Does It Pay to Save for College?

The oft-repeated complaint that it doesn’t pay to save for college simply isn’t true. It pays big-time. As Kal Chany, author of Paying for College Without Going Broke says, “It’s better to earn interest than to pay interest.”

Here’s why: If you don’t have savings, you’ll have to count on financial aid to cover the tuition costs. And much financial aid these days consists of loans – which you have to pay back with interest.

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Let’s say you set aside $100 now for tuition for your 10-year-old. If the investment earns a modest 4% a year, that $100 should be worth about $150 by your kid’s junior year. If, instead, you borrowed that $150 to pay for junior-year costs, the payments on a standard 10-year federal student loan would add up to about $240.

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So every $100 you save for college today can reduce your or your child’s bills after graduation by $240.