Tuition Inflation Is the Whole Problem
College costs have risen faster than general inflation for four decades — roughly 5% a year against 2–3% for everything else. Over an eighteen-year childhood that difference compounds into something unrecognisable: a degree costing $120,700 today reaches about $290,400 by the time a newborn enrols.
| Years until college | Annual cost then | Four-year total |
|---|---|---|
| Now | $28,000 | $120,684 |
| 5 years | $35,736 | $154,026 |
| 10 years | $45,609 | $196,581 |
| 15 years | $58,210 | $250,892 |
| 18 years | $67,385 | $290,439 |
At 5% annual increases. The four-year total exceeds four times the first-year cost because the price rises during the degree as well.
What "Cost" Includes
The published cost of attendance covers tuition and fees, room and board, books, transport and personal expenses. For public in-state universities, room and board often exceeds tuition. Living at home changes the figure more than most scholarships do.
The sticker price is also not what most families pay. The average discount rate at private colleges now exceeds 50% of published tuition through institutional grants, so a $60,000 sticker frequently means $30,000 net.
529 Plans
Contributions grow tax-free and withdrawals for qualified education expenses are untaxed federally. Over eighteen years that shelter is worth roughly 20–25% more than the same money in a taxable account. Many states add a deduction or credit for contributions.
Since 2024, up to $35,000 of leftover 529 funds can be rolled into the beneficiary's Roth IRA, subject to a 15-year account age requirement and annual contribution limits — which removes the historic objection that unused funds were trapped.
Save or Borrow
Saving $400 a month for eighteen years at 6% produces about $152,000. Borrowing that same $152,000 at 6.5% over ten years costs about $1,726 a month. The arithmetic is not close: money saved earns compound interest, money borrowed pays it.
The standard caution still applies — retirement is not fundable by loans, and college is. Fund the retirement account first.
Frequently Asked Questions
Does a 529 hurt financial aid eligibility?
Modestly. A parent-owned 529 counts as a parental asset assessed at a maximum of 5.64% in the federal formula — far better than a student-owned asset at 20%.
What if my child does not go to college?
The beneficiary can be changed to another family member, up to $35,000 rolled into a Roth IRA, or withdrawn with tax and a 10% penalty on the earnings only. Scholarships allow penalty-free withdrawal up to the award amount.
How much should I save?
A common target is one-third from savings, one-third from current income during college, and one-third from student loans and aid. Fully funding a private education from savings alone is out of reach for most families and not the standard to measure against.