Are your college savings on track?

Our new calculator makes it easy to see whether your savings are on track and make adjustments if not.

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Keep your college savings on track.

Make a saving plan early and stick to it.

Use our rules of thumb to check on progress between more comprehensive planning sessions.

Revisit your plan often as things change, and adjust as you go.

The average cost of raising a child born in the United States in 2015 is estimated to top $234,000.1 While that may include car seats, smartphones, and guitar lessons, it does not include the cost of college, which could easily double that number if your baby ends up attending a four-year private institution.

Like most Americans, you likely want your child to go to college—and hopefully one you can afford. But figuring out just how much to save—and whether you are on track—can be daunting. Tuition costs continue to grow generally 3% above the inflation rate,2 markets are volatile, and financial aid is difficult to estimate years in advance.

Are your college savings on track? The good news: We’ve come up with a simple rule of thumb to check whether you are on track. We call it the “college savings 2K rule of thumb.” Simply multiply your child’s current age by $2,000. This amount can show you whether your college savings to date are generally on track to cover 50% of the cost of attending a four-year public college.

Another way to check your progress is to use Fidelity’s new college savings calculator, which allows you to change several key assumptions and then see how they affect the math. It’s important to note that our approach assumes a steady savings rate, adjusted for inflation, over time. The results will show you approximately how much you should have saved to date, assuming this steady savings rate continues into the future. If you are behind in your savings efforts, the calculator gives you the ability to adjust your monthly savings amount and see what the impact would be in closing the savings gap.

College savings math

Estimating the future cost of college—and how much you should plan to save for your child’s education—is dependent on three key factors outlined below.

1. How much will your child’s college cost?

The cost differences between public and private schools can be significant. According to Sallie Mae, of those American families that send their children to college, more than 45% attend a four-year public college or university. Approximately 24% enter a four-year private school, while the remainder attends a two-year school.3 The College Board estimates the current yearly cost of a public four-year college at $20,0904 versus $45,370 for a four-year private college.5

Our 2K rule of thumb (multiply your child’s current age by $2,000) assumes the student is attending a public four-year college using the College Board estimate: $20,090 per year for four years, though the college savings calculator allows you to create a customized estimate if your costs are different.

2. How much of the bill do parents plan to pay?

As college costs continue to rise, parents are expecting to pay more, so many are saving more. In fact, they are saving a lot more than they were 10 years ago, according to the 2016 Fidelity College Savings Indicator Study,6 which surveyed 2,200 parents with children age 18 or under, who they intend to send to college.

“We’ve seen the percentage of costs parents intend to cover grow over the past several years, even as college costs continue to climb. Parents want to help minimize the burden of potential student loans,” explains Keith Bernhardt, vice president of retirement and college savings products at Fidelity. “Despite these good intentions, fewer families today can realistically reach these lofty savings goals.”

What do parents, students, and others actually pay for college? College savings data from student loan company Sallie Mae7 suggests that parents are paying a little more than half of college costs from three sources: income, savings, and borrowing. Friends and relatives help fund another 6%. Scholarships and grants account for 21% of funding on average. Less than 10% of college expenses are being funded from student savings or income. (See chart below.)

Any way you look at it, parents are on the hook to pay the lion’s share of college expenses. To keep things simple, our 2K rule-of-thumb methodology assumes that parents, on average, are expecting to cover 50% of college costs from savings. That’s the starting point for our college savings calculator. Your own situation might vary, so we’d added the flexibility to let you input the percentage of college expenses that you expect to pay from savings.

3. When will your child attend college and for how long?

Despite the growing interest in “gap-year” programs, our model assumes that students will attend college beginning at age 18 and graduate in a four-year period. We assume that college costs continue to grow at 3% above inflation from now through the projected graduation date.

Our rule-of-thumb suggests a savings target of approximately $2,000 multiplied by your child’s current age, assuming attendance at a four-year public college (at $20,090/year), and your family aims to cover approximately 50% of college costs from savings. Remember, this rule of thumb is only a starting point to help you estimate your college savings goal and may change over time and based on your particular situation.

Every family has different savings goals.

“Our 2K rule of thumb is an easy way to see whether you are on track, especially if your children are still young and you are not sure where they will ultimately choose to go to college,” says Andrey Lyalko, vice president, financial solutions at Fidelity. “Because this approach may not apply to all situations, make sure to develop a robust college savings plan and be mindful that college costs are a variable that can dramatically change over time.”

So what if your situation differs from the norm? Perhaps you are hoping for a sports scholarship for your aspiring student athlete. Or maybe you are looking to cover 100% of college costs and are not expecting any scholarships or grants. You may also believe that your child will go to a private college, where the costs could be substantially more than the average public university.

The college savings math can still work for you:

  1. Simply determine how much a target college, or type of college, costs annually in today’s dollar, and multiply those costs by the percentage you plan to cover from savings. This gives you the annual amount you intend to cover from savings.
  2. Now apply the “2 for 10” concept. For every $10,000 you will cover per year, multiply your child’s age by $2,000. (See examples below)
  3. Or try the college savings calculator yourself which does the math for you.

Two hypothetical examples:

Meet the Browns: The public university that their 14-year-old son would like to attend costs $20,000 a year (today). Because both parents worked their way through college, the Browns believe their son will value his education more if he funds most of it himself. They’d like to help him by paying 25% of the total cost per year or $5,000 ($20,000 x .25) in today’s dollars and they intend to cover this 25% using savings.

Following the general 2K rule of thumb, for every $10,000 of cost per year they plan to cover from savings, the Browns would multiply their son’s age by $2,000 to determine what their goal would be to have saved today. However, because $5,000 is half of $10,000, they need to have saved only half of the 2K rule of thumb multiplied by their son’s age to stay on track. So, their college savings target is approximately $14,000 (2K x his current age of 14 x ½ ).

The chart shows how their target savings amount has changed as their son grew up.

Now consider the Millers. In this hypothetical example, the school their daughter has chosen costs $40,000 a year (today), and they’d like to pay 50% of the cost, from savings, or $20,000 a year.

For each $10,000 per year in cost, the Millers will need 2K times their child’s age. The Millers’ college savings estimate is double the standard 2K rule of thumb because they chose a more expensive college. Thus, the amount they should plan to have saved today, assuming their daughter is 14, would be $56,000 (2 x $2,000 x 14).

The chart shows how their target savings amount has changed as their daughter aged.

College saving: Part of your overall financial planning

Once you have a sense of your college savings needs, make sure you are investing the money appropriately. Among several available college savings options, a great place to start is to open and contribute to a 529 college savings plan account. It’s popular with parents and grandparents alike because there are few restrictions and the benefits are plentiful. You can potentially reduce your taxes, and retain control over how and when you spend down the money.

“As you watch your kids grow up and get ready to leave the nest, remember that staying invested appropriately is key,” says Bernhardt. “529 plans often include age-based investment options that potentially help you stay on track. These investment options automatically shift your investment mix from more aggressive (more stocks) to more conservative (fewer stocks) as your child approaches college age. That can help mitigate the effects of a market downturn by moving the portfolio to a more conservative asset allocation soon before those tuition bills start to hit your inbox.”

To make sure you are on track with your savings goals, and to ensure you have an appropriate investment mix, revisit your plan at least annually. Over time, you will likely need to update the costs of schools you are considering in light of your financial aid situation, your child’s school preferences, school location, and your investment performance. Since the college calculator estimate gives you only a starting point or rough savings target, it’s always good to have a more robust college savings and planning discussion with your financial advisor.

Tip: Public and private college costs can vary greatly by location. For public colleges and universities, your state of residence is one of the most influential cost factors. If you find that your savings are not on track, widen your search and consider applying to less expensive colleges or those known for providing generous aid or merit scholarships.

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  • Speak with a Fidelity college planning representative at 800-544-1914.

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Note on Methodology
The analysis models a hypothetical investor's savings behavior in different market scenarios. Using the characteristics of the "average American" compiled from industry data such as:

  1. School type and cost – four-year public in-state college costing $20,090 per year
  2. Growth of college costs – 3% per year above inflation
  3. Desired savings percentage – 50% of gross tuition, fees, and room and board
  4. Time horizon and duration – assumed college start age of 18 and a four-year college duration
1. “Cost of Raising a Child Report,” U.S. Department of Agriculture, January, 2017
2. College Board “Trends in College Pricing 2016.”
3. Sallie Mae, "How America Saves for College 2016."
4. College Board “Trends in College Pricing 2016” – includes cost of four-year, in-state college, tuition, fees, and room and board.
5. Includes tuition, fees, room and board based on College Board Survey 2016
6. The Fidelity College Savings Indicator study was conducted by Boston Research Technologies, an independent research firm, through an online survey from May 13 – June 12, 2016, of 2,196 parents nationwide with children age 18 and younger who are expected to attend college.
7. “How America Pays for College” report, Sallie Mae’s National Study of College Students and Parents, 2016.
This industry data described in more detail in the article is combined with Fidelity's assumed rates of return and volatility based on historical annual data from 1926 through the most recent year-end data available from Morningstar. Stocks (domestic and foreign), bonds, and short-term are represented by S&P 500®, U.S. Intermediate Term Government Bonds, and 30-day U.S. Treasury bill, respectively.
The rule of thumb assumes the hypothetical investor begins saving at the birth of the student. It then solves for the flat, real (grows with inflation) annual savings amount to meet the required spending need in 18 years. The spending need uses today's cost-per-year estimate and grows it annually by 3% + inflation until the expense is incurred over four years. The resulting savings level varies by market conditions but a “college x factor” (which helped to establish the 2K rule of thumb) is determined at the 75% confidence level based on the analysis used to arrive at the estimated effective rates of return. This means that in 75% of the hypothetical market scenarios (with differing market conditions) the amount saved meets or exceeds the required spending need and in 25% of the market scenarios the savings are not able to fully fund the spending need. The assumed asset allocation for the analysis uses three asset classes and a generic target date asset allocation appropriate for college savers. The analysis is then repeated for each age assuming the hypothetical investor had started saving a flat, real amount at birth and solves for the required assets at the current age to meet the spending need with 75% confidence. Once complete, the analysis illustrates that the college x factor is similar for all ages. In the “average American” scenario the college x factor is approximately 2,000 (2KX).
To expand the analysis beyond the average case, we held all variables the same, such as growth of college costs, school duration, and start age, and varied the spending need, which is a combination of the desired funding percentage and the gross costs of tuition, fees, and room and board in today's dollars. Because we are simply varying the cost as the only variable, we find that it has a direct effect on the required savings. If the required spending need is approximately $10,000 per year, which creates a college x factor of approximately 2KX per year, a $20,000 liability would create approximately a 4KX college x factor.
Finally, we solve for the required savings amount, given current savings and the desired educational funding goal. We apply the same methodology with similar assumptions for growth, confidence levels, and time horizons.
For every time horizon from 18 years to one year, we know the effect that a $1 contribution would have on the liability. For example, a $1,000 contribution each year, for 18 years, in our model would satisfy a $4,244 annual college cost for four years. Thus, if we are trying to solve for an $8,488 annual cost, we would need to contribute $2,000 per year for 18 years. We use this methodology to define the required future contribution to meet the remaining liability that is not met by the current balance.
Investing involves risk including risk of loss.
Please carefully consider the plan's investment objectives, risks, charges, and expenses before investing. For this and other information on any 529 college savings plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view one online. Read it carefully before you invest or send money.
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