WHY PAY MORE FOR COLLEGE THAN YOU HAVE TO?
Think you may need help with your children’s future college tuition? Friends may say your child’s throwing arm or science mind is one in a million, but it probably won’t pay for college—you will. Many parents end up borrowing as a last resort. But why add more to the bill? Investing regularly through a 529 college savings plan such as CollegeAdvantage will cost you considerably less than continuing to pay interest on a loan long after you snap that amazing picture of your child’s classmates tossing their caps in the air.
CollegeAdvantage account owners already know that the best way to help their children get through college is to save as early and regularly as possible. Investing early harnesses the power of compounding. Combined with the benefits of a tax-advantaged plan, compounding can significantly boost your earnings.
Preparing for your child’s college education could be as simple as saving $25 a week. Take a look at your monthly budget. Then look at how investing $100 a month in a 529 college savings plan could increase your savings in the time it takes your son or daughter to reach freshman year:
Saving: You set aside $100 monthly in a tax-advantaged 529 plan.
Total saved per month: $100
Total invested after 18 years: $21,600
Average annual return: 6%
Approximate total in your account: $39,000
Now look at how much extra you’d have to pay if you had to borrow the $39,000 you accumulated in the example above.
Borrowing: You borrow the same amount that investing could accumulate.
Total amount borrowed: $39,000
Yearly interest rate: 6%
Total cost: $65,200
Result: Borrowing can triple the cost.
Sources: http://apps.collegeboard.com/fincalc/college_savings.jsp; http://apps.collegeboard.com/loancompare/loancomparison.do. (These hypothetical examples don’t represent the return on any particular investment. The final account balances don’t include potential taxes and penalties that may be due if funds are not used for college. Information courtesy of The Vanguard Group.)
Convinced? This may be an incentive to invest regularly in your CollegeAdvantage account. Too busy to make individual, one-time contributions? To make it easier, take advantage of our recurring contribution plans—electronic funds transfer and payroll deduction—designed to make saving for college so routine you won’t even have to think about it.
With opportunities for scholarships and other financial aid, you may not have to tackle the entire cost of college on your own. And your child’s golden arm or science fair trophies may make a difference after all. But the more you save now, the more options you can offer your child, and the less you’ll have to borrow in the future.
A plan of regular investment cannot assure a profit or protect against a loss in a declining market. All investments are subject to risk.