A college education can make a dramatic difference in a child's life, opening doors to career opportunities and lifetime earning power. With college costs on the rise, an early start and regular contributions may help you reach your college savings goal.
The Difference a College Education Can Make to a Child's Future
The numbers tell the story: your investment in a college education today may pay off in the future. US Census Bureau Statistics show that an individual with a 4-year college degree will earn approximately 70% more than a high-school graduate, over $900,000 more over the course of a lifetime (see the following chart). Advanced degrees may further improve earning potential.
The Rising Costs of a College Education
According to the College Board's Trends in College Pricing 2006, the average cost of a 4-year degree at a private college today is more than $30,000(1) per year. And with tuition on the rise, that same education could cost more than $260,000 12 years from now.
(1) 2006-2007 Increases in Tuition, Fees, Room and Board, Table 1: Average Published Charges for Undergraduates, 2006-07 (Enrollment-Weighted) Trends in College Pricing 2006, The College Board, 2006-07
The Advantages of Starting Early
As the chart below illustrates, the sooner you start, the sooner you can take advantage of the compounding effect of time on your investment. Contributing the same dollar amount to your account regularly can be an effective investment strategy and may also help you lower the average cost of your investment. And by starting early and contributing regularly through an automatic contribution plan, your savings can really add up. Of course, no method of investing can prevent market risk. Investment return and principal value will fluctuate so that when withdrawn, your investment may be worth more or less than the original amount invested.
The hypothetical example below illustrates how a $5,000 initial investment with an annual return of 6% would perform over three different time periods (6, 12 and 18 years). Also included are different monthly contribution amounts to show how the account could grow.
In addition to what you contribute to financing a college education through the Minnesota College Savings Plan, there are other factors that come into play, such as the availability of financial aid, and any contributions from your savings account.
The Minnesota College Savings Plan can be the financial foundation for building your child's educational future. How can you do it? Start saving early, save regularly, and get into a routine. While your particular situation may not allow you to contribute as much as you would like at this time, it is important to begin saving something now. As your financial situation changes, you can reassess whether you are saving enough to meet your college savings goals.
This hypothetical example illustrates the future values of different regular monthly investments for different time periods and assumes an annual investment return of 6% with an initial investment of $5,000. It is presented for illustrative purposes and does not reflect actual performance or predict future results of Minnesota College Savings Plan, and does not reflect any deduction for expenses or taxes.
The Disadvantages of Starting Late
The previous chart shows the advantages of starting early. This chart uses similar assumptions to illustrate the cost of waiting. This hypothetical example assumes 12 contributions per year with an annual rate of return of 6%. To reach a savings goal of $100,000 requires contributions of $256 a month if you start when your child is a newborn. Waiting 8 years to start saving means you will need to contribute $607 a month to reach the same savings goal.
In addition to what you contribute to financing a college education through the Minnesota College Savings Plan, there are other factors that come into play, such as the availability of financial aid, and any contributions from your savings account.
This chart is presented for illustrative purposes and does not reflect actual performance or predict future results of the Minnesota College Savings Plan.
The Advantages of Low Fees
With the Minnesota College Savings Plan, there are no sales charges, start-up or maintenance fees. An annual asset-based management fee will be paid to TIAA-CREF Tuition Financing, Inc. (TFI) to cover the cost of investment management and administrative services. TFI is an affiliate of TIAA-CREF Individual & Institutional Services, LLC, the distributor for the Minnesota College Savings Plan. This fee is computed at an annual rate of 0.65% (less than one percent) of the average daily net assets of the Minnesota College Savings Plan (excluding assets held in the Guaranteed Option). The Guaranteed Option provides a guarantee of principal and a minimum rate of interest to the Minnesota College Savings Plan, but not to account owners or beneficiaries. No other fees or charges will be applied to your account. Please note, however, that the State of Minnesota reserves the right to change the current fee and impose new or additional fees, expenses, charges or penalties in the future. For details on the management fee, see Fees and Expenses.
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