How To Save For College

Updated September 20, 2022

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Portrait of Nate Delesline III

Nate Delesline III

Nate Delesline III is a Virginia-based writer covering higher education. He has more than a decade of experience as a newspaper journalist covering public safety, local government, business, transportation, and K-12 and higher education.

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Nearly all parents and students grapple with the question of how to pay for college. Cost is often the deciding factor that determines whether students attend college at all. Research shows that more than half of the time, parents pay tuition using their savings, current income, or by borrowing money. At a high level, parents should start early and save often. Here, we provide some specific strategies to build college tuition savings.


Q. Do most parents pay for college?

Parents used savings, income, or borrowed money to pay 52% of college costs in the 2019-2020 academic year. Savings represented 44% of parental spending on college.

Q. Is a 529 the best way to save for college?

Using a 529 plan to save for college offers tax and financial aid advantages. Contribution limits can exceed $500,000. Earnings are tax-free if used to pay for qualified higher education costs.

Q. What is the maximum income for federal financial aid?

There is no income threshold for federal financial aid. Your family's size and anticipated financial contribution, along with the anticipated cost of college attendance, influence financial aid decisions.

Q. How do middle class parents pay for college?

Options include a 529 education plan or a Coverdell Education Savings Account. Middle class parents may also consider prepaid tuition plans to pay for college.

When to Start Saving

Whether kids are in a high chair or high school, it is never too early or too late to save for college. A more nuanced answer, however, depends on individual situations.

First, make sure you build an emergency savings fund. Experts recommend keeping 3-6 months of living expenses available. This money can cover housing, food, transportation, and healthcare costs.

Next, calculate your debt-to-income ratio. Ideally, this ratio should not exceed 40%. If it does, work on reducing debt to better position yourself for short-term goals, like building an emergency fund, and long-term goals, such as saving for college. Finally, do not neglect your own savings for retirement. Financial experts recommend saving 10-15% of your income for retirement.

How Much to Save

Financial experts suggest a starting point of saving $2,000 a year if you use a 529 savings account. With this approach, you could save half of the anticipated cost of a four-year college degree.

Cost-related considerations include location, the college, and if a student qualifies for in-state tuition rates. Whether a student plans to attend college part time or full time also influences expenses. Other considerations include costs for books, lab fees, room and board, and commuting if a student resides off campus.

With so many options, costs vary considerably. For example, tuition at Tidewater Community College, a two-year school in Virginia, costs $185.35 per credit hour, or about $5,560 per year for an in-state student taking 15 credits per semester. In contrast, annual undergraduate in-state tuition at William & Mary cost $17,434 for the 2021-2022 school year. However, with books, fees, and room and board included, the cost rose to $40,220.

How to Save

A multitude of options exist to build college savings. Some are designed exclusively for higher education. Others serve as general wealth-building strategies. Whichever method you choose, experts frequently advise parents to start saving early and to make deposits automatic. Below we highlight nine approaches to saving for college.

Ways to Save

529 Plan

A 529 plan is a savings account with tax advantages intended to help pay for college. Almost every state, and the District of Columbia, sponsors a 529 plan. Wyoming does not.

Limit: Varies by state, up to approximately $500,000

How to Use: Similar to a 401k or an IRA retirement savings account, you can invest 529 account funds in various types of financial products, such as mutual funds. You receive state and federal tax breaks. Use 529 funds to pay for qualified higher education expenses, such as tuition, computers, and room and board. States administer these plans, so they may vary. However, you do not need to reside in a state to participate in its plan. A 529 plan does not require much management. That said, you can only use money in a 529 plan for education.

Withdrawal Penalties: Income taxes plus 10%

Education Savings Account

Savings Bonds

Uniform Transfer to Minors Act

Roth IRA

High Yield Savings Accounts

Permanent Life Insurance Policy

Home Equity Loan

Invest in Mutual Funds

How Children Can Help

Early Financial Education

Children should play a direct role in saving for their college education. Parents can help their children save by encouraging and modeling smart financial behavior. Start by opening a savings account for your kids. If they receive birthday money, for example, encourage them to save it instead of spending it.

Saving Earnings

Students who work part or full time can save some of their earnings for college. Working students also benefit from gaining resume-boosting job experience. Taking advanced placement, or AP, classes can also defray the cost of college. AP classes are college courses taken at the high school level. These classes count toward a college degree.


Finally, students approaching their high school graduation should submit the Free Application for Federal Student Aid and apply for scholarships. Students can also increase their chances of receiving scholarships by maintaining good grades and participating in extracurricular activities.

VP of Odyssey Group

Interview with a Financial Advisor

Q. How important is it for parents to save for their child's college education?

Ask 10 parents about their thoughts on saving for their child's college education and you will probably get 10 different answers. Those answers will range from, "My parents didn't help me through college, and it made me appreciate it even more — So I don't plan on helping my kids with the cost," to "I plan on paying for all of the costs, even if it means I have to go into debt to do it." While those are the two extremes, I think most parents fall somewhere in between.

Recent college graduates who took out student loans borrowed on average $30,000, which is up 26% compared to 10 years ago. If parents are looking to keep their children from starting behind the proverbial eight ball with a pile of student debt at graduation, saving for their education is critical.

Q. When should parents start saving?

Parents should start saving for their children's education as soon as possible. The most valuable asset when it comes to long-term investing is time. Time allows investors to capitalize on compounded interest. For example, if you invest $200 per month from the time your child is born until the day they turn 18, you will have accumulated nearly $78,000 (assuming a 6% rate of return). Comparatively, if you begin investing $400 monthly beginning when your child is 10 years old, using that same 6% growth rate, you will have amassed about $49,000. Don't take a "wait and see" attitude when it comes to savings.

Q. What goals should parents have?

Parents should set realistic goals when it comes to savings for their children's education. As an advisor, I have seen families place too much of an emphasis on education savings while sacrificing their own retirement savings (you can borrow for college, but not for retirement). I've also seen the opposite end of the spectrum where parents have analysis paralysis and don't save at all because there are so many savings options and so many variables when it comes to how much college will cost in the future.

Instead of focusing on the unknowns of the future, like if the child will go to state school or private or if the child will receive a scholarship, I help my clients save for college using the knowns of today. We know that 529 plans provide a great savings tool for tax-deferred savings, tax-free distributions (when used for qualified expenses), and even state tax deductions (depending on your state). We know that saving earlier is more advantageous than starting later. We also know that while it would be nice to pay for all of a child's education, it isn't a requirement. With those facts in mind, I am able to help clients create an education savings plan that meets their goals in the context of their entire financial picture.

There is obviously no one-size-fits-all financial answer for savings goals. However, there are two goals that all parents should prioritize. The first goal should be to at least have a plan. If they need help with that plan, that is where a comprehensive financial advisor comes into play. The second goal would be to start saving as early as possible on a systematic basis. If you are worried about not knowing what to invest in, many state-sponsored 529 plans make the investment decision easy by grouping investment options based on the amount of risk you are willing to take or by the age of the child.

Q. What pushed you to make the savings decisions you've made for your children?

The statistics are shocking when looking at the difference in earned income between graduates of high school and college or trade school graduates. I want my children to have every opportunity to obtain as much schooling as they want and need to live productive and enjoyable lives. While I know that my wife and I might not be able to pay for all their education, I know every little bit helps.

As an advisor, I see clients who have mountains of student debt and feel overwhelmed to pay it off. While most do not regret taking on debt for their education, most want to be in a position to help their children avoid the same fate.

Q. Do you have any advice for parents who aren't sure how they can afford to save?

My best piece of advice is if you are unsure about your savings situation, talk to someone who has experience and expertise on the topic. I have recommended to clients that they should focus on their own retirement savings before their children's education unless they want to be working well into their 70s. While the conversation may be difficult, having someone tell you what you need to hear over what you want to hear should be beneficial in the long run.

The other piece of advice is to make saving a priority. There is nothing wrong with living in a nice house or driving a nice car, but realize they come with tradeoffs. Extravagant vacations or "keeping up with the Jones'" might not be the best use of your assets.

Portrait of Drew Kavanaugh

Drew Kavanaugh

Drew Kavanaugh is vice president of Odyssey Group. He is passionate about helping people make an impact today and leaving a legacy for the people and organizations they care most about. Prior to joining Odyssey Group, he was responsible for investment policy review and for portfolio strategy development and implementation for more than $500 million in assets for a local investment firm. Drew earned degrees in both accounting and finance from the University of Arkansas' Sam M. Walton College of Business. He also received his master's degree from the University of Arkansas at Little Rock. Drew is a certified financial planner practitioner. Drew lives in Lancaster with his wife, Barbara, and their two children. He is an avid outdoorsman and conservationist.

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