Saving early – and often – is critical as college costs continue to climb across the country. In fact, tuition increases actually outpace housing, energy, and healthcare expenses over the past twenty years! Currently, the cost of a college education at a public four–year college averages approximately $8,250 a year for in-state students; $28,500 annually at private schools; and nearly $3,000 a year at two-year colleges. Keep in mind; these charges are just for tuition and fees! They don’t include money for textbooks, food or lodging.
So why do you have to worry about saving for college now? Isn’t that what student loans and scholarships are for? It all comes down to the basic principle of earning interest versus paying interest.
When you save money, you can earn interest. When you borrow, you pay interest. Simple, right? Let’s say you need $26,000 to help with college in 15 years. If you save $100 per month earning 5 percent interest over those 15 years, your account will cover your $26,000 cost. If you wait and choose to borrow that $26,000 at 6.8 percent interest, it will cost you more than $41,500 to pay it back over 15 years! That’s $23,000 MORE to borrow vs. save – it sure does pay to save!