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How Much Should You Save for College?


Paying for college can put a tremendous burden on a family’s finances. However, when you start saving for college early, it becomes a more attainable goal. Taking advantage of a college saving plan offers tax-free withdrawals so you can keep all of your earnings. Calculating how much you need to save for college depends on the cost of the college and several other factors. Here’s a breakdown to help you stay on the savings track. Contacting a financial advisor who understands the ins and outs of paying for college can also ease associated financial pressures.

How to Determine What You Need to Save for College

Figuring out how much you should save for college can be a complex equation. We’ve broken down many of the factors involved with paying for college to help you personalize your calculations.

Average Cost of a Four-Year Degree

According to, the average cost of tuition at any four-year institution is $20,471 per year. Private schools tend to be higher, while in-state private tuition is lower. This average is for tuition only, and it does not include books, meals, housing and other costs.

While many families are shocked by the price tag of college tuition, there are many ways to reduce the costs of any college education. Living at home, attending a community college for the first two years and scholarships/grants all help to reduce this cost. Many universities have an endowment that helps to make tuition more affordable as well.

In-State vs. Out-of-State Tuition

When attending a public university, there’s a big difference in cost for “in-state” vs. “out-of-state” tuition. A study by The George Washington University found that the average cost difference is $8,990. The theory is that in-state families have contributed to the cost of running the school by paying taxes, while out-of-state families have not.

One way to eliminate the price differential for out-of-state tuition is for your child to take up “permanent residency” in that state. If they’re going to be living away from home anyway, it can make sense for them to become a resident of that state to save money. Getting a local state driver’s license, registering to vote and having a job are some of the ways to validate your intent to become a resident of that state.

Most states require you to live in the state for a full year before establishing residency. While this may not reduce the cost for the first year, it can help in year two and through the rest of their college experience.

Living on Campus vs. At Home

If your child attends a school within driving distance of your home, it may make financial sense to have them live at home. Living in the dorms or renting an apartment can significantly add to the annual costs of going to college. found that the average four-year college student pays $11,451 annually to live on campus. For college students that are mature enough to handle the responsibilities, living in an apartment might be more affordable. The expenses can be even more affordable when shared with other responsible roommates.

Scholarships, Grants and Work-Study Programs

How Much to Save for College

Applying for scholarships and grants can significantly reduce the out-of-pocket costs of going to college. This can be the student’s “job” while in high school. The time spent applying for these opportunities might be even more lucrative than a traditional job.

Regardless of what you get, don’t stop applying for scholarships once you start college. Many scholarships focus on certain majors, campus organizations, internships and ongoing grades. And the competition may be less because other students stop applying once school starts.

Work-study programs can help fill the financial gap of college costs. These positions are similar to a job off-campus, but they may be easier to get hired for. Plus, they generally offer better flexibility since they know you’re a student and your education must come first.

College Tuition Inflation Rates

The average inflation rate for college tuition has been 6.8% over the last 20 years, according to The site also says that this high rate of inflation has tripled the cost of college over the last two decades. If your children are young, factor in this higher rate of inflation into your calculations as to how much school costs will rise.

According to the Rule of 72, using a 7% inflation rate, the cost of tuition will double every 10 years. For a child who is eight years old today, the average tuition of $20,471 would be expected to increase to approximately $40,000 by the time they start college.

Using College Savings Accounts for Tax-Free Growth

The federal government created two investment accounts that offer tax-free growth when the money goes to education expenses. Education is now more loosely defined to include elementary, secondary and higher education. Qualifying expenses include tuition, fees, books, supplies and equipment. Here’s a breakdown of each:

Coverdell Education Savings Account (ESA)

The Coverdell Education Savings Account (ESA) is a custodial savings account that allows contributions of up to $2,000 per year, per recipient. The contributions are not tax-deductible, but the earnings grow tax-free. However, there are income limitations for contributions similar to a Roth IRA.

All of the money in the Coverdell ESA must be distributed or transferred to another beneficiary by the time the beneficiary turns 30 years old. In other words, use the funds on time.

529 Plan

529 Plans allow for contributions up to the annual gift exemption of $15,000. Each parent can gift that maximum amount without it affecting their lifetime exemption, which means that a married couple could contribute up to $30,000 per year for each child in a 529 Plan.

There are no income limitations and there are no federal deductions for contributions. However, some states allow for deductions from state income taxes. The money grows tax-free and withdrawals are tax-free for qualifying education expenses. Beneficiaries of 529 Plans do not have any age restrictions or time limitations to use the money.

Bottom Line

How Much to Save for College

Saving enough to pay for college can be a challenge for many families. Defining what college expenses will apply in your student’s situation is the first step. Knowing the expected costs can turn the calculation from something undefined and bigger-than-life into a mathematical problem that you can solve. Even if you can’t save the full amount, having access to scholarships, grants, work-study programs and student loans can help fill your student’s financial need.

Tips on Saving for College

  • Financial advisors can be a valuable sounding board when planning for college costs. They can help you understand what programs are available and which are best for your situation. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • With college costs rising faster than inflation, you can use our inflation calculator to get a better estimate of what college costs will be when your child graduates high school.

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