When you are planning your investment strategy, remember that investments that do not keep you ahead of inflation are not good investments for funding college costs. Following is a table with inflation factors that will help you determine what the cost of college will be when your child is ready to go to school. To use the table:
Calculate the Impact of Inflation on College Costs
Years Until |
2% Inflation |
4% Inflation |
6% Inflation |
8% Inflation |
10% Inflation |
1 |
1.02 |
1.04 |
1.06 |
1.08 |
1.10 |
2 |
1.04 |
1.08 |
1.12 |
1.17 |
1.21 |
3 |
1.06 |
1.12 |
1.19 |
1.26 |
1.33 |
4 |
1.08 |
1.17 |
1.26 |
1.36 |
1.46 |
5 |
1.10 |
1.22 |
1.34 |
1.47 |
1.61 |
6 |
1.13 |
1.27 |
1.42 |
1.59 |
1.77 |
7 |
1.15 |
1.32 |
1.50 |
1.71 |
1.95 |
8 |
1.17 |
1.37 |
1.59 |
1.85 |
2.14 |
9 |
1.20 |
1.42 |
1.69 |
2.00 |
2.36 |
10 |
1.22 |
1.48 |
1.79 |
2.16 |
2.59 |
11 |
1.24 |
1.54 |
1.90 |
2.33 |
2.85 |
12 |
1.27 |
1.60 |
2.01 |
2.52 |
3.14 |
13 |
1.29 |
1.67 |
2.13 |
2.72 |
3.45 |
14 |
1.32 |
1.73 |
2.26 |
2.94 |
3.80 |
15 |
1.35 |
1.80 |
2.40 |
3.17 |
4.18 |
16 |
1.37 |
1.87 |
2.54 |
3.43 |
4.59 |
17 |
1.40 |
1.95 |
2.69 |
3.70 |
5.05 |
18 |
1.43 |
2.03 |
2.85 |
4.00 |
5.56 |
19 |
1.46 |
2.11 |
3.03 |
4.32 |
6.12 |
20 |
1.49 |
2.19 |
3.21 |
4.66 |
6.73 |
21 |
1.52 |
2.28 |
3.40 |
5.03 |
7.40 |
Review the following example. Suppose you've decided on a public school at a cost of $20,000 in today's dollars. You assume college costs will increase by 6% per year. Your child is ten years old, so school is eight years away. Go to the 6% Inflation column, follow it down to the row for 8 Years Until School Starts. The factor is 1.59. Multiply the cost of school in today's dollars ($20,000) times the factor (1.59) to get the expected cost of school eight years from now, which in this example is $31,800.
Now suppose that same child plans to transfer from a public school to a private school (at a cost of $40,000 in today's dollars) for their junior and senior years. Go to the 6% Inflation column, follow it down to the row for 10 Years Until School Starts—that's when the junior year begins. The factor is 1.79.
Multiply the cost of school ($40,000) times the factor (1.79) to get the expected cost of school ten years from now, which in this example is $71,600.
The total cost of the four years is $213,200 as follows:
Today's Cost |
Times |
Inflation Factor |
Equals |
Future Cost |
$20,000 |
X |
1.59 |
= |
$31,800 |
$20,000 |
X |
1.69 |
= |
$33,800 |
$40,000 |
X |
1.79 |
= |
$71,600 |
$40,000 |
X |
1.90 |
= |
$76,000 |
TOTAL |
$213,200 |
Use the Inflation Worksheet to calculate the impact of inflation on your child's college costs.