# College Savings Calculator Article byHarsh Katara ## College Savings Calculator

A College Savings calculator can be used to calculate the amount that is required to cover the education cost when the child is ready to enter the college.

#### College savings calculator

P / (( ( 1 + r )n*F – 1 ) / r)

Wherein,
• P is the college amount required at a particular year.
• r is the rate of interest.
• n is the number of periods for which savings shall be made.
• F is the frequency of interest is paid.
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The formula for calculating College Savings is per below:

Periodical College Savings is made then the calculation:

i = P / (( ( 1 + r )n*F – 1 ) / r )

Wherein,

• i is the amount required to be saved
• P is the college amount required at a particular year
• r is the rate of interest
• F is the frequency of interest is paid
• n is the number of periods for which savings shall be made.

College Savings calculator, as defined earlier, can be used to calculate the amount that an individual will want to save for his child for his future education expenses, which doesn’t become a liability on that individual as the cost of education is more, and it increases with the rate of inflation. One can calculate the number of estimated expenses at a time period when the child will enter into college and also consider the time left for investment and accordingly save the amount periodically, either monthly, annually, as per the individual standards. The expenses of college are no longer cheap and are increasing as time passes, and hence it is absolutely necessary for the individual to save the amount beforehand, earn the same, and fund their child expenses without any hesitation.

### How to Calculate College Savings?

One needs to follow the below steps in order to calculate the amount for Retirement.

Step #1 – Determine the age of the child and the gap between current age versus the age he would be entering into college.

Step #2 – Estimate the college expenses for the entire college period and find out the future value of the same as those expenses will increase with inflation.

Step #3 – Now, determine if any savings have already been made.

Step #4 – Determine the rate of interest and divide the rate of interest by the number of periods the income that shall be paid. For example, if the rate paid is 4% and it compounds semi-annually, then the rate of interest would be 4%/2, which is 2.00%.

Step #5 – Now use the formula that was discussed above to calculating the amount that is required to be saved periodically depending upon case to case.

Step #6 – The resultant figure will be the amount that is required to be saved in order to fund the college expenses.

You can download this College Savings Calculator Excel Template here – College Savings Calculator Excel Template

### Example #1

Mr. Akshay, who is a proud father of Mr. Karthik, has groomed his son very well and is performing well in his studies. However, Mr. Akshay is a middle-class person, and he understands that when his son reaches age 18 years, the college expenses would be high and also considers inflation rate of 2%. His college will last for 4 years, and his college expenses will include Tuition fees and Room and board expenses \$10,000 for each year. Mr. Akshay has shortlisted a scheme wherein he will invest monthly and earn interest on the same 10% per annum. His son is currently aging 9 years old. Further, no pre-investment is made by Mr. Akshay, and he wants to save \$150 per month starting today.

Based on the given information, you are required to calculate the monthly savings Mr. Akshay is require making and whether he is requiring increasing the savings amount or reduce the same or meets the requirement. Assume monthly compounding for investment.

Solution:

We are given the below details:

• I = Initial savings are Nil
• i = The monthly savings needs to be figured out
• r = Rate of interest, which is 10% and is compounded annually
• F = Frequency which is annually here, hence it will be 1
• n = number of years the College Savings proposed to be made will be different of retirement age less current age (18 – 9), which is 9 years for 1st-year fees. Similarly, for second-year fees, we have 11 years, 12 years, and 13 years, respectively. Fees are paid at the end of the period.

The inflation rate is 2%, and hence the fees will not be fixed and will increase, and hence we will calculate the future value of the fees.

FV = (P * ( ( 1 + I ) ^ N – 1 ) / I) – (P * ( ( 1 + I ) ^ N – 1 ) / I)
• = (\$10000 * ( (1 + 2% ) ^ 13 – 1 ) / 2%) – (\$10000 * ( (1 + 2% )^ 9 – 1 ) / 2%)
• = \$146,803.32 – \$97,546.28
• = \$49,257.03

Similarly, if we calculate the individual year FV we get below results for years 10, 11, 12 and 13 and the total would be the same which we calculated.

For example, for year 10:

FV = (P * ( ( 1 + I ) ^ N)
• = (10000 * ( ( 1 + 2%) ^9)
• = \$11,950.93

Similary for Years 11,12 & 13

• FV(Year 11) = (10000 * ( ( 1 + 2%) ^10)

= \$12,189.94

• FV(Year 12) = (10000 * ( ( 1 + 2%) ^11)

= \$12,433.74

• FV(Year 13) = (10000 * ( ( 1 + 2%) ^13)

= \$12,682.42

Now, we can use the below formula to calculate the amount required to be saved.

i = P / (( ( 1 + r )n*F – 1 ) / r)

For each future value, we shall calculate, and we shall use the nominal rate of interest which is 10%

• = 11,951 / (( ( 1 + 0.83% )10 * 12 – 1 ) / 10.00%/12 )
• = \$58.34

Similary for years 11, 12 and 13

• For (Year 11)= 12,190.02 / ((( 1 + 0.83% )11 * 12 – 1 ) / 0.83% )

= \$51.03

• For (Year 12) = 12,433.82 / ((( 1 + 0.83% )12 * 12 – 1 ) / 0.83% )

= \$44.98

• For (Year 13)= 12,682.50 / ((( 1 + 0.83% )13 * 12 – 1 ) / 10.00%/12 )

= \$39.89

Therefore, the total monthly savings he is required to make is \$58.34 + \$51.03 + \$44.98 + \$39.89 which equals \$194.24 and he is saving \$150 and he needs to increase the amount by 44.24 dollars a month.

### Conclusion

As discussed above, the College Savings calculator can be used to calculate the amount of savings that can be made by the individual in order to fund the expenses in the future and save themselves from immediate huge cash outflow or from taking any loan for education and thus also saving from paying interest on a loan.

### Recommended Articles

This has been a guide to the College Savings Calculator. Here we provide you the calculator that is used to calculate the amount required for a child’s education with some examples. You may also take a look at the following useful articles –