19 Jun What will college cost in 18 years?

Q. My daughter is having a baby and I want to save for college. How much would I need to save each month to have enough so the grandbaby won’t need loans? And is a 529 plan the best place to save?
— Grandma-to-be

A. Congratulations on your family’s new addition – and get ready for some sticker shock.

You’ll need to save a whole lot of cash if you want to fully fund this child’s education.

We asked Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield, to run the numbers.

He assumed you’re starting with a zero balance. Then he assumed conservative 4 percent growth rate on invested funds and a 5 percent inflation rate on annual cost of education.

Using Rutgers University as a New Jersey state school example, the total cost of a four-year undergrad degree including room and board will be $463,812 when your grandchild attends college, DeFelice said.

“To be able to pay for that in full you will need to save $1,231 per month or $14,775 per year through the year 2037 given the above assumptions,” DeFelice said.

Using Princeton University as a New Jersey private school example, DeFelice said, the total cost of a four-year undergrad degree including room and board will be $611,641 when your grandchild attends college.

To be able to pay for that in full, he said, you will need to save $1,624 per month or $19,484 per year through the year 2037.

These are sobering numbers indeed.

DeFelice said it’s entirely possible that the assumptions he used are way off base.

He said 5 percent is the historical educational expense inflation rate over the past 15 years, and we don’t know if college costs will continue rise at that torrid pace.

“My personal feeling is that something needs to be done about the skyrocketing cost of education in this country, but that is an argument for another day,” he said.

He also said a 4 percent investment return is conservative compared to historical stock market average annual gains. But given how far the market has come since the 2007-2009 financial crisis, DeFelice said he thinks it’s prudent to conservatively plan for lower than normal returns in the future rather than hope the good times will always continue.

You should also consider that your grandchild may qualify for some form of financial aid, receive scholarships, and/or attend a less expensive school than the ones we used as examples.

“Don’t forget about the child’s parents either – they can and should be expected to contribute as well,” DeFelice said. “We are seeing multi-generational college education funding strategies come into play more and more today than ever before, where both parents and grandparents come up with a strategy to do what they can afford to do given life’s other demands.”

Of course, not everyone is able to put aside this much money, and you shouldn’t shortchange your retirement to do so, DeFelice said. While fully paying for college for your grandchild is a noble goal, remember, you can always borrow money for college but you can’t borrow money for retirement.

As far as savings vehicles, a 529 plan is still the most tax efficient account to pay for college on the market today, DeFelice said.

It’s important to note that if the grandparent is listed as the owner of the 529 plan, it can actually hurt the student’s chances to qualify for financial aid, DeFelice said.

“While grandparent-owned 529 plans do not get counted in the parents’ asset calculation formula, money coming out of the plan to pay for college is considered a gift to the student,” he said. “This will be viewed as untaxed income for your child for financial aid purposes, and can impact the student’s aid eligibility by up to 50 percent of the distribution in the following year.”

For that reason, DeFelice said he usually recommends the 529 plan be opened up with the parents as owners, and the grandparents can gift money directly to the plan itself, or to the parents who would then in turn deposit the funds.

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This post was first published in June 2017.