How to Calculate the Cost of Your College Education
Learn about the impact of student loans on college students
Using DINKYTOWN’s College Savings Calculator - we’ll walk you through it!
Predicting how much money needs to saved to finance your child’s educational expenses
Navigating the College Savings Process
Paying for higher education in America can be financially taxing. Whether it is for a bachelor's degree or a master’s, the amount of money students pay to continue their education is a financial risk that many are willing to take.
In America, student loan debt is the second-highest loan category, with an outstanding Federal Loan balance that exceeds $1.62 trillion. College is expensive, and students rely on scholarships, grants, financial aid, and loans from their university or the state. The majority of students are not afforded the luxury of having college savings accounts set up by their parents. This is especially true for low-income and first-generation students, who view college as a stepping stone to break generational barriers, close the opportunity and education gap, and achieve social mobility.
Federal vs. Private Loans
There are different types of loans that students use to finance their college education and accrue debt. This includes:
Federal Loans: These loans are provided by the federal government and have fixed interest rates. Federal loans include: subsidized and unsubsidized, and parent plus loans. Subsidized loans do not gain interest while a student is still in college, while unsubsidized loans begin gaining interest immediately after it is taken out. Parent Plus Loans are taken out by parents to help fund their child’s education.
Private Student Loans/Credit Card Debt: Private Students Loans are non-federal loans that are provided by a lender; this includes banks, credit unions, state agencies and schools. Student loans are only meant to cover a portion of college expenses and do not cater to the living expenses generated in college. Many students borrow money from other sources to pay living expenses and other expenses that arise during their college years. These “other sources'' are credit cards, which may lead to more debt for college students. According to a 2023 survey by U.S. News & World Report, over 40% of undergraduate students carry credit card debt.
On average, public university students borrow an average of $37,000 to attain their bachelor’s degree. 54.2% of college students graduate with student debt. On average, private non-profit university students borrow $33,900 and private for-profit students borrow $40,505. As a result, students who take out massive loans are left with a lot of debt and high-interest payments. Having some money saved can eliminate the financial pressures of college and allows students to finish college on a good financial footing with little to no debt. To minimize the amount of debt your child will be in after graduating college, it is imperative that parents begin planning for their child's education.
College Savings Calculator
DINKYTOWN’s College Savings Calculator is a tool for parents to figure out how much money they should save for their child's college education. This calculator takes into account education cost inflation, current savings, monthly contributions, and the rate of return. In addition, it will help parents determine how much they should save for each child they have and provide a report of what you saved, and the growth the savings has made for their child.
The College Savings Calculator includes not only tuition, but also other expenses for college students and other factors that play a part in the amount of money parents can save for each of their children. It consists of:
Age: The age you are going to start saving for your child’s college education.
Age to start education: The age your child plans to start college.
Annual tuition: The cost of the college you want your child to attend or the school your child wants to attend; this can be a rough estimate of the average cost of tuition for American universities or a specific number from a specific school.
Current amount: The overall amount you have saved for your child.
Education cost inflation: Inflation will impact the cost of college for your child in the future. The rate of inflation in the last 50 years has increased about 460%.
Monthly contributions: This indicates the amount you have dedicated to contribute towards your child’s college savings account.
Rate of return: This shows the net loss or gain of your investment over a specific amount of time.
Room and board: Additional expenses that accompany the college experience, such as boarding fees, meal plan fees, and the amount needed for supplies to decorate your child’s dorm room.
How to Use DINKYTOWN's College Savings Calculator
Samantha’s parents are planning to save for her college education. They want their child to attend Northwestern University–since they are both alumni from this institution–or any prestigious university. Samantha is eight years old, and she will start college at age 18. This gives her parents ample time to save for educational expenses she will have in the future.
In 2022, the tuition for Northwestern University is $58,227 and room and board is $21,126. The College Savings Calculator will determine how much money Samantha’s parents need to save, monitor the cost inflation for the institution and recommend a monthly contribution that combats inflation and cover Samantha’s future college expenses.
Samantha’s parents plan to contribute a monthly contribution of $750, and uses the College Savings Calculator to determine if this amount will be enough for college savings. According to DINKYTOWN’s College Savings Calculator, $750 per month will not be enough to cover all of Samantha’s college expenses for four years. The education inflation rate is set to the current rate documented for July 2024. Due to inflation, the total cost of Samantha’s education is estimated to be $496,372.
If Samantha’s parents contribute the monthly recommended amount, $$1,820, then they will meet the benchmark provided and ensure that their child will have financial security for college and cover her tuition and additional expenses.
College Savings Calculators provide an estimate of future college expenses, but it is important to gauge your financial situation and figure out the monthly contribution that works best for you. Even if the amount you have saved is not enough, it is better to have some money set aside for your child’s education, than none at all!
It is important to calculate how much you need to save for your child’s education. Parents should invest in their child’s college education as soon as possible to combat the rising cost of college. Having an estimated amount for college expenses will show parents the expenses that lie ahead, to better prepare them and find saving methods that increase their child’s college fund. This process helps your future college students forgo taking out enormous amounts of loans, and gives them child peace of mind when applying and accepting college offers.
For more information on the college admissions process, and navigating college, check out our blog: https://www.socraticssummeracademy.com/blog
