LESSON

How do you estimate the cost of a college education?

Estimating College Costs and Payments16.4

ADDITIONAL EXAMPLE 1Andrew is considering going to a private university. The annual charges are shown in the table. How much should Andrew expect to spend if he plans to attend for4 years?

4 × $37,630 = $150,520

16.4 LESSON QUIZ

Lee wants to attend West Texas A&M University. Use the online tool to complete a table like the one in Example 1. Assume that Lee’s father is single, makes $40,000 per year, and pays roughly $4000 in income tax each year. Assume Lee is a Texas resident, will live on campus, is 18 years old, is single, and has no brothers or sisters. Assume Lee has worked for the last 4 years, made $6000 per year, and paid roughly $300 in income tax per year.

8.12.G

Compute Lee’s estimated cost of attending West Texas A&M for 4 years.

1.

Assume Lee receives a scholarship from West Texas A&M for $2000 each year for 4 years, and his father can contribute $3000 each year. Find Lee’s new estimated total cost to attend West Texas A&M for the first year and for 4 years.

2.

$13,943, $55,772

4 years: $75,772

Given all the calculations from Exercises 1–3, does Lee have enough to pay for his first year of college at West Texas A&M?

4.

yes

3. Suppose that for 4 years in a row, Lee was able to deposit $3500 into a savings account that earns 3.5% compounded annually. Complete a table like the one in the Explore Activity to determine how much Lee has saved for college.

final balance after year 1: $3,622.50; after year 2: $7,371.79; after year 3: $11,252.30; after year 4: $15,268.63

Some families save money for college in a “529 plan.” 529 plans are named after Section 529 of the United States Internal Revenue Code, which is the law that governs these plans. One advantage of 529 plans is that any interest earned from these plans is not subject to income tax.

Have students research 529 plans. There are two main types of 529 plans. One type is a savings plan, similar to a normal savings or investment account. Another type is a prepaid tuition plan, which protects against increases in tuition. For example, suppose you put $1000 in a prepaid tuition plan in a year when tuition is $10,000. That $1000 represents one-tenth of the tuition charge. Five years later when you start college, tuition has increased to $15,000. The $1000 you invested will still be worth one-tenth of the tuition, so it is now worth $1500.

The $1000 originally saved has grown in value to $1500, just as if it earned interest. A $500 gain in 5 years is equivalent to 10% simple interest per year.

Ask students: How is this example of saving $1000 in a prepaid tuition plan similar to earning interest? What would be the equivalent simple interest rate?

How do you estimate the cost of a college education?

Sample answer:There are websites with useful college cost estimation tools. The largest costs are tuition, room and board, and books. You must decide if you will attend an in-state or out-of-state school, and if you will live at home or on campus.