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- Cost and Inflation
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:
- Pick an inflation rate for college costs.
- Determine how many years until school starts.
- Find the appropriate factor from the table.
- Multiply that factor by the cost of college in today's dollars (either select a particular college; or see the section Two-Year or Four-Year School and use the average cost there).
- The result is the inflated cost you will have to pay.
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.
