Free College Investment Calculator: It Costs More Than You Think

Education Data says college tuition inflated each year by 4.63% from 2010 to 2020. (The average in-state tuition rose from $7,132 to $9,375 during that time.)

You may not believe it, but the tuition inflation rates have been slowing down:

And the slowing trend continued into the 2022-23 school year, with tuition increases of just 1.8%. (Public in-state tuition averaged $10,940 in 2022.)

Tuition costs have historically risen at a higher rate than general inflation each year (roughly two percentage points higher). So if the general cost of goods inflates by 4% in a year, you can expect tuition to rise by 6%.

So what can we expect in the future?

• Inflation was 6.5% at the end of 2022.

• It’s expected to drop to 3.2% by the end of 2023.

• And beyond that, the Federal Reserve is targeting a 2% to 2.5% rate of inflation each year.

Given the estimates above, we can assume an average future inflation rate of roughly 3% (which is equivalent to the long-term historical average).

With tuition rising two percentage points higher than general inflation, we can assume that college costs will increase by 5% per year.

The ESA and 529 use after-tax contributions, and any growth on your investments is tax-free (as long as you use the money for qualifying educational expenses like tuition, a computer, books, or room and board).

But the ESA is a more archaic savings option with more restrictions around contributions and withdrawals—so many choose the simpler and more current 529 option.

Since the 529 is the college savings tool of choice today, we’ll focus only on it for the rest of this post.

How can you estimate 529 growth? As you may have expected, this answer isn’t so simple.

When you open a 529, you likely have a dozen options across multiple categories—all with different rates of return:

• Prepaid tuition plans—where you essentially buy college credits at today’s price.

• Age-based portfolio—where your investment becomes “safer” with a greater mix of bonds as your child grows older.

• Customized portfolio—where you can choose any combination of investments, from a simple savings account to an aggressive growth portfolio.

Prepaid tuition plan

With this option, you’ll essentially “earn” the equivalent of the tuition inflation rate since you’re just prepaying for college credits. Based on our estimates earlier in this post, this will be roughly 5% per year.

It’s more of a guaranteed return, but you could likely do better with the options below.

Age-based portfolio

With the age-based portfolio, you simply choose the year your child was born, and your 529 will take care of the rest.

Your funds will then be invested in a mixture of US equities, foreign stock, and bonds—with a higher mix of bonds the closer your child gets to college age.

Depending on the brokerage you go through, you may also have the option to invest in managed funds (that try to beat the overall stock market returns) or index funds (which have lower fees and model the overall stock market).

Over the last ten years, many age-based portfolios have returned between 8% and 9% annual earnings.

You’ve probably heard the phrase, “Past performance is not an indicator of future performance.” It holds true here and throughout the rest of this post. In the last ten years, the stock market has performed well—the future may not yield the same return.

Customized portfolio

With the customized approach, you’ll be able to mix and match investment options like these below (with the approximate historical returns of similar funds):

• Savings Account: 0.5%

• Stable Fund (bond investments): 1%–2%

• Sustainable Fund: 6%

• Treasury Index: 3%

• International Index: 4%–5%

• Total Market Index: 12%

• 500 Index (models the S&P 500): 12.5%

• Conservative Growth: 1%

• Moderate Growth: 7%

• Aggressive Growth: 9%

• Age-based funds: varies based on the fund and your child’s age.

With the customized approach, you could earn nearly nothing or achieve what the market yields by investing in an index like the 500 Index or the Total Market Index.

Simple Index Investing

I’m a big believer in simplicity—especially with investing.

I’m with JL Collins when he says,

“I don’t favor indexing just because it is easier, although it is. Or because it is simpler, although it is that too. I favor it because it is more effective and more powerful in building wealth than the alternatives.”

By investing in an S&P 500 index fund, you’re essentially taking part ownership in the 500 top companies in the US.

The entire market could go down, but you’re unlikely to lose 50% or more of your money. More likely, you’ll earn money over time—not lose it.

From 2002 to 2022, the S&P 500 averaged an 8% return (and this included the dreadful 2008 recession).

Personally, I don’t mess with age-based funds or mutual funds that supposedly beat the market. I’m putting all our 529 funds into an S&P 500 index fund instead. It’s worked so far—and based on all my reading on the topic, I trust it’ll continue to work in the future.

As for you—choose what you think is best.

I’m banking on the fact that the S&P 500 will earn me an average of at least 8% per year.

When you open up the calculator, you want to answer the main question you’ve had all along—

“Am I saving enough for college?”

So let’s get right to it.

The 529 plan calculator should open up to the Data tab. This is where you’ll enter your inputs:

• The age of your child.

• The amount you have saved right now.

• The current annual cost of tuition.

• And what percentage of their schooling you’d like to cover.

In the screenshot above:

• The child is a newborn.

• They’ve got $1,000 saved.

• Annual tuition is $12,000.

• And they’d like to pay for 50% of tuition when that time comes.

The assumed tuition inflation is at 5%, and the assumed investment returns are at 8%.

How much do these parents need to put into their 529 each month?

The 529 savings calculator makes it clear: $120.09.

(There’s actually more to this tool, by the way. Keep scrolling to see what else it can do.)

Are you saving enough for your child’s future tuition?

If you’re saving less than $120, the answer is no. Simple as that.

Check this out.

Below is the full dashboard of the 529 college savings calculator:

• The amount you need to invest each month.

• A table showing the four years of future tuition costs.

• A table showing how your investments will grow each year.

• And a chart—so you know what to expect with your investments.

(That image might be too small for you, so let me quickly break it down.)

How much to save for college per month

You can find your answer in the data tab, but it’s also shown on the dashboard.

To reach your goal (in this example), you’ll need to invest $120.09 a month.

How much will tuition cost in the future?

How ridiculous will the cost of tuition be years from now? You’ll find that bordered in red below.

In this example, tuition jumps from $12,000 to $30,000 a year over the course of 18 years.

Now you see why this free college savings plan calculator is so valuable.

What should your college investments total each year?

See the table below (in the middle of the dashboard).

In the center column, you’ll see how your initial investment grows into the amount you want to cover by the time they’re 18 years old.

When saving for college, at what rate will your investments grow? What does it look like?

To provide yet another helpful visual, we included a graph of your growing college 529 investment. (Mind you, your savings won’t skyrocket immediately. They’re not supposed to—it takes time.)

The amount you intend to cover is in green. The gray trajectory is if you want your investments to cover the total cost of tuition.

I was the cheapest guy on earth a few years back. I didn’t budget because I figured I couldn’t possibly spend less.

Then I wrote down my expenses for the first time and looked at them.

Boy, was I wrong—

I was overspending everywhere.

Step one to finding money is to write down your expenses and actually look at them.

Once you look at your expenses, you’ll quickly realize where you can save:

• Food costs

• Cell phone bills

• Insurance

• Amazon

These are the typical culprits. How much are you spending in these categories?

Here’s what I was able to save per month when I actually budgeted:

• Food: $200

• Insurance: $100

• Cell phone: $30

Still not sure how to put this all together? Need a helpful budget spreadsheet? For less than five bucks, you can have one of the best budget templates on the planet (if we do say so ourselves).

If you can’t save your way to your goal number, you might need to make more money.

How can you do that?

• Ask for an increase at work (if you deserve it).

• Put in for a promotion.

• Look for a higher-paying job elsewhere.

• Start a side hustle

(Here’s a great resource to help you earn an extra $1,000 a month.)

Maybe you’re trying to get your child into an out-of-state school that costs three or four times the local university in your state.

Is it really 3x or 4x better? I doubt it.

If you can’t afford it, perhaps it’s time to change your plans.

If you absolutely don’t want to reduce your expectations, then you probably have some big life decisions to make.

There are other ways to save big money, but these options aren’t for everyone.

Here’s what I’m talking about:

• How many cars do you have? Two? What if you cut back to one?

  • You could sell your car and invest that money into a 529.

  • Then you’d save money on insurance, repairs, and gas—all that money could go into the 529 each month.

• How big is your house? Are you in a prime neighborhood? Do you really need to be?

  • If you sold your home and moved into a middle-class neighborhood, you’d probably have a big chunk of equity that you could invest. (Put it into the college investment calculator and see how much that would help.)

• Cut back on that big annual vacation.

  • Instead of spending $10,000 on that trip to the Caribbean, maybe you drive somewhere warm—and save $5,000 a year.

• Are your kids in private school? Maybe put them in public school and put the savings into their 529s.

Maybe there’s no way to do it.

Saving up $100,000+ for college just isn’t going to happen.

It’s time to be honest with your kids.

Want to know why? Maybe they can make it happen.

That’s what Kristina Ellis did.

When she was a young high schooler, her mom told her there just wasn’t money for college. At first, she was crushed. Then she started learning about scholarships.

She read every scholarship book at the library, studied stories about scholarship winners, and even interviewed people.

She earned—get this—$500,000 in scholarships.

That money fully funded her undergrad at Vanderbilt and her master’s degree at Belmont.

Just be honest. Maybe you don’t need to stash away thousands of dollars into a 529 after all.