Don't be daunted by the amount you may have to save. Small amounts of money, if invested early, can become sizable investments through the remarkable power of compounding. For example, if you save $200 a month at an 8% annual rate of return for your newborn child, you will have over $96,000 for college when she turns 18. Use our Savings Calculator to see how early and regular saving can make your money grow.

Use our College Saving Calculator to estimate the amount of money to invest each year to cover your child's college education. Remember to factor tuition, room, board, and books into your calculation. If you know where you want your child to go to college, but don't know the current costs, you can use the National Center for Education Statistics' school locator to research the costs. If you are unsure where you want your child to go to college, The College Board^® says a year at a private four-year college, for tuition, room and board, now averages $26,854 and at a public four-year college averages $10,636.

Financial Aid and Savings

As part of saving for college, you need to know whether your child will be eligible for financial aid, which reduces what you may need to save for college.

Caution! You also should be aware, however, that saving for college might impact financial aid. In fact, any investments or savings can affect federal financial aid eligibility. The impact on financial aid varies depending on whether the savings belong to the parent or the child. Now, savings in a parent's name can reduce federal financial aid eligibility by at most 6%. But assets saved in a child's name can reduce aid eligibility by 35%. Pre-paid tuition plans like those we are about to discuss may have even a greater impact on federal financial aid. Every dollar saved in a pre-paid tuition plan can reduce a family's federal financial aid need by a dollar. So, if you save $10,000 in a pre-paid tuition plan, you will be considered as needing $10,000 less in financial aid. States and private colleges may have their own rules for financial aid, and some states give more favorable treatment to pre-paid tuition plans and other college savings options.