College savings (529)
Project a 529 balance against a college bill that is rising faster than everything else.
529 earnings come out federal tax free when they are spent on qualified education costs, and about thirty states add a deduction or credit for contributions. Money taken out for anything else pays income tax plus a 10% penalty on the earnings portion. Saving in a 529 also counts against financial aid, though lightly: a parent owned account is assessed at up to 5.64% of its value, far below the rate applied to a student's own savings.
What this is actually telling you
Two things are growing at once here, and the second one is what catches people out: the account compounds at the return you enter, and the bill compounds at college cost inflation, which has historically run ahead of general inflation. That is why saving is measured against a moving target rather than a fixed number. The four year cost counts four separate bills, each one a year further into that inflation, so the last year costs noticeably more than the first. What this leaves out: grants, scholarships, work during term and anything the student borrows, all of which reduce what you have to have saved. It also assumes the account stops growing the day college starts, when in reality the balance keeps earning through all four years, so the shortfall shown is slightly pessimistic. Investment returns are an average and a bad year immediately before enrollment is the one risk this cannot show, which is why age based 529 portfolios shift into bonds as the date approaches.
What a degree costs
Build the real four year price from the parts, then take off the aid you actually expect.
| Year | Sticker cost | Grants and scholarships | You pay |
|---|---|---|---|
| Year 1 | $29,900 | $8,000 | $21,900 |
| Year 2 | $31,395 | $8,000 | $23,395 |
| Year 3 | $32,965 | $8,000 | $24,965 |
| Year 4 | $34,613 | $8,000 | $26,613 |
| Total | $128,873 | $32,000 | $96,873 |
Grant aid is held flat, which is right for a fixed dollar scholarship and cautious for need based aid.
Every college has to publish a net price calculator on its own site, and that one uses your actual income and assets. Use it before treating any of these numbers as a decision. Living costs are the part families most often underestimate, and they are also the part you have most control over.
What this is actually telling you
Colleges publish a sticker price and almost nobody pays it, which makes the advertised number close to useless for planning. This builds the cost from the parts instead, inflates each year forward, and then removes the aid, leaving the figure that matters: what has to come from savings, from earnings, and from a loan. Grant aid is held flat across the years here because most merit scholarships are fixed dollar awards. Need based aid usually does rise with cost, so if yours is need based this overstates the later years. What it leaves out: the college's own net price calculator uses your actual finances and will be more accurate than any general estimate, aid packages are reassessed every year and can fall, and roughly a third of students who start a bachelor's degree are still not finished after six years, which adds a year or two of cost that no plan includes at the start.
How much you can safely borrow
Work backwards from the salary you expect to the balance that salary can carry.
Federal undergraduate loans have their own annual and lifetime ceilings, so a large number here usually means private loans or a Parent PLUS loan on top. Both carry higher rates, and private loans give up the income-driven repayment, deferment and forgiveness options that come with federal debt. Refinancing federal loans privately gives those up permanently, which is why a lower rate is not automatically the better deal.
What this is actually telling you
Two ceilings, and the sensible number is the lower of them. The first works from a payment you could actually make, a chosen share of gross pay, back to the balance that payment clears over the term. The second is the old guideline that total student debt should stay under one year of expected starting salary. They are not the same test and they disagree: at current rates one year of salary in debt takes roughly 12% to 14% of gross pay over ten years, so the familiar 10% of pay figure is really a ceiling closer to three quarters of a year's salary. What this leaves out: it uses gross pay, and the payment comes out of take home, so a borrower with high state tax or an expensive city has less room than this suggests. It assumes one loan at one rate when most students finish with several. It assumes the salary arrives, and it says nothing about the years where it does not. Stretching the term lowers the payment and raises the ceiling, which is what the chart shows, but every extra year adds interest.
Is the degree worth it
Cost plus the pay you give up, against the earnings premium, discounted back to today.
Break even is measured on the discounted line, so it lands later than a simple count of dollars in and dollars out. Everything here is in today's money, which is why the wage growth and the discount rate are both real rates sitting above inflation. Try the calculation again with the pay your specific field actually offers before drawing any conclusion from it.
What this is actually telling you
This is the standard investment question applied to a degree. The cost is not only tuition: four years out of the workforce is four years of pay given up, and for many students that is the larger number. Against it sits the earnings premium, the difference between what a graduate earns and what the same person would have earned without the degree, running for the rest of a working life and discounted back so a dollar in 2060 is not counted as a dollar today. The honest caveat is the big one: the earnings premium is an average across every field of study, and it says close to nothing about any individual major. The spread between the highest and lowest paying fields is wider than the gap between having a degree and not having one, so an average premium applied to a specific choice is the wrong number in both directions. It also compares people who finished a degree with people who did not, and those two groups differ in ways that have nothing to do with the degree, so some of the premium was never the degree's to claim. Roughly a third of students who start a bachelor's have not finished after six years, and they carry the cost without the premium, so the expected value across everyone who enrols is lower than this. The discount rate does a lot of work: raise it and the distant earnings shrink fast. None of this prices the parts of an education that are not earnings.