To make saving for college less abstract, we asked Loewe to devise a college planning scheme for a real family. The "Stephensons" (not their real name) have a son Dylan, who is in kindergarten, and a daughter Debbie, who is in first grade. Although Dylan and Debbie are just learning to write and add, their parents would be delighted if in a dozen years they were swinging lacrosse sticks and studying electrical engineering at Johns Hopkins. Is their goal feasible?

Debbie and Dylan would begin as freshmen at Hopkins in the years 2010 and 2011, respectively.

The Stephensons are starting at square one in terms of saving for college. They do not have a college fund for their children and do not have any savings or investments that could be applied to a college fund. The couple earns a total of $99,155 annually before taxes. They own a home and have $137,451 in home equity. They also have $36,235 saved in a retirement plan.

According to Loewe's calculations, Debbie's bill for four years at Hopkins will be $259,877. The tally for Dylan, who will enroll a year after Debbie, will be $280,305. In all, the Stephensons' total bill for putting two children through Hopkins will come to $540,182. (Though Hopkins trustees have agreed to hold tuition increases to an average of 4.3 percent for the next five years, Loewe's projections assume that college tuition will increase at a rate of roughly 6.5 percent per year, and that the cost of room, board, and other student expenses will increase at about 3.5 percent per year. These figures are based on the past 15-year inflation history for tuition and CPI.)

Paying the half-million-dollar bill will not be easy, but the Stephenson family could do it, says Loewe. Here is his plan:

Parents: If the Stephensons save $4,000 this year for college, and increase the amount they save by 10 percent per year, they will have accumulated $136,950 (assuming a 10 percent interest rate) by the time Debbie enrolls at Hopkins. The Stephensons will then begin digging into these savings, but the balance will continue to collect interest while their children are in college. In all, they'll accrue $167,492 in savings, which they will apply toward the Hopkins bill. In addition, for each of the five years that one or both of their children are at Hopkins, the Stephensons will transfer $15,000 of their income toward the bill. Their total contribution from savings and income will be $242,492.

Kids: Debbie and Dylan will borrow a total of $180,000.

Loan: Which leaves $117,690. The parents will borrow this amount. Assuming 9 percent interest, they will then repay a total of $177,523.

There are potential problems with this scenario. Currently, students are allowed to borrow a maximum of $17,000 over four years in federal subsidized loans. But the government will probably increase that amount, says Loewe. This plan also assumes the Stephensons will be able to increase their savings by 10 percent per year (more than the current rate of inflation) and that they'll pursue a relatively aggressive investment strategy.

Of course, there's also the possibility that the Stephenson children will qualify for grants or scholarships. Don't count on that, however, advises Loewe.

If the Stephensons and their kids are averse to piling up so much debt, there is another alternative. Dylan and Debbie could attend a state university. By Loewe's projections, their combined bill at a state school would be $241,895.

RETURN TO SEPTEMBER 1998 TABLE OF CONTENTS.