Image: 030813_GrandmaScholarship_hup.jpg
Louise Renninger Rittenhouse, in her college yearbook photo at right, graduated from Hood College in 1948. Her granddaughter, Rebecca Dupont of Conshohocken, Pa., left, will pay the same $325 tuition, instead of the standard rate of $19,940, in her first year at Hood under a new "heritage scholarship" program at the school in Frederick, Md.
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msnbc.com

In 1985, when our first-born arrived, I read every available personal finance magazine and mutual fund brochure out there to figure out what college would set us back. At the time, the average cost of a four-year, private college was around $8,500 a year, and the news wasn’t good. By 2003, I was advised, costs could triple. So to be on the safe side, we budgeted for those “worst case” estimates. Now, 17 years later, we just got the bill. And after stashing away according to the most dire forecasts, it turns out we’re still a little short.

Tuition, room and board at the priciest four-year colleges is fast approaching $40,000 a year. And for those of you new moms and dads starting college funds, you can count on watching that number continue to rise at a depressing clip.

While consumer prices went up 1.5 percent last year, the average cost of tuition and room and board at a four-year private college rose 5.3 percent to $23,578, according to U.S. News & World Report. College costs have outstripped the overall inflation rate for years and are expected to continue to do so.

But for parents saving for college, investment returns haven’t kept pace. Back in 1985, a $15,000 investment in U.S. Treasury bonds yielded 12 percent; those bonds are now worth roughly $103,000 (pretax). For a newborn arriving today, a similar college fund invested in Treasuries, paying 4.5 percent, will pay off just $31,700 when that first tuition bill arrives in 2020.

But if tuition continues to rise at 6 percent, the bill by then will have mushroomed to $63,490 a year, on average, for private colleges. For the most expensive schools, better figure more like $100,000 a year for a child born today.

One reason for the dizzying spiral is that the much lauded “productivity gains” that have brought you falling prices at Wal-Mart are a lot tougher to implement on college campuses. Teachers still teach much as they did decades — or even centuries — ago. No one has figured out how to “automate” higher education and still achieve the same results.

Despite the surge in costs, some colleges are trying to hold the line. A few have even dramatically cut tuition to stand out among their pricier competitors. Bethany College of West Virginia, for example, cut its tuition by 42 percent to $12,000 last year and then increased enrollment — which school officials say more than made up for the drop in revenue and even helped offset some losses in its endowment. Though the college cut its financial aid budget by about 43 percent, the average class size rose to 350 from 228 for this year’s freshman class.

Public colleges and universities, where tuition is considerably less on average than at private colleges, are raising fees more quickly — especially in states where deep budget deficits have forced them to accelerate tuition increases to balance their budgets.

Don't forget 'extras'
And that doesn’t include the “extras.” The thick packet that arrived earlier this summer from my daughter’s college suggested budgeting about $500 for books and materials — for each semester. Then comes the fees for such things as “activities” $310; health services $340; telecommunications services $50 (per semester); and class dues $30.00. (And, of course, there are travel expenses.)

Then there’s the matter of getting your son or daughter outfitted for dorm life. Here’s what we came up with:

Shopping list:
Computer (Dell Inspirion laptop) $700, including rebate; two pairs of bed sheets (“dorm length, extra long twin”) $33.98; three extra pillow cases $12.99; umbrella $9.94; rain poncho $5.96; sunglasses $9.83; flashlight $2.97; desk lamp $7.97 (avoid halogen — they’re a dorm fire hazard); shower shoes $4.83; folding laundry hamper $6.88; detergent (Tide to go) $1.38; hiking boots $24.87; plate and cup $4.94; flatware kit $3.96.

Total: $130.50

Bring from home:
Blankets, favorite comforter, pillows, towels, “all my clothes,” graphing calculator, portable CD player and CDs, tennis racquet, small fan.

Wait for parents’ weekend:
Small refrigerator

Wait for clarification of “no hotplate” rule:
George Foreman grill

What about next year?
With any luck, this back-to-school shopping trip will represent a one-time cost. The scary part is thinking about next year’s tuition bill. At 6 percent a year, the total cost for my daughter will probably top $45,000. And before my son graduates in 2010, we’ll be looking at $54,000.

So how do we plan to make up the shortfall? A home equity loan offers the best tax advantages — interest is fully deductible. And fortunately, my kids have been saving, too — from summer jobs and, in my daughter’s case, scholarships from both the school she’ll be attending and the high school she’s just leaving. Even if you don’t qualify for financial aid, there’s a lot of scholarship money out there that isn’t widely advertised — you just have to go find it.

My daughter also signed up for a campus job and plans to skip having a car at school. At least until she figures out how to pay for it.

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