Harvard vs. Stanford: saving for elite colleges

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By Richard Barrington, MoneyRates.com

Thinking of sending your child to an elite college?

[post_ads]Then forget any figures you've seen about how much the average college costs. Elite schools come with elite price tags. However, there are ways to afford a premium education -- even if your household is of more modest means.

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To explore the cost of a high-end education, MoneyRates.com looked at two highly selective schools: Harvard and Stanford. Ivy League vs. non-Ivy. East Coast vs. West Coast.

Despite their differences, Harvard and Stanford present similar financial challenges to parents and students, and so the schools work well as examples of what you can do to prepare if you want your child to attend an elite college.

How much does it cost to go to an Ivy League school?

Brace yourself.

If you are considering an Ivy League school -- or one of the nation's other elite colleges -- remember that, while these schools may be on a whole other level academically, they also have tuition bills to match.
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According to the College Board, half of all full-time undergraduate students attend schools that charge $11,814 or less in annual tuition and fees. In contrast, Harvard charges $50,000 in annual tuition and fees, and Stanford isn't far behind at $48,987.

Throw in room and board plus estimated costs for supplies and personal expenses, and the full cost of a year at Harvard is estimated at $71,230, and at Stanford it is $70,000.

Multiply these figures by four years, and the numbers start to get a little scary. While most highly-selective schools boast that a very high percentage of their students graduate within four years, the total cost of attendance may be even greater than the examples given in this article. Harvard's substantial endowment enables it to be among the most affordable Ivy League schools and Stanford's ample resources help keep costs below those of some other schools of its caliber.

So how does anyone besides the very rich ever afford schools like this? Fortunately, there are tools in place to help families afford to send their children to elite schools.

How to afford an Ivy League school

For the purposes of this article, assume that student loans are a last resort. They may help you pay for college, but only by putting off the problem until after graduation. Instead, there are ways you can prepare to make an elite college affordable on a pay-as-you-go basis.

Financial aid

Grants and scholarships based on a combination of need and academic merit can go a long way toward reducing the cost of a high-end education. As an example of the level of help you can get paying for Ivy League schools, Harvard reports that just over half of its students receive financial aid, and more than 20 percent pay nothing to attend the school.

Other highly selective schools emphasize their efforts to make college affordable to lower-income students too. Stanford reports that over 80 percent of its students receive some level of financial aid. Stanford offers free tuition to qualifying students with family incomes below $125,000, and free tuition, room and board to qualifying students with family incomes below $65,000.
Like many schools, Harvard and Stanford provide financial aid calculators on their websites. These allow you to enter some general financial information about your family and receive an estimate of how much financial aid a student from your family could receive from the school.

Using a scenario of a family with two children approaching college age, an $80,000 annual household income and $25,000 in savings, MoneyRates.com found that Harvard's financial aid calculator estimated that a student would receive $64,950 in financial aid. This would provide all but $6,280 of the $71,230 annual cost of attending the school.

Similarly, running the same scenario on Stanford's financial aid calculator yielded estimated annual aid of $64,100. This would leave a gap of just $5,900 toward the $70,000 total annual cost of attending the school.

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Saving for college

Even with financial aid, most families will find themselves paying something to attend an elite school -- and for wealthier families that qualify for little or no aid, the expense might be considerable. This makes saving in advance essential, preferably via a tax-advantaged vehicle like a 529 plan.

The full $71,230 annual cost of attending Harvard would dent the budgets of even fairly well-off families, but you can make that expense easier to digest with some advance savings. The key is, the sooner you start saving, the more affordable even an elite college becomes.

Consider a scenario in which a student received half the cost of going to Harvard in financial aid, and the family had to come up with the other half out of pocket. This would require a total of $142,460.

Assuming a modest 5 percent annual return and the use of a 529 plan, here's how much you would have to save annually to accumulate that amount, depending on when you start:
$25,782 a year over five years (saving at this rate would require more than one person setting up a 529 plan to avoid running afoul of gift taxes) $11,326 a year over ten years $4,308 a year over 20 years

Financial aid and early saving can be a powerful combination. The toughest part about going to an elite school should be the academic standards, not the difficulty of paying the bills. With some advance planning, you can help your child focus on their studies knowing that the bills have been addressed already.

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Next steps

Need more information? Learn how to use six different types of college savings accounts

If your child is already in middle school or high school, read Late start: college saving options.