How Much Should I Save For College?

FT Contributor  | 

College is expensive. It’s a fact. At this point, it doesn’t matter if you’re looking at an in-state public school or an Ivy League institution; you’re going to be shelling out a significant chunk of change no matter what.

Of course, a natural question that follows for parents and children alike is “how much should I save for college.” While there’s no one, specific answer to that question, it’s certainly possible to create a plan for how much to save for your child’s college tuition.

Before you start scrounging for every last penny you can find for the next two decades, though, it can be helpful to break down some critical information.

What Is the Average Cost of College?

According to the National Center for Educational Statistics, the annual costs of all colleges in the U.S. averaged over $23,000 in the 2016-2017 school year. That’s per year.

The staggering sum obviously varies depending on the state and kind of institution. Nevertheless, the resounding takeaway of the data was the fact that even an affordable 4-year college education is starting to push six figures.

Here are the costs broken down in a bit more detail.

Average 4-Year Public School Cost: In-State

The average cost of attending an in-state 4-year college, even as recently as the 2018-2019 school year, was certainly more affordable than most other options. Of course, the specific cost is a difficult number to break down, as each state is different, but on average, in-state public school students spent around $20,000 per year, or perhaps a little bit more.

Average 4-Year Public School Cost: Out of State

For those who took their public school ambitions abroad in the 2018-2019 school year, the costs rose substantially. In fact, the average for out-of-state students, who do not get the same financial benefits as in-state students, was over $37,000, which is nearly as high as the average private school cost.

Even in schools where the tuition was much lower, it was still often two or even three times as much as in-state tuition. Bowie State University, for example, charged $6,639 to in-state students and $17,195 to out of state students, which shook out to over a $10,000 increase to the latter.

Average Private School Cost

According to the National Center of Educational Statistics survey referenced above, the average private school costs had reached nearly $41,000 per year by 2017. According to USA Today, that number reached $47,000 by 2018. Of course, the average can swing wildly in either direction, with factors like location, state, and the legacy of an institution affecting the overall price.

Average Community College & Trade School Cost

While a 4-year degree from a public or private university is commonly considered the best way to attend college, there are other options, as well. Community colleges, for instance, average less than $3,500 per year, with some schools dipping to nearly as low as the $1,000 mark. Even if you’re planning on attending a 4-year school, often it can make financial sense to trim off a year or two at community college first before transferring to a 4-year institution. Just make sure all of your credits will transfer with you.

Trade schools are another excellent alternative. While not quite as affordable as a community college, the range for most trade schools is between $3,000 and $15,000 per year, providing graduates with a viable, non-college-oriented career path in the process.

How Much Should I Have Saved for College by Age 18?

For all the numbers, the question of how much to save for your kid’s college still has to be asked. The only problem is, college tuition is in a perpetual state of intense inflation, which can make it difficult to predict.

At this point, if you’re trying to figure out how much to save for college, you’re going to want to keep in mind that the cost of higher education roughly doubles every nine years or so. That means for all of the staggering statistics you may be seeing now, you’ll likely be paying three to four times that amount once your newborn reaches college age. Needless to say, saving for their future education can look daunting at its best.

However, there are a few encouraging points to keep in mind as you begin to plan things out. First, if you’re considering a private institution, it can be comforting to know that inflation doesn’t tend to hit private schools quite as badly as public ones, which is good considering their already considerable price tags.

In addition, it’s okay to prioritize making sure that your own financial house is in order before you begin to prepare for an event so far in the future. Even saving for your retirement is important to keep in the mix. After all, you can’t borrow money for that quite as easily as you can for college.

If your finances are healthy and you’re ready to start saving, the other piece of good news is that you don’t have to save for the whole amount. You can typically plan on about a third of the overall costs coming out of your own savings. Things like scholarships, grants, financial aid, current income (from both you and your child), and student loans can help to cover the rest.

Finally, at a certain point, you have to avoid getting caught up in comparing numbers. You’re saving money for your child’s college, not your own. You can only do the best you can do. The rest is up to them.

So, How Do I Save For My Child’s College?

With all of that said, it would be cruel to simply leave you picking change out of the couch cushions in the hopes that it’ll help you foot your child’s bill two decades from now. Rather, here are a few suggestions to help keep your saving efforts as effective as possible.

Open a Personal Savings Account

A tried and true classic savings option, if you do nothing else, you should at least open a personal savings account and keep your savings in there. The only problem is, nearly all personal savings accounts these days have quite underwhelming interest rates. Fortunately, there are a couple of other options.

Consider a 529 Savings Plan

529 savings plans are tailored for educational use. They function a bit like a retirement plan in the sense that you add steadily to them over time and they grow on their own as well. You can set them up in as a “tuition plan” or a “savings plan,” both of which have a variety of different benefits.

529 plans are excellent options because they are pre-taxed and they are built to grow on their own, meaning you have to save less overall cash. However, their educational nature means they can only be used for college or related purposes. In addition, they may affect your child’s eligibility for financial aid.

Create a Trust Fund

Finally, you may want to establish a trust fund. In essence, this consists of giving your savings over to a third party until your child comes of age to use it for their education. Trust funds are good options if you wish to retain a sense of confidentiality and control over your child’s college savings. It also ensures that your wishes will be adhered to (e.g. your children won’t be allowed to blow the money on non-college-related expenses).

Once again, though, the nasty double-edged nature of a trust fund is that it can directly affect your child’s ability to access financial aid, as it counts as an asset to your estate. This should be carefully considered before going this route.

Preparing for Your Child’s Future

So, the next time you ask yourself “how much do I need to save for college?” remember that there are many different factors involved. The kind of institution, the number of years spent there, and the length of time before your child will be old enough to attend all factor into the costs.

However, with a little financial forethought and planning, it’s completely possible to figure out approximately how much you should save for college. From there, you can create a plan, set up a savings account, a 529 plan, or even a trust fund, and begin saving towards your child’s future.


Image Source: Deposit Photos

This post was updated September 25, 2019. It was originally published September 30, 2019.