The short answer is that we don’t know. And before someone says ”what about the 529 prepaid plans?!?!” (which I discuss here
) please keep in mind that those plans only track instate tuition fees and so don’t cover expenses like room and board, books, etc. So bottom line is - we don’t know, in fact, I would argue, we can’t know. The guiding light of finance being ”the future’s not our’s to see.” So I’m going to guess. My guess, assuming both our kids go out of state for college in 7 and 16 years and attend college for 4 years is that our total bill (tuition, fees, room, board, etc.) will be $315,322.37 and $404,998.28 in current dollars. That’s a grand total of $720,321 for two kids.
1 How much does a single year of college cost today?
Living in Washington State the obvious college to think about is the University of Washington. UW’s total costs
for the 2017-2018 academic year for an instate student living away from home are $26,567. In my opinion UW is currently the only world class university in Washington State and I wouldn’t want to pin all of our kid’s hopes on one university. So we’ll have to face the reality that our children may go out of state. Since I went to UCLA let’s see what UCLA would cost for the 2017-2018 academic year for an out of state student living in a UCLA residence hall - $62,205
. And remember, the UCLA figure is what it costs for an out of state student to go to UCLA today, right now, this very moment. Not, say, oh 10 years from now.
2 How quickly are college costs going up?
The most comprehensive source of information I could find on college pricing is 
. But the raw data is available as spreadsheet in 
, I used Table 2. Please note that when staring at the table below the numbers in table 2 are adjusted for inflation.
Geometric mean increase in tuition, fees, room & board in inflation adjusted dollars for the last X years
Public 4 Year Colleges across the US
Private 4 Year Colleges across the US
So which period is likely to be the best predictor for the future? Beats me of course. One thing worth pointing out is that the increase in costs for public colleges can perhaps be best understood by looking at Figure 14A which shows changes in the money going to public colleges from their sponsoring states and compares that to increases in public tuition and fees. No points for guessing that as, especially around 2008 - 2011, public funding fell off a cliff, tuition rates sky rocketed. The question now is, have things stabilized?
I can’t predict the future but I have to pick some growth rate so I’m going to take the 15 year number, for no particularly good reason and I’m going to average it. In other words I’ll assume that for the next 15 years college costs will go up at a rate of (0.0336 + 0.0228)/2 = 2.82%.
3 How much will the bill be?
The first question is - how long will our children take to get their undergraduate degrees? I haven’t had much success in finding solid data on how long it takes to graduate from college but I did find one data point from 2000. The table on page 46 of 
. It claims that students on average took 55 months to graduate although students who went to only one college took 51 months on average but even that number can be split into 53 months for a public school and 47 months for a private college. I don’t have any trend data on these figures and no clue what anyone is projecting for the future. Still the message here is that in 2000 public school students took about 4.5 years to graduate and private school students took 4 years. Given the outrageous costs of college the only way I can see the number of years substantially increasing is if students are attending school part time to try and make ends meet. So I’m going to guess that our kids are probably going to go to college for 4 years. Or, put another way, given what we expect to be paying X years from now our kids better not need more than 4 years.
In terms of the cost basis I’m going to pick the UCLA out-of-state figure, $62,205 and the 2.82% growth rate. I have two children, one is 11 and one is 2. My 11 year old will be starting 6th grade in the 2017-2018 school year. So that means the 11 year old will go to college in September of 2024 or 7 years from now. My 2 year old should start Kindergarten at 5 which means college should start September of 2033 or 16 years from now.
For now I’m going to calculate our savings rate as if we pay all expenses at the start of the school year. But of course, we don’t. Many bills will be paid on a quarterly or even monthly basis. But such is life.
To keep myself mildly insane (as opposed to completely wacko) I’ll assume we’ll save money on a September-September basis. Or, in accountant speak, our college ”fiscal” year starts in September.
And yes, this always drives me nuts at work. ”The project will be delivered by 2017”, ”Wait, is that calendar or fiscal year?”, ”AAAAHHHH!!!!!”
Four Years Of College Starting This Year $259,544.35
Four Years Of College Starting In 7 Years $315,322.37
Four Years Of College Starting In 16 Years $404,998.28
(See the appendix for details)
Keep in mind, that the previous figure is ”real” not ”nominal” money. Or in other words, this is ”inflation adjusted”. So $315,322.37 or $404,998.28 are what the value of that money is today.
A Calculating the cost of college
The math for calculating a compounding entry is thankfully very straight forward:
Year X Of College
CurrentCost*(1 + GrowthRate)YearsToGrow
In the example I gave above the CurrentCost is $62,205 for 2016-2017 and GrowthRate is 2.82%. Let’s say one of my children was going to college in one year. In that case the cost would increase over one year and be $62,205*(1+0.0282) = $63,959.20. In other words the YearsToGrow value would be 1 because there was only one year in which the growth would compound. So if a child was going to college in 15 years from now then the YearsToGrow value is 15.
So the math for calculating my older child’s expected cost of going to college is:
62205*(1 + 0.0282)7
= $75, 573.32
62205*(1 + 0.0282)8
= $77, 704.49
62205*(1 + 0.0282)9
= $79, 895.75
62205*(1 + 0.0282)10
= $82, 148.81
= $315, 322.37
The cost to send a child to college in 2017-2018 would be:
62205*(1 + 0.0282)0
62205*(1 + 0.0282)1
62205*(1 + 0.0282)2
62205*(1 + 0.0282)3