10,201 $23,292 $40,093
$200 $13,601 $31,056 $53,458

Assumes earning 5% and no income taxes


529 Plans

529 Plans are an increasingly popular way to save for the cost of college. Named after Section 529 of the Internal Revenue Code, these plans offer unique tax-advantages and flexibility that are ideal for college savings.

Advantages include:

  • No income restrictions for contributions
  • Tax-free earnings
  • Withdrawals for qualified higher education expenses are tax–free
  • No age restriction for beneficiaries
  • Variety of investment or FDIC-insured savings options


You can open a 529 account for your child, grandchild — even yourself! And unlike the Coverdell account, there are no income restrictions. Contribution and earning limits per beneficiary vary by state for Section 529 accounts. Earnings on the account grow tax-free, and depending where you live, you may also qualify for state tax deductions.**


Helping your children to attend the best college possible is one of the greatest gifts you can give. The cost associated with providing a college education can be overwhelming, so it's critical that you start planning and saving sooner rather than later. Financial aid can certainly help pay for a portion of the college bills, but savings may help your child avoid costly loans that will have to be repaid. Developing a smart savings program can provide your children with the college funds they need — so when the time comes to send them off to school, you'll be ready.

*College Board. 2008-2009 College Prices
**See your tax advisor for rules governing tax deductibility in your state.