Use this calculator to understand the future cost of college expenses and to estimate how much you will need to save to reach your college investment goal by using a 529 plan. This calculator uses Monte Carlo simulation to show how uncertainty affects your planning for future college expenses. For those enrolled in the Maryland Prepaid College Trust, click here for instructions.

To begin, enter information below about each student you expect to send to college. When you are done, click the "Continue" button at the bottom of the page to continue.

  First Student's First Name:
  In what year will this student start college?
  How many years will college last?
  Second Student's First Name:
  In what year will this student start college?
  How many years will college last?
  Third Student's First Name:
  In what year will this student start college?
  How many years will college last?
  Fourth Student's First Name:
  In what year will this student start college?
  How many years will college last?
  Fifth Student's First Name:
  In what year will this student start college?
  How many years will college last?
 
  Select which student you will use to
compute savings.
  After you are finished with the first student you will be given the opportunity to return to this screen and select another student.
 
 
 
The information entered is only used within the calculator and not for any other purpose. For further information about our privacy policy please click here.
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  Important Assumptions
IMPORTANT: The projections or other information generated by the College Investment Calculator regarding the likelihood of various outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts only present a range of possible outcomes. Actual results will vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations. Please note that the analysis does not take into consideration all asset classes, and other asset classes not considered may have characteristics similar or superior to those being analyzed.

Understanding the Monte Carlo Analysis
How is the "Monte Carlo" calculator used to help plan for college costs? The purpose of the calculator is to provide investors with a reasonable estimate of the amount that their college savings could generate under hypothetical market scenarios over a period of time. The calculator does not project the future costs and expenses of attending college.

The calculator can provide information about three variables:
  • the initial investment needed to reach a goal;
  • the periodic investments needed; and
  • the total or "target" amount that a given investment approach may generate over time.
The investor first selects the "simulation success rate" - the percentage probability that a particular investment goal could be achieved in our hypothetical scenarios. Next the investor provides two of the other variables, and the calculator provides the third. An important use of information provided by the calculator is to highlight the trade-off between the amounts invested and the simulation success rate. Specifically, increases in the amounts invested initially and periodically can increase the investor's chances of reaching the investment goal until, after a point, such increases have a diminishing impact on improving the success rate. The Monte Carlo aspect of the calculation reflects its use of the "law of large numbers" in providing a degree of certainty for future outcomes based on a statistically relevant number of similar outcomes in hypothetical situations. The calculator, in effect, captures and quantifies the uncertainties surrounding any market projection, instead of merely providing a projected value for a variable.

Important Legal Information
This calculator is designed to be an informational and educational tool only, and when used alone, does not constitute investment advice. We strongly recommend that you read all information contained in our Enrollment Kit before making an investment in the College Savings Plans of Maryland. We also encourage you to review your investment strategy periodically as your financial circumstances change.

This model is provided as a rough approximation of future financial performance. Actual results could produce different outcomes, some better and some worse than those illustrated by the calculator, since it is not possible to anticipate every possible combination of financial market returns. Neither the College Savings Plans of Maryland nor T. Rowe Price Associates, Inc. and their respective affiliates are responsible for (i) the consequences of any decisions or actions taken in reliance upon or as a result of the information provided by these tools and (ii) any human or mechanical errors or omissions.

The material assumptions built into these calculations are discussed below.

How do we model future investment returns?
A basic step in helping you develop an appropriate college savings plan is examining the performance of a variety of portfolios in 500 scenarios that simulate how the securities markets could perform in the future. (The portfolios comprise varying proportions of the seven asset classes listed in the next section. These asset classes substitute for the T. Rowe Price funds that actually compose the 529 Plan's portfolios.) These scenarios do not represent actual or historical performance of individual securities or mutual funds but rather a range of potential performance of the asset classes we modeled. An objective of the modeling process is to derive what we believe are reliable estimates of total monthly returns for each investment mix in 500 hypothetical situations. In each simulated scenario, the value of the hypothetical portfolio is increased or decreased by the amount of its monthly gain or loss. Simulation success rates are generated by aggregating the 500 scenarios to determine how each portfolio behaved over the investment period.

Assumed rates of return
As a starting point, we considered the historical average annual returns for seven major types of assets (listed below). But for modeling purposes, we also considered the current, volatile market environment and our expectations for the future to estimate what we believe are reasonably likely returns over the next 21 years.

Of course, the average annual returns shown below represent only our assumptions and should not be viewed as predictions or guarantees of future performance.

Asset Classes

Assumed Average Annual Returns

Large-cap stocks

10.00%

Mid-cap stocks

10.50 

Small-cap stocks

11.00 

International stocks

10.00 

Investment-grade domestic bonds

6.50

Short-term bonds

4.75

Money market securities

4.00


Other influences on rates of return
Investment expenses. Investors pay some fees and expenses, often expressed in basis points (100 basis points equal one percentage point) for investment management and administrative services provided by the college savings plan. For each asset class, we deduct from its simulated performance 1) the relevant college program fee, and 2) expense ratios based on the average for each T. Rowe Price fund, as follows:

Program Fee
28 basis points
Fund Expense ratios (basis points)*
Equity Index 500 37
Blue Chip Growth 81
Value 87
Mid-Cap Growth 80
Small-Cap Stock 91
International Stock 87
Spectrum Income 70
Summit Cash Reserves 45
Ext Equity Mkt Index 40
Mid-Cap Value 80
Tot Equity Mkt Index 40
Intl Growth & Income 91
Overseas Stock 115
U.S. Bond Index 30
Short Term Income 50
*Where an expense range is involved, we conservatively
use the number at the high end of the range.


Taxes. We do not adjust for any state or federal taxes or penalties. We assume that all money in the plan is to be used for qualified educational expenses and is not subject to federal or state income taxes or any penalties upon withdrawal. State tax treatment varies depending upon the particular college savings plan and the residency of the investor. State taxes or penalties, if applicable, could reduce the amounts available for education expenses. You should consider discussing the tax implications of your particular plan with your tax adviser.

Inflation. Our model does not adjust any inputs or outcomes for inflation. (Projections of future college costs may include an inflation factor.)

Finding and using monthly rates of return in the calculator
To find a monthly rate of return for each asset class, we use a calculation that is roughly equivalent to but is more accurate than dividing the assumed annual rate by 12.

Our models for the monthly returns of the hypothetical portfolios have three elements:
1) our assumed average rates of return for each asset class in each portfolio, as discussed;

2) the assumed returns are adjusted based upon the historical standard deviations of return for market indices (representative of the asset classes), which measure the volatility or deviation of annual returns of an asset class from its average; and

3) the historical correlation among the market indices (representative of the asset classes), that is, how they tend to move in relation to each other. (A calculation based on standard deviation and correlation is used to build a covariance matrix, which, with our expected values, enables us to generate the 500 investment scenarios.)

For each month, investment returns are assumed to be "normally" distributed, with returns for subsequent months statistically independent. This means that any given random selection of a rate of return for an asset class does not tell us anything about the value of a subsequent selection in any time period. This assumption reflects the way markets generally behave and should be more realistic than projections using a single annual rate of return for an asset class in all years.

Understanding the normal distribution of monthly returns allows us to better model uncertainty in the future performance of a hypothetical portfolio than if we had simply used average returns. As represented in a familiar bell curve, which is commonly used to show the normal distribution of data points, expected returns are at the center, while deviations appear in the "tails" of the curve. These deviations represent extreme events that are possible but unlikely to occur very often.

The value of 500 simulated scenarios
Although our model does not predict what the financial markets will do, analyzing 500 possible outcomes gives us a better understanding of each hypothetical portfolio's potential deviation from the expected return. As a result of "the law of large numbers," examining so many combinations of return, volatility, and correlation allows us to define the range of possible returns for each portfolio with greater confidence.

The Calculator's limitations
Limitations include but are not restricted to the following:
  • Extreme market movements may occur more frequently than represented in our model.
  • Some asset classes have relatively limited histories. While future results for all asset classes in the model may materially differ from those assumed in our calculations, the future results for asset classes with limited histories may diverge to a greater extent than the future results of asset classes with longer track records.
  • Market crises can cause asset classes to perform similarly over time; reducing the accuracy of the projected portfolio volatility and returns. The model is based on the long-term behavior of the asset classes and therefore is less reliable for short-term periods.
  • The model assumes there is no correlation between asset class returns from month to month. This means that the model does not reflect the average periods of "bull" and "bear" markets, which can be longer than those modeled.
  • Inflation is assumed to be constant; variations in inflation levels are not reflected in our calculations.
  • The analysis does not take into consideration all asset classes, and other asset classes not considered may have characteristics similar or superior to those being analyzed.
  • The model's parameters represent our best view of the next 21 years, but are unlikely to reflect actual investment returns worldwide over this period.
  • The asset classes selected and expenses for the investment model are based upon the investment options available under the Maryland College Investment Plan. Use of the calculator may not be appropriate in connection with other college savings plans that have different expenses and investment options.
How do we make projections for your college plan?
Each projection involves one of 13 model portfolios designed by our investment professionals according to the principles of Modern Portfolio Theory, a simulation success rate, and two of the following three variables:
  • initial investment in the plan
  • monthly investments in the plan
  • target amount to be saved for college
The calculation will project a value for the chosen variable that meets one of 10 different levels of probable success. These levels range from a 50% probability to 95%, in 5% increments. For each simulation success rate, we calculate the minimum monthly or initial investment that will reach the goal under the hypothetical scenarios with that level of success. For example, if an 80% success rate is chosen, the result of the calculation means that in 80% of the 500 simulations the monthly (or initial) investment was sufficient to enable the investor to reach the target. We can also calculate the target amount that is likely to be reached given specific initial and/or monthly investments and the required simulation success rate.

Simulations
Each calculation is subjected to 500 simulations of how your investments could perform in the future. Each simulation covers the length of time between the initial investment and the year your beneficiary enters college (or other qualified educational institution). Each simulation reproduces what might be expected to happen to your assets over this period.

Because the computer time needed to perform all the simulations is formidable, we use a table of predetermined factors to expedite the calculations. The factors are the number of months until the money is needed for college, the portfolio chosen, and the 500 scenarios. These factors represent the monthly balances observed across the scenarios in the simulations.

Portfolio migration in enrollment-based portfolios
If you choose one of the seven enrollment-based portfolios, our calculation takes into account the gradual change in the portfolio's asset mix as your beneficiary approaches matriculation. Within these portfolios, the investment mix becomes increasingly conservative as the student nears college age. Our projection process assumes your asset allocation will adjust quarterly, and this is taken into account in all the simulations.
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