It will be 10 years this May that I’ve graduated from college. Reflecting on that period of my life, there are a lot of things I could have done earlier that would have set me up for financial success in my 20s. For many parents or self-funded students, saving for a college education is downright daunting. With tuition costs on the rise, figuring out how much to save for college can be overwhelming. Here are some things you can do to pinpoint your “number.”
1. Understanding the Real Cost of College
When considering how much to save for college, most parents underestimate the actual cost. The average annual cost of a four-year public university, including tuition, room, and board, is now over $25,000—and for private colleges, it’s more than double. With a projected annual increase of about 5%, today’s costs will look modest compared to what parents of young children will face. Planning for a four-year degree could mean saving anywhere from $100,000 to $300,000 per child. Ignoring these rising costs can leave families scrambling for loans, which you’ll wind up paying on for what seems like the rest of your life.
2. The 1/3 Rule: A Practical Savings Strategy
A popular guideline for parents wondering how much to save for college is the 1/3 Rule. This strategy suggests saving one-third of expected costs, covering one-third with current income while the student is in school, and financing the remaining third with loans or financial aid. For a public university, this means saving roughly $35,000 to $50,000 per child over 18 years. Breaking it down into monthly savings makes the goal less daunting—around $250 per month if you start early.
3. 529 Plans: The Best Tool You’re Not Using Enough
When deciding how much to save for college, a 529 plan can be a game-changer. These tax-advantaged savings accounts allow your money to grow tax-free if used for qualified education expenses. Many states offer additional tax benefits, making them a no-brainer for most families. Investing even $100 a month from birth can grow to over $40,000 by college time, assuming a 6% annual return. Despite these benefits, fewer than 40% of families use 529 plans.
4. The Shocking Reality of Financial Aid
Many parents assume financial aid will cover most of the cost, but the reality is often disappointing. Financial aid packages typically include loans, which can leave students burdened with debt for decades. Grants and scholarships usually cover only a fraction of tuition, and eligibility depends heavily on your income and assets. For middle-class families, this can mean receiving little to no grant money, despite high tuition bills. If you are a rising college student, it’s a good idea to look high and low for scholarships and grants.
Start Early, Save Smart
When it comes to how much to save for college, the answer is pretty shocking. Unfortunately, earning a college degree is more expensive than ever. Breaking down the costs and determining what you can truly afford will make everything much more manageable. I encourage you to start as early as possible, use a 529 plan, and look for financial aid. Every small step you take to get prepared will pay off, trust me.
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