What Do You Need to Save For Your Child’s College Education?

Sen. Barack Obama at Iowa State University by Joe Crimmings Photography on Flickr!One question I often get from new and expectant parents is how much they should be saving each month for their child’s college education. Obviously, if you’re looking at paying for college eighteen years down the road, there are going to be a lot of unknowns: how will college funding change by then? How much will tuition go up? How will parent contribution expectations change?

Even with those kinds of variables, you can still come up with a reasonable college savings plan for your child, even at birth. Here’s exactly how we made the calculations for our own daughter at birth.

First, how much do you want to save?
This is more of a personal question than anything, as different parents have different philosophies and there is no real right or wrong, just different styles.

Some parents believe in a philosophy of no college savings for their child, believing that the lessons learned in paying for one’s own college career are quite valuable. The knock against this is that many students who are put into this position leave college with a tremendous amount of debt.

Other parents believe in a philosophy of paying for all of college – or as much college as possible. Doing this ensures that the child gets into the “real world” with as little burden as possible. Of course, the argument here is that it makes a college education seem much less valuable to the student and has been shown to result in worse grades as well.

Many parents wind up somewhere in the middle, setting a goal of 1/3 or 1/2 of college expenses. For us, we’ve adopted the philosophy of paying for 1/3 of tuition and all textbooks and other educational expenses (like a computer). We want our children to have to work for it, but we also want to take the edge off of their financial burdens.

Action Point #1 Sit down with your spouse and figure out how much of your child’s college education you want to cover. There’s no correct answer for this, only what you feel is right.

Determine a dollar amount
Once you know the percentage of college expenses you want to cover, you’ll need to come up with a target dollar amount. The first step is what college or university would you like your child to attend, realistically? Some families might insist on Ivy League, others might think the local state university is the right choice. For me, I’ll use the school I really wanted to attend (but simply couldn’t afford): MIT.

I discovered that tuition and fees at MIT cost $34,986 for 2007-2008, with a total tuition, room, and board cost of $44,936, but that the average student receives $28,000 in scholarships. That leaves a remaining cost of essentially $17,000 for tuition, room, and board. They also estimate $2,800 for additional college expenses, such as textbooks and supplies and other activities.

Action Point #2 Pick a “target school” and obtain tuition, room, board, fee, and other expense estimates for the most recent year, as well as an estimate of the average scholarship package that a student receives.

Since my wife and I intend to pay 1/3 of the tuition, room, and board and all of the additional college expenses, we would be on the hook for about $8,500 a year in today’s dollars.

But then there’s inflation. It’s reasonable to expect a 6% annual inflation rate for these expenses. Given that, we should expect to come up with about $25,000 a year for our child’s expenses, totaling $100,000 over the four years they’re in school.

Ouch.

Action Point #3 Calculate the portion of the education you intend to pay for, then adjust that amount for the correct number of years of inflation (6% a year is a reasonable calculation).

What’s the plan to reach that amount?
In essence, to follow our plan, we need to save $100,000 over the next eighteen years. Thankfully, we have mechanisms like 529 plans to save for college without having to worry about taxes, but that’s still a mighty goal.

If I assume an 8% annual return on my investment, I need to put away $215 a month from birth to have $100,000 when the child turns 18. If I assume only 7% annual return, I need to save $238 a month.

Of course, I can also assume that I will use other methods to help cover this amount. I might plan to use home equity to pay for some of that amount. There may also be other opportunities for assistance – for example, grandparents may wish to contribute to a 529 as well. You might also decide that you’re aiming unrealistically high with your school selection and choose instead to use a lesser school for your estimates. This may move your estimate downwards.

The key is to figure out how much you need to be saving, starting today.

Action Point #4 Estimate how much you need to be saving per month, then start a savings plan (like a 529) and sock that money away.

One key thing to remember, however, is that if you don’t meet your goal, it’s not necessarily the end of the world. Most likely, if you are making an aggressive plan right now, one that assumes strong accomplishment from your child, your child will choose a different path, one that doesn’t require quite as much outlay from you. Even if they meet or even exceed your expectations, you’ll still be able to help them along their way.

The most important thing is to start as young as possible. If you wait until your children are even eight years old to start saving for that $100,000 goal, you’ll have to save $555 a month to make it with 8% annual returns. If you wait until they’re twelve, you’ll have to save $1,093 a month.

The earlier you start, the easier it will be to help your children with college. If you have young children – or even a child on the way – get started today.

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60 thoughts on “What Do You Need to Save For Your Child’s College Education?

  1. You can also do your children (and yourself) a favor by simply getting yourself into a position where you’re living on less than you earn. If you’re able to pay your bills and save an appropriate amount for retirement with room to spare, then you’ll be ready to contribute as needed.

    It’s certainly not as much of a sure thing as saving right from the start and having it all stashed away. After all, if you lose your job, there’s no money coming in to pay tuition bills. Still, for those who may be discouraged that they didn’t start saving early, it’s another piece of the puzzle.

  2. Dave says:

    Savings early and often for your child is important but you can’t neglect yourself. Its important to make sure that you got an emergency fund set up for yourself first. I started saving in I-bonds as a way to save for a college fund / emergency fund. The goal is not to use it for your own funds by if something happens, here is a fund you can pull money out of with out getting penatized up the wazoo. Once this fund is = to a year of living expenses go to a 529 plan.

  3. Darlene says:

    I’ve been called, cheap, a bad mother, and several things that are unprintable here because along with our college savings plan we also have our daughter–who is nearly eleven–saving for her education. A small amount of her allowance as well as ten percent of any money she receives as a gift go into her education fund. She understands the concept of compound interest and is keen to learn more about mutual funds.

  4. Roman says:

    Assuming tuition inflation stays around 6% seems a bit optimistic to me. Limits on tuition increases were 9% in the state I went to school… and every single year the tuition increase was (huge surprise, I know) 9%.

    My wife and I (no kids) were just discussing this topic yesterday (well, this morning your time) – funny how that happens. Good article!

  5. Robin says:

    College financial aid makes me really really sad – to assume that parents are still contributing financially their kid when they’re 20,21,22… The government makes a pretty rash assumption there. Not to say parents should or shouldn’t…
    But mine didn’t and I was such a mess in the fin. aid process since their income determined my financial aid, even when they didn’t contribute anything.

  6. Sarah says:

    I have to say that I whole-heartedly disagree with this post. By saving for a child’s education, you likely are doing them more harm than good. Here’s why. Take me for example. When I started college, my parents had little to no money put away for me and recently my mother had become the sole breadwinner due to my father becoming disabled. As a result of this (and because my GPA was steller) I got way more financial aid than I would have otherwise (workstudy, grants, scholarships).

    My cousin, however, went to college the same year I did and her parents’ got zero help because they had some money in savings for school and made significantly more. Even worse, her college would not take into account the fact that her older brother was also in college. I guarantee that I have far less money owed than she does as a result.

  7. Meghan says:

    I have recently been trying to develop a financial plan that involves saving for a child’s college education and your post is really helpful.

    I’m embarrassed by my slow math skills, but am wondering if you could explain two of your calculations a little more:

    1. How do you use the inflation rate, in your example, to reach tomorrow’s totals?

    2. How do you use an annual rate of return to figure out how much to save?

    Thank you!

  8. Nathan says:

    Of all my friends I am the only one paying for my own college. Of all my friends I am the only one that will graduate in 4 years. Most will not graduate with “4 year degrees” till their 6th or 7th years. Paying for your child’s college up front just encourages them to stay longer. It wastes your money and doesn’t encourage them to think smartly about money.

  9. Faculties says:

    A number of my friends had to drop out of college midway through because they simply couldn’t meet the expenses. Some of them went back. Some of them never managed it. My parents had modest salaries but were frugal and paid for my college education — at a good private college — 100%. It’s the best thing they could have done and I’ll always be grateful. My education wasn’t disrupted, unlike many of my friends, and I had the time to work on academics, not spending half my hours working at low-paying jobs to get by. I went on to get a PhD at a great institution, which I paid for by teaching and by clever use of scholarships. I’m making a good living from that PhD, and you can bet I’m putting money away so I can do my son the same favor. I teach at a public university, and I see students dropping out from having too little money every day. I also see them working two or three jobs to try to get through. Their grades suffer for it, which means if they want to get into grad or professional schools, they have less luck and get fewer scholarships. I think paying as much as you can swing for your kid’s college education is worth every penny.

  10. Amy says:

    College aid unfortunately has similarities to government help with mortgage bailers, etc. If you’re responsible and/or have the means to save, you don’t get help, but if you can’t/won’t/don’t save, need-based aid opens up.

    Nathan: depends on the kid, as I had parental help and certainly finished in 4. However, I don’t completely disagree – maybe I would have tried to finish in 3.5 years or even 3 if I had to cover the whole thing. Then again I would have had different job opportunities on a less-than-4-year schedule and could have landed something better or worse.

  11. I worked through college and earned scholarships, as well as becoming part of a fellowship (which gave me 24,000 toward college, which would be “forgiven” if I taught for 4 years in South Carolina).

    My mother had saved 5,000 dollars for me, which was extremely helpful in “emergency” situations, like when my computer broke and I had to buy a new one. Or when I needed to buy a car so I could drive to my service learning and internships (I spent $1000 on a used one).

    I ended up moving out of South Carolina after a year of teaching (married a Navy guy) and owing 17,000. A year and a half later, I’ve paid off that debt completely.

    Having to budget my way through college really taught me a lot about financial responsibility, and I want that for my children, too.

    So my husband and I have decided that when we have kids, we’ll put away $500/year for each of them for a “someday” fund. This will give each of them about 10,000 dollars to use for college “emergencies,” or if they don’t need that, for their wedding, or to help pay for their first home… it will be their choice.

  12. robyn says:

    Trent, great post and nice calculations that I sure can’t do. However, I do a lot of research on financial aid in my job, and one new thing is that colleges are increasingly going to financial aid pledges to ease the burden on families. In most cases, it means that if a family meets the federal calculation of expected family contribution (EFC), then the school covers additional cost to the student. The general consensus is that these policies will bring extremely expensive and selective schools into reach for more middle-class families.

    An example, using your dream school of MIT: if a family makes below $75,000, MIT will cover the rest of cost of attendance after the family pays its EFC (you can do a calculation of that number at finaid.org). Many other institutions, including less selective ones than MIT, are going in this direction as well. Basically, it removes the burden of loans from the student or excessive saving from the parents. For details about each school’s pledge, look at http://projectonstudentdebt.org/pc_institution.php

    Certainly it doesn’t mean that parents should stop saving for college– but they should be aware of the new opportunities that may exist for affordable college education.

    I would be interested to hear your thoughts on incorporating these pledges into saving plans?

  13. Dave says:

    My parents help cover tuition costs, but that is all – I could easily cover the tuition, but they’ve got the money to spare and feel good about doing it, so I’m not going to argue with them. After all, it puts more money in my pocket to invest with and I know for a fact that they care far more about me and my wellbeing than their own.

    That being said, I would never put my parents in a situation tha would require them to choose between me/my education and their retirement. They are keeping pace with their goals and that is important too. After all, I could always get personal loans if I couldn’t make ends meet and didn’t have their support.

    Overall I agree with this post – I thnk that parents that subsidize part of their chis education costs are doing them a huge favor. It’s certainly helping take the edge off and putting me in a better financial position, which I know is what my parents ultimately want.

  14. Todd A says:

    I think one of the main things to remember is that, whoever pays for it, there needs to be a plan to carry the education through to graduation. It’s too easy to think “Oh, I need the cash, so I’ll just work this semester”. And, during the time off, what happens ? Life happens. Cars are bought. Debt is incurred. Children are conceived. Other opportunities arise. And, subsequently, the education becomes a goal in the distance, while the earning power suffers indefinitely.

    I have 3 nieces/nephew that should be in college right now, and each of them is “doing their own thing/finding their way”. What happens when you quit school? Life happens. And that is what you prepare for by going to school.

  15. KoryO says:

    Sorry, but having your college paid for is not a guarantee that you will be a slacker or a loser later on. All it guarantees is that you will not have crushing debt, which is a terrific advantage in life. I don’t see how many of the kids getting out of college today are ever going to be able to afford a mortgage or even retirement someday when they start out with a 100k millstone around their necks.

    My parents paid for my college, and I am eternally grateful for that. I hope to be able to do the same for my little guy when he is old enough, and I will start a college fund for my grandkids (if I should be lucky to live so long).

  16. Karen says:

    I’m another one that had my college paid for and avoided becoming a slacker. I saw my peers struggling to pay for college and that was fifteen years ago. My son’s 529 was opened when he was 4 months old and I’m happy to save and pay for his college.

  17. anastasia says:

    Another good reason to start saving while the kid is in diapers: children get more expensive the older they get!

    Okay, I could be wrong. I’m no expert. In fact, my parents and I are currently working on my final year of college. I have no children. However, it seems to me that with some sense (or the ability to avoid the temptation of the really cute), babies can be less expensive than teenagers. They don’t demand expensive entertainments (my kid cousin is like a cat–he likes to play with a box, for goodness sake), stylish wardrobes or involvement with pricy extracurriculars that will help them get into college. They don’t want their own cars, cell phones, etcetera. Sure, I don’t think parents should just dole out costly luxuries to teens, but I have trouble believing even moderate parents spend less on teens than they did on infants.

  18. Hmmm? Part of me wonders if the right thing to do would be to save money for your children’s education but don’t TELL them. Then see how well they do in college (or if they even go at all) and if they end up graduating with all those student loans, cut them a huge check for their graduation present! Does that work or is it not that easy?

    I don’t wish student loans on my worst enemy. God, they are miserable.

  19. anastasia says:

    Andy,

    That seems like a nice idea, except I imagine many young people would, fearing the inability to pay off the eventual debts (and not expecting any help), would revise their educational goals. While that would satisfy and even please many parents, Trent mentioned his unfulfilled desire to attend MIT as one way of calc’ing the money he ought to save to help his kids. To me, this seems to imply that he wouldn’t want his children to choose another school, such as a state or community college, simply to avoid strapping themselves with debt. The kids could be really grateful for the check upon graduation from State U–but that joy might be tainted with pain over what might have been.

  20. Ann says:

    I’m sorry, but have to say this. Nice Obama propaganda there, Trent. I didn’t think it was your style to slip politics in….

  21. Amber says:

    I agree with Robin. My parents stopped contributing completely the day I moved out to go to college. I am very grateful for this, but I have lived on my own since then and until I get married or turn 24 financial aid still goes on my parents income/debt ratio. I get no money because my parents have been responsible with theirs. I paid my first two years with scholarships and out of pocket and I am still going to graduate with 25,000 dollars of debt from the most affordable college in my state. It would be nice to have some help, but not having help has made me a more responsible student and consumer.

  22. Elle says:

    Unless the couple is financially sound and prepared to fund their retirement, I believe that there should not be significant contributions to the child’s college savings. The way I look at it, you can always find a loan or some other means to finance your college education, but you can’t finance your retirement. When your assets run out, you can’t apply for a retirement loan.

  23. Kris says:

    My parents did not save for my college, so I was unable to go and to be honest, at 18 I didn’t really care. Fortunately when I was 21 I got a good job at an aerospace company where I now make a very good salary. This company also pays 100% of my schooling and I hope to get my degree at some point, however, they only pay as long as I keep my grades up. When i have children I will set aside money for them to go to college, but they will still have to earn it by keeping their grades up. They will have to maintain a good GPA in high school to show they want to go to college and then they will have to maintain a good GPA in college to continue to stay. I feel that would be a more responsible way of putting my children through college then just out right paying for it without any conditions.

  24. Jen says:

    Sometimes being responsible and saving money can hurt where financial aid is concerned. My grandparents left me enough money to pay for 2 years of private school. Even though tuition was more than 50% of my parents combined annual gross salary, I still did not qualify for financial aid. Thankfully, the college I chose was willing to work with us. I graduated with about a year’s work of expenses in debt–hoping to pay it off by the time I’m 30 so I can go to grad school and begin the debt cycle again.

  25. Amateur says:

    There are also other methods to avoid major loans, like going to a community college under the guidance of an advisor who cares to take courses which may be transferred to a major university or state college later on. No one will really know how much college will cost in the future, while it’s good to save, there’s no sense in worrying if it’ll ever be enough. If someone is passionate and wants to go to college badly, they’ll find a way, somehow, even if it takes ten years worth of part time courses.

  26. I had a friend ask me the other day, what happens if your child doesn’t want to attend college? I had to think about it, and assumed a 10% penalty would be given to the 529 plan for early withdrawal. Then I thought a better problem would be if my kids received a full scholarship for school. What a fun problem that would be for a family.

  27. Jin says:

    I can’t understand why any parent wouldn’t help their kid at least a little bit with college bills. With tuition nowadays, especially at private colleges, no kid is going to be able to afford that. and if they can, they might as well stick with whatever job they have that pays that much.
    I personally am getting no assistance and I can’t go to the college I want to as a result. The college I wound up going to doesn’t even have the program I want.
    College just costs too freaking much, seriously.
    I’ve been working two years and have a second job; what else can I do? I’m not sure if this is going to end with me getting a degree at all. The numbers just don’t add up. I might have been able to afford my current community college if I didn’t have 8,000 in medical bills that I also paid, but even if I had that money, I still couldn’t afford even one year of the private college I want to attend.
    Why would any parent ever put this sort of burden on their child?
    Honestly, I don’t think giving your kids money is what’s going to make them spoiled. I have PLENTY of spoiled-acting peers who have jobs. How they got that way, I don’t know. I think it has something to do with credit cards though…

  28. plonkee says:

    This is a really good idea, I like it when people work out the costs with actual numbers.

    On the general principles, I’m not sure that there are that many people that would graduate in 4 years if they were paying, but more if their parents were. I just don’t think the group balanced on that knife edge is that big.

    @Ann (#13):
    Weird. I’m not an American so it clearly washed over me, and I thought the post was pretty good.

  29. Shevy says:

    We set up our daughter’s RESP (the Canadian equivalent of a 529) right away because a) the cost of any kind of post secondary education is skyrocketing and b) because the government matches 20% of the first $2,000/yr you contribute. We don’t take full advantage of that because we can’t afford to, but we do contribute $50/month.

    No, it won’t pay for 4 years at a major university but it will give her some help at a time when we won’t be able to otherwise because we’ll be just about to retire at that point.

    If either of us had a retirement plan with an employer match we should probably put the money in there instead, but we don’t. And, if she chooses not to go to post secondary education, at least our contributions and interest can be rolled into either of our RRSPs without penalty (we’ll have the contribution room). I believe the government takes its match back in that case.

  30. prodgod says:

    My kids are on their own regarding college and anything else besides food, shelter and clothing; the basics. Same goes for cars. I would NEVER buy my kids their own car. You tend to value more what you’ve had to work for and pay for by yourself.

  31. moom says:

    I got the government to pay my undergrad tuition by immigrating to Israel where immigrants get free higher education. It wasn’t that high for Israelis anyway. My father paid my living expenses (about £2000 per year at the time). After that I got a scholarship from the British government to do my masters and then got a PhD more or less for free from a private US university through scholarships, teaching assistant ship and a grant from a foundation. So I’d expect my own children to pursue creative ways of getting the money and to go where they could find the funding and I’d be happy to help with living expenses when they’re undergrads. Here in Australia we have a loan scheme for the tuition where you get to pay back as an extra tax – so if you don’t earn much you get to pay back less. It’s called HECS. And there is money available for living expenses.

    #19 Yes I’d never buy my children a car.

  32. leslie says:

    Here is what my parents did and what I plan on doing for my kids. I was told from early on that my parents would pay for me to go to any public college I wanted to go to. They were very specific that they would not pay for a private school and if I wanted to go to one I would have to come up with the difference. They were also very specific that they would only pay for 4 years. If it took me longer than 4 years to graduate then the cost would be up to me. This allowed me a lot of choice and freedom but within a framework that required me to make responsible and reasonable choices. I graduated with honors from and excellent public (but out of state) college in four years.

    My plan is to have the same deal with my children. Honestly, I am not sure if we will be able to pay for all of it but we will certainly be able to help a great deal. I will of course encourage applying for scholarships and potentially part time employement while in school and definately full time employment while on breaks.

  33. Jamie says:

    Sarah (Comment #3): If you save in a 529 plan, as the blog suggests, the money is not included in the child’s assets when they calculate financial need. That could change, of course, in the future. But currently, it’s a “safe” bet. Scott (comment #16), yes there is a 10% penalty if you take the money out of a 529 for non-qualified expenses, but there are other options such as naming a new beneficiary (yourself, grandchild, other child). If they get scholarships, you can withdraw the amount of the scholarship at no penalty.

  34. Sarah says:

    @ Ann: I caught that, too…..

  35. getagrip says:

    I have a high school senior and am facing this now. I’ve saved some money ($25 from each paycheck) for each child from the day they were born and raised the amount by $5-10 increments yearly (typically when I got a cost of living increase or raise in my pay). My promise to my children is that I could afford for them to go to a community college for two years and local state college for two more, living at home. If they wanted anything else they need to get it in scholorships, loans, etc. That includes going to school for more than four years.

    I’ve gotten some sticker shock in touring colleges this summer. However, I’ve also found that there is a lot of aid out there and a variety of offers. A lot of private colleges are not nearly as out of reach as I thought, and some public ones would actually be harder to fund than I thought. If your child has good (B+) grades and is in a few activities and/or works, the cost to the family may not be as steep as you think, especially if the college they’re interested in is looking to attract students from out of state.

    One thing I did is that while touring each campus I would ask the student tour guide (provided they were willing to discuss it) about their aid package and expected debt upon graduation. The response I liked the most was from a sophmore who will end up with about $40K in loans when he graduates. However the deal with his parents was that he was on his own, but if he got a degree in four years, they’d pay off his loans. So he’d be debt free when going to get a job or going to grad school. From the parent’s perspective, that gives them four more years to accumulate the money to pay off the debt.

    However, in the long run it’s a personal decision between you and your child if they even go to college, and if so, what you are willing and able to fund. If you aren’t willing to put boundries on what you are going to spend, who’s fault is it? Keeping a kid with a lackluster performance in school for eight years as they party to find themselves is the parent’s choice if they’re paying for it.

  36. prodgod says:

    @ Ann & Sarah

    I seem to recall Trent posting a picture of John McCain when he visited a rally over the summer. So I guess that negates any perceived bias over the Obama photo, hmmm? :-)

  37. Kevin says:

    My parents told me in high school that they had money saved up for college…but didn’t tell me how much. They said I could have whatever was leftover after I was done, which motivated me to try to get scholarships. I plan on doing the same with my kids, after all it is their life and I feel like gently pushing them to work hard at that age will lay a good foundation for the future.

  38. Gilora says:

    My parents paid for my college in part because I received enough scholarships to offset about 50% of the tuition. I went to the state public university, got good grades and graduated in four years. When I expressed an interest in graduate school, my parents were divorcing and my father refused to disclose any financial information. As a result, I did not get much financial aid (because the school refused to believe that my parents would not help) and graduated with good grades but massive student loans. Of course, I also managed to graduate during a recession and had difficulty finding a job, so I worked temp jobs until I found something in my field. It took years to pay off the student loans while I lived like the proverbial church mouse.

    I’ll admit it was difficult to struggle for things I saw being handed to my friends and colleagues and I had a fair amount of envy. Has the experience made me stronger? Maybe. Would I wish it on my own children? No way. If I have the money I will do whatever I can to make sure they do not have massive student loans and have to struggle the way I did.

  39. FruGal says:

    Wow, there’s a lot of blind assumptions being made here about people who have their tuition paid by their parents. I will never understand the attitude that says ‘my kids are on their own’, or ‘I never got help, so I’m not helping my kids’.
    Prodgod @ As a parent wouldn’t you want to do everything possible to help your kids achieve their goals? My parents put me through private school and paid my university tuition and I am NOT a slacker. Instead, I am very, very grateful. I have friends who have graduated with over £30,000 student debt and are still paying it off. In my eyes, my parents gave me a little head-start. I will certainly help my kids in the same way as much as I am able to.
    @ Nathan, I’m sorry, but being in severe student debt doesn’t automatically make you smarter about money.

  40. Ryan Wilcox says:

    Trent,

    It’s a great idea to be prepared for your child’s (or children’s) education – wither that is to help out, or pay for all/most of the education.

    But something to factor into your calculations -college tuition costs have been outpacing inflation. When you’re planning on how much money to save, this is important to factor in, or else your college dollars won’t go as far as you thought.

    The college board has an interesting pdf, with all sorts of numbers as to these increases: http://www.collegeboard.com/prod_downloads/press/cost06/trends_college_pricing_06.pdf

    Now, at some of those annual change percentages, trying to save for college that’s 18 some odd years away… is going to get extremely expensive. It’s possible things will change in the future (increase student aid? a fall of prices as demand goes down because of cost????)… and of course, the more money you have saved, the less assistance you’ll get (at least until you blow through that saved money).

    So I suspect that, even with the money saved by their parents, college kids in 2026 will have to work to keep going to school, so won’t feel like they can waste mom and dad’s money.

    Personally, I worked two part time jobs in college (or about 20 hours a week), so I could pay my rent+food expenses. That was part of my deal with my parents: I’d handle living costs, and what debt we accrued were distributed between them and I… so my education wasn’t given to me either :)

  41. I don’t know…my husband and I don’t have a lot of money to save, and so right now, we’re opting for retirement savings over college savings. There are loans and financial aid for college, but there’s no such thing for retirement!

    We’ll do what we can to save for them and help them, but with four kids, the likelihood of us saving up enough money to pay for four years of college for each of them is virtually nil. Maybe they’ll have to go to a community college for a while or maybe they’ll have to go to an in-state university and live at home, or maybe they’ll have to take some semesters off and work. I don’t think any of those options are the end of the world, though.

  42. Heather says:

    if your child does not use the 529 money, what happens to it?

  43. Sandee says:

    This topic is fresh in my mind since I just had one son graduate and I have another still in college. College is expensive. Financial aid is a nightmare. Finishing a degree in 4 years is very difficult. Many degrees actually are designed to take longer that 4 years. My son had to pay tuition while he was doing his internship. He wasn’t on campus, they didn’t even help him find the internship and he still had to pay.

    My DH and I are lucky that we could help pay most of the education expenses for our boys. We feel that education is the best gift you can give your children. Our college graduate has only about $17K in student loans and our youngest will have even less since he is attending a community college. Good luck young parents.

  44. Xenko says:

    Another advantage of starting a plan like this is that is gets cheaper with time. Assuming 3% inflation per year, the real value of your contributions decrease with time, making it easier to save the money in the future. Assuming a 3% yearly inflation:
    Year 1: $238
    Year 2: $231.07
    Year 5: $211.45
    Year 10: $182.41
    Year 18: $143.99

    The other advantage is that if your rate of return doesn’t quite match your assumptions, you can always increase your contributions by the annual inflation rate and you shouldn’t really notice any change.

  45. The last point you made in the post probably should be moved up to the top stop – saving money for college educations should be started as soon as possible. Regardless of how much you can put away when your children are young, start saving early, leave it alone, and let it build up over the years. Hopefully, as time goes on, you can add a little more to your deposits each time. Education cost sure aren’t going done any time soon. Teach your kids the value of money and the importance of saving as young as they can understand the concepts.

    Informative post!

  46. My husband and I both came out of school with a decent amount of student loan debt between the two of us. I’m back in school and when I’m done, I’m thinking we’ll have roughly around $50k in student loan debt (yikes!). Before I went to school (and thus, had less debt), our student loan payments were less than $200/month combined. Those payments are just not a big burden. No, we don’t like having debt, but having that debt and those monthly payments isn’t keeping us from doing things we want to. What keeps us from doing things like buying a house is the credit card debt. Once we get rid of that, things will be much easier.

    So while it certainly would have been nice to come out school without student loan debt, the monthly payments are not a big deal (and we both attended a private college). Yes, we’re both working now, but we are not in high-paying jobs and pulling in $100k a year.

    When we have children, we’ll most likely help them out with college if we can afford to and if they’re working hard at school and making ends meet, but we’re not going to be working extra jobs and shorting our retirement savings (or monthly bills, etc.) to pay for their college. And if they’re not interested in getting good grades so they can get scholarships or in working and contributing, we sure won’t be paying for their college.

  47. Laura says:

    Hmmm. The multi-pronged approach is best. Save, save, save. Drive the beater car. Apply for those scholarships. Encourage your kids to get involved in the community. Our son’s college surprised us by giving him a scolarship based on his community involvement. It was enough to make the balance of the costs do-able without applying for loans.

  48. Kevin says:

    Heather – if one child doesn’t use the money you can change the beneficiary (to another child is the most likely one) but I have heard you could actually change it to yourself or spouse if you wanted to go back to school. Otherwise, just pull the money out and pay the 10% on the earnings.

  49. getagrip says:

    @ Heather The 529 account is typically a trust held by the parent with a named beneficiary, usually their child. As the trust “manager” (I can’t recall the proper term at the moment) for my kid’s accounts I can change the beneficiary at any time to anyone with a family relationship to me. Unlike Uniform Gift to Minor accounts, the beneficiary has no control over the fund even as adults, so I’m under no requirement to give them the money. So if one child doesn’t use it or doesn’t need all of it or just really pisses me off I can change the beneficiary to another child of mine or any relation, be they cousins, parents siblings, in-laws, etc. As long as the money goes to an accredited institution and pays for educational expenses, it’s all fair game.

    As a last recourse, I can pull the money out and pay taxes and penalties on it.

  50. Bill says:

    You can transfer a 529 to close relatives including the beneficiary children. I know ESA’s have to be used or liquidated by a certian age, 27 I think. I don’t know if 529 have to be used by a certan age. If you could roll over unused amounts to the next generation could become a nice little family tradition.

    Oh, if they choose not to go or quit. I’m paying the tax and 10% penalty and going on a very nice cruise!

  51. Misty says:

    I am surprised to see how biased some of these posts are. When I attended college, my parents paid for all of my schooling (including room and board). They paid for this because they bought land when I was young in a developing neighborhood to build a house on, but later decided to stay in the same house and break the land into smaller parcels and sell it. It more than doubled in value and they used the money for college.
    I did not get any spending money, as a result, I had a job within my first semester. I took my schooling seriously and graduated in 3.5 years. My parents told me how much they were paying and I was grateful that they made my education a priority and that I didn’t have to work full time like one of my other friends. Also, because of their income, I qualified for little financial aid.
    My husband, on the other hand, had his first year of college paid for. He partied too much and flunked out. Later, he went to school, worked and paid for it himself and made a 4.0. Then he transferred schools, signed into the military officer program and graduated a few years later. We are still paying back the loans from his schooling (officers do not receive free schooling like enlisted).
    Now, we are debating on saving for our infant son. I believe that if we preach that education is important to him, but don’t make it a saving priority, we are not backing up our words with our actions.
    Thanks for the idea on saving a percentage, this may be a good solution.

  52. I have no intention of saving money to pay for my (future) children’s education. My mother did not support my college bills (other than the occasional check for $100 every once in awhile … it helped cover a book or two) and I worked full time from senior year on. Not a minimum wage job but a ‘good’ job that led to relevant work experience that led me to the company I work for today. Without the work experience my degree would mean very little and I’d probably be working now for a fast food restaurant.

    Work experience and paying your own way builds a lot more character (IMHO) than having your way paid for you either by state or parent. I got two small scholarships and two small loans (one of which I just paid off!).

    My brother on the other hand was solely dependent on my mother – she cosigned loans and sent him money. He still has not graduated (8 years later). He is in extreme debt and my mom is liable for all of it. It’s sad and a pathetic situation.

    Besides all that – how do I know my kids will even want to go to college? Not everyone needs to you know. What if they want to join the military? Or become a plumber? :)

  53. Diane says:

    We told both of our kids that they needed to contribute $5000/year while they lived away from home at state colleges. This money could come from jobs, scholarhips or loans. Both played college sports, (one with a $2000/yr scholarship, one with no scholarship), but both managed to work when they could and come up with the money. Each ended up with only about $2000 in loans. We kept all the money in one account that I controlled and I transferred their monthly expense money to their own checking accounts. Both have degrees, jobs and are totally on their own. Since we had 2 years with both in college, this plan made the expenses manageable for us.

  54. Lauren says:

    There are other options to help with paying for school.

    There are litterally thousands of private scholarships, grants, and fellowships available to students every year. If someone has good grades and is willing to seek out these opportunities, you can get alot of assistance, such as money you don’t have to pay back (like the loans the government will try to give you) and potentially, with the fellowships, a job straight out of school.

  55. Lauren says:

    oops! I meant “literally.” That’s really embarassing for someone with an English major. :op

  56. Michelle says:

    Whether or not the parents should pay for school is totally dependent on the child. Some children will work hard in school no matter what and others will slack off no matter what. My parents paid for my entire schooling, room and board, everything for four years. I still worked a part-time job because I wanted my own spending money and savings and had 2 internships as well during my years in school. I graduated summa cum laude and with no debt at all. They plan on paying part of my graduate school expenses as well. My brother was offered the same deal and flunked out his first year and joined the airforce. I will of course save enough money to pay for my kids college but only give it to them if I feel they deserve it and will work hard for it. I dont care for laziness but I will reward hard work.

  57. starrycynthia says:

    I believe in maximally preparing for one’s own retirement years before saving for children’s college. If you can do both — fine, IMO, but if you can’t, retirement is what to save for first, no matter how young you are.

    My 2 cents’ worth.

  58. Megan says:

    I agree with starrycynthia. I understand that this post was specifically about saving for college, but I think that every discussion about saving for college should start by mentioning that college savings are a want, not a need, and that we should only consider saving for a child’s education after we have ensured that we have a positive budget (spending less than we earn), that we are responsibly paying down current debt, and that we are saving a sufficient amount for retirement. After that is all taken care of, save as much for college as you can/care to. I just don’t think that many children would choose to have college paid for if the price is assuming all financial responsibility for their parents’ old age.

  59. almost there says:

    I work at a university and am greatful for the job as a staff member but have come to realize that the education system is just another business trying to sell a product in exchange for your money. My wife and I earn too much to qualify for financial aid for our son. He had a 2.97GPA on graduation from HS so all scholarships are out. (but he did get 17 sem. hours applied from the IB program in HS)I disagree that the earnings AND SAVINGS of parents are considered when applying for financial aid. The student’s income/wealth should be the only factor. But all is fine. I pay the bills as they come in (no college fund) and my son lives at home. He works 40 hrs a week and plans to graduate in 4 years with a double major. One mentioned the military as a source of college. I am suprised that more didn’t. Join the Navy though, with the army the G. I. Bill may cost you an arm and a leg.

  60. PiFreak says:

    I’m pretty sure my parents will contribute some, but at a modest 50k a year income, my school of my dreams (Caltech) would pay my tuition. I plan on at least a few smaller scholarships to help pay textbooks, and I have a savings account that’s now over 2k. For a 17 year old girl, my yearly clothes budget (including shoes and prom dresses) is under $100. Last year I spent $78 on clothing, and about $20 went to two amazing t-shirts from caltech that are incredibly nerdy, and another $25 went to prom, so my basic clothing needs are very tiny. A new pair of shoes, shorts, and a couple of shirts. Everything else, I either don’t buy, or my parents will buy it for me if it’s necessary, or get it for my christmas or birthday present if it’s still a want at that point. (My birthday present this year was a $17 Taylor Swift CD, and 3 days later, I saw her in concert[free tickets] and got it autographed) So all in all, we have a lot of savings, and we haven’t necessarilly earmarked it for college, but that’s where my money will go.

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