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. The College Board reports that an individual with a 4-year college degree will earn approximately 60% more than a high-school graduate--up to $800,000 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 2008, the average cost of a 4-year degree at a private college today is more than $34,000(1) per year. And with tuition on the rise, that same education could cost more than $300,000 12 years from now.
(1) Tuition and Fees and Room and Board Charges, 2008-2009, Table 1a: Average Published Charges for Undergraduates by Type and Control of Institution, 2008-09 (Enrollment-Weighted) Trends in College Pricing 2008. The College Board, 2008-09
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 Investment return and principal value will fluctuate so that when withdrawn, your investment may be worth more or less than the original amount invested.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 CHET, there are other factors that come into play, such as the availability of financial aid, and any contributions from your savings account.
CHET 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 CHET and does not reflect any deduction for expenses or taxes or the benefits of any Connecticut income tax deduction that may apply. Account value will fluctuate based upon a number of factors including general market conditions.
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 Connecticut Higher Education Trust, 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 CHET.
The Advantages of Low Fees
With CHET, there are no sales charges, start-up or maintenance fees. TIAA-CREF, Tuition Financing, Inc. is paid an annual asset-based management fee to cover the cost of investment management, administrative services, the state fee plus the specific fees for the underlying mutual funds. For each Investment Option (with the exception of the Principal Plus Interest Option) the total of these fees will not exceed 0.65% of the average daily net assets of the trust. The Principal Plus Interest Option does not pay a Program Management Fee or the State Fee.
The Treasurer of the state of Connecticut, acting as Trustee for CHET, collects a state fee of 0.01% of the average daily net assets of the Trust annually to pay for expenses related to the oversight of the Trust. This state fee applies to each Investment Option (with the exception of the Principal Plus Interest Option). See fee table and sample investment cost. Please note, however, that the State reserves the right to change the current fee and impose new or additional fees, expenses, charges, or penalties in the future.
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