A college education can make a dramatic difference in a child's life, opening doors to career opportunities and lifetime earning power. With college costs on the rise, an early start and regular contributions may help you reach your college savings goal.
The Difference a College Education Can Make to a Child's Future
The numbers tell the story: your investment in a college education today may pay off in the future. The College Board reports that an individual with a 4-year college degree will earn approximately 60% more than a high-school graduate--up to approximately $800,000 more over the course of a lifetime (see the following chart). Advanced degrees may further improve earning potential.
The Rising Costs of a College Education
According to the College Board's Trends in College Pricing 2008, the average cost of a 4-year degree at a private college today is more than $34,000(1) per year. And with tuition on the rise, that same education could cost more than $300,000 12 years from now.
(1) Tuition and Fees and Room and Board Charges, 2008-2009, Table 1a: Average Published Charges for Undergraduates by Type and Control of Institution, 2008-09 (Enrollment-Weighted) Trends in College Pricing 2008, The College Board, 2008-09
The Advantages of Starting Early
As the chart below illustrates, the sooner you start, the sooner you can take advantage of the compounding effect of time on your investment. Contributing the same dollar amount to your account regularly can be an effective investment strategy and may also help you lower the average cost of your investment. And by starting early and contributing regularly through an automatic contribution plan, your savings can really add up. Of course, no method of investing can prevent market risk. Investment return and principal value will fluctuate so that when withdrawn, your investment may be worth more or less than the original amount invested.
The hypothetical example below illustrates how a $5,000 initial investment with an annual return of 6% would perform over three different time periods (6, 12 and 18 years). Also included are different monthly contribution amounts to show how the account could grow.
In addition to what you contribute to financing a college education through the Path2College 529 Plan, there are other factors that come into play, such as the availability of financial aid, and any contributions from other savings accounts you may have.
The Path2College 529 Plan can be the financial foundation for building your child's educational future.
How can you do it? Start saving early, save regularly, and get into a routine. While your particular situation may not allow you to contribute as much as you would like at this time, it is important to begin saving something now -- every little bit that you can save counts. As your financial situation changes, you can reassess whether you are saving enough to meet your college savings goals.
This hypothetical example illustrates the future values of different regular monthly investments for different time periods and assumes an annual investment return of 6% with an initial investment of $5,000. It is presented for illustrative purposes and does not reflect actual performance or predict future results of the Path2College 529 Plan. The chart does not reflect the effect of total annual asset-based fees and assumes no taxes on a qualified withdrawal.
The Disadvantages of Starting Late
The previous chart shows the advantages of starting early. This chart uses similar assumptions to illustrate the cost of waiting. This hypothetical example assumes 12 contributions per year with an annual rate of return of 6%. To reach a savings goal of $100,000 requires contributions of $256 a month if you start when your child is a newborn. Waiting 8 years to start saving means you will need to contribute $607 a month to reach the same savings goal. While there are advantages to starting early, keep in mind that it is never too late to save. Every little bit saved may mean less student loan debt.
In addition to what you contribute to financing a college education through the Path2College 529 Plan, there are other factors that come into play, such as the availability of financial aid, and any contributions from other savings accounts you may have.
This chart is presented for illustrative purposes and does not reflect actual performance or predict future results of the Path2College 529 Plan.
The Advantages of Low Fees
With the Path2College 529 Plan, there are no sales charges, start-up or maintenance fees. An annual asset-based management fee will be paid to TIAA-CREF Tuition Financing, Inc. (TFI) to cover the cost of investment management and administrative services. TFI is an affiliate of TIAA-CREF Individual & Institutional Services, LLC, the distributor for the Path2College 529 Plan.
Total annual asset-based management fees include the program management fees paid to TFI as well as the underlying mutual fund expenses and are computed at an annual rate of less than one percent (ranging from 0.49% to 0.75%) of the average daily net assets of your account, excluding assets held in the Guaranteed Option.
The Guaranteed Option provides a guarantee of principal and a minimum rate of interest to the Path2College 529 Plan, but not to account owners or beneficiaries. No other fees or charges will be applied to your account. See fee table and sample investment cost. Please note, however, that the State reserves the right to change the current fee and impose new or additional fees, expenses, charges, or penalties in the future.
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