The exact mix of loans, financial aid and savings matters. It greatly influences the true cost of college—and families who save even modest amounts early and often can potentially reduce their out-of-pocket costs significantly.
In the hypothetical example shown in the chart below, a family who saves $190 a month in a 529 plan for their child from birth to age 18 will pay approximately $60,000 out-of-pocket for a $100,000 education. That’s because saving in a 529 plan gives the money the opportunity to grow. And every dollar saved, or every dollar earned, is one less borrowed.
For families who don’t plan or save, the out-of-pocket cost can be higher than the sticker price. The family who didn’t save and relied on loans paid nearly $116,000 out-of-pocket for a $100,000 education.
Those who put off saving typically rely more heavily on loans and are stuck with the potentially significant added interest for decades following graduation. Taking steps now—even small ones—can make even an expensive college much more affordable.
The four scenarios assume the receipt of approximately $25,000 in financial aid, which will vary depending upon how much parents save in a tax-advantaged account. The loan portion of each column is calculated to include a fixed interest rate of 6.25% to be repaid over 180 months (as defined by Sallie Mae) following graduation, with 54 monthly payments of $25 made during college. All savings in the tax-advantaged account depicted in this chart assume 5% monthly compounded growth from the beneficiary’s birth until age 18.
The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.
Learn more about the 529 plan managed by OppenheimerFunds by visiting www.ScholarsEdge529.com.
Systematic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should read the Program Disclosure Statement and evaluate their long-term financial ability to participate in such a plan.