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September 28, 2021

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Your Guide to Saving for College

A Note from BestColleges on Coronavirus and Financial Planning in College

The COVID-19 outbreak has caused rapid and significant changes in students' lives. Campus closures have pushed students to online learning, and life after graduation is uncertain for many.

Saving money and budgeting in college is top of mind for many students, even in the best of times. Our Financial Aid Guide can help you understand and plan your finances in college.

We are also working to provide information and resources to students about the impact of coronavirus on college life. Read our latest Coronavirus Resources for Students.

We encourage students to contact their college's financial aid office for any financial questions related to coronavirus. Many services have moved online as schools work to support students through this challenging time.

In the U.S., the price of college tuition, fees, room and board has been on the rise for decades. According to the National Center for Education Statistics (NCES), one year of college attendance in 1985 cost an average of $4,885. By comparison, students attending college in 2016 paid an average of $23,091.

In an era of massive student loan debt, it is more important than ever for parents and students to plan ahead. In the sections below, we explore the best college savings plans, discuss how much to save for college, and hear from two financial aid and investment experts.

For Students: Your College Saving Options

Looking at estimated costs for college attendance might make paying for college seem like an impossible task. Fortunately, there are financial aid and payment options available for students of every age.

How Do Most Students Pay for College?

Scholarships and Grants

Utilizing scholarship and grant opportunities is one of the best ways to secure funding for college. Unlike loans, these forms of financial aid do not require repayment. Approximately 63% of undergraduate college students received some form of scholarship and/or grant funding in 2015-2016, according to NCES.

Scholarships and grants are generally geared toward specific types of recipients. Applicant eligibility may depend on financial need, minority status, planned college major, academic achievement, and/or affiliation with an organization or corporation.

Students can search for relevant scholarship opportunities through various online databases. High school counselors and college financial aid departments are another great source for this type of information.


Approximately 39% of undergraduate college students received loan-based financial aid in 2015-2016, according to NCES. Loans largely fall under four categories: federal need-based loans, federal non-need-based loans, state loans, and private loans. Each loan type has different policies concerning eligibility, interest, benefits, and repayment.

Federal need-based loans are generally the best option. Repayment is deferred until after you graduate, and the government covers interest costs while you are enrolled in school. Students can determine their eligibility for federal loans and grants by filing the Free Application for Federal Student Aid (FAFSA). Learn more about the FAFSA application here.

Students can also work with state agencies, banks, credit unions, and online lenders to secure loan funding.

Part-time Work

Outside of scholarships, grants, and loans, families may choose to pay for college out of pocket. High school students who take on a part-time job during the school year, summer, or both can contribute significantly toward their college savings. However, working as a high school student is not without its pitfalls.

Balancing academics and employment requires a strong work ethic and careful time management. Employed students also face the temptation to spend rather than save their income. To avoid this trap, consider opening a high-yield interest savings account specifically for your college fund.

What If My Parents Can't Pay for College?

Many college students rely on assistance from their parents or guardians to help cover the costs of college attendance. Expenses may seem insurmountable for families with lower incomes, but having parents who earn less can actually be beneficial where the FAFSA is concerned. Greater financial need provides you with more opportunities for top financial aid options like Pell Grants.

Unfortunately, some parents may refuse to submit their financial information altogether. Students in these circumstances should contact the financial aid department at their prospective college. Financial aid administrators can help students borrow from the unsubsidized Stafford loan program if their parents refuse to complete the FAFSA.

How Do Older Students Pay for College?

Recurring expenses, such as those for housing, healthcare, retirement, and other living necessities, make it imperative for older students to create a solid budget and savings plan when they decide to return to school.

An older college student's first step should be filling out the FAFSA. There is no age limit on receiving federal financial aid, and almost everyone is eligible for grants and/or loans.

Some employers offer financial aid benefits for working adults looking to return to school. If your employer does not, consider requesting financial support anyway, emphasizing how further education will benefit your work at the company. Even if you cannot secure monetary funding from an employer, many colleges allow adults to exchange work experience for college credits.

You can also consider opening a 529 savings plan. Much like a Roth IRA, these accounts allow for tax-free growth of contributions and require no tax payments upon withdrawal. 529 plans can be used for education expenses, including tuition, books, computers, and other equipment.

Expert Interview: Doryann Barnhardt: Director of Financial Aid, Gallaudet University

Doryann Barnhardt is Director of Financial Aid at Gallaudet University. She has been a financial aid professional for 15 years, with a majority of her career dedicated to serving underrepresented and non-traditional students. She calls herself an “accidental aid administrator,” stumbling into the profession after taking a job in a small college in New York City without even so much as having glanced at a FAFSA application before in her life.

When should students start saving for college?

Just like other investments, the sooner you start saving, the better. However, "better late than never" also applies to saving for college. Most students will have some out-of-pocket expenses for school, and many need to rely on loans to pay for those expenses. Every dollar you can contribute from your savings is one dollar less you will need to borrow or divert from other household expenses.

How much should students be saving for college?

That is really dependent on the student and their individual family financial situation. I think there is a lot of pressure on students and their families to do something the "right" way when it comes to college, and a lot of the time the advice offered is "one size fits all," which just adds to the pressure.

To me, it is more valuable to frame the question as "how can students begin saving for college?" For adults with children in their lives, think about diverting some of the money you would spend on birthday and holiday gifts into a college savings account — like a 529 — instead. As children get older, help them develop good habits around money. Make saving money for the things they want and need normal. Figuring out how to save money does not need to be hard. Many banks — especially online banks like Ally or Simple — have tools that help you save money in intuitive ways. You set up your income, expenses, and goals, and then they do the work for you.

How much is tuition expected to rise in the coming years? How can students anticipate and adjust to these additional costs?

From a consumer perspective, I think it is best to just assume that college costs will continue to rise, just as all other costs will rise. That is why saving for college as soon as you can, even in small amounts, can help in the long run. The interest you earn on a savings account gets added to what you have saved, and then future interest is calculated based on that new amount. It is called compounding interest, and it pays off more the longer you have an account and the more you can contribute. Just like costs go up over time, so does the value of the money you have saved.

What are some mistakes you see students make when it comes to saving for college?

I think a mistake some students make is assuming they cannot go to college if they do not have any savings. That is not true. You might have to make different choices if you do not have money saved for college, but it does not always mean college is not an option.

Another mistake students make is to assume that someone else will take care of the details for them. This is especially true with students who begin college immediately after graduating from high school. In a lot of families, talking about money with children is a big taboo. It should not be. Establish expectations for how your kids spend and save money. Make saving money a habit for your entire family, like brushing your teeth or walking the dog. Don't avoid setting realistic expectations for your kids about what is affordable for your family.

What do you recommend to students whose parents or family are unable to provide financial assistance for college?

Don't give up! There is a path to college completion out there for everyone. I understand that choosing a college is an emotional decision, and it can seem like our dream school is the only truly good option. But if your dream school is not affordable, then choose a school that is. Think about spending a few years earning an associate degree at your local community college and then transferring to your dream school to finish your degree. Be open to studying part time to keep costs lower.

I offer this advice as someone who worked their way through college as an adult; sometimes the path we think we want is not the path we can take. I know it can be easier said than done, but be flexible and be kind to yourself. Don't worry about what everyone else is doing — just find the path that works best for you.

What if students don't receive enough loans or financial aid to cover the cost of college?

This is when students have to consider the trade-offs they will need to make to attend a particular college. Are they willing to go part time to make it more affordable? What can they realistically contribute to the cost through working part time? Is their family willing or able to help them with the cost? Do they have unexplored options like scholarships, education benefits, or employer tuition remission? Which other paths to college completion can they choose if this particular school is not affordable? It is really important to be honest with yourself about what is realistic and possible, and then plan accordingly.

Is college more expensive for older students returning to school?

The tuition and fees are the same regardless of your age, but the trade-offs you need to make in life are different when you are an adult learner. Oftentimes going to school means you need to work less to devote time to your studies — or, if you can't afford to work less, you have to take fewer classes at a time, which delays your ability to get a higher-paying job or switch careers.

There can be more at stake for older students because they have other people in their lives who rely on them, or they don't have other people who can support them financially. But our life experiences teach us that trade-offs are worth it, and we bring so much value and perspective to the classroom.

Are 529 plans a good idea for adults saving to go back to school?

The great thing about a 529 plan is that you do not pay taxes on its value, as long as you use the money for educational expenses. So, if you are going to use savings to pay for your college expenses, it might make sense to put the money into a 529 plan instead. One thing to remember is that a 529 plan is considered an asset of the person who owns it. Some adult students think they can avoid reporting the value of their savings on the FAFSA by moving the money into a 529 plan, but that is not the case.

Is there an age limit to apply for federal financial aid?

If you are a U.S. citizen or a permanent resident, you can complete the FAFSA regardless of your age. The FAFSA is not just used to determine how much federal financial aid a student will get; states and schools also use the FAFSA to determine eligibility for their grant assistance, so you could pass up money if you don't complete the FAFSA. There are rules about how much federal financial aid a student can receive in their lifetime, so anyone who has received financial aid in the past should probably talk to their financial aid office and verify their remaining eligibility.

For Parents: Your College Saving Options

In 2018, lender Salie Mae surveyed more than 2,000 parents about saving for college. On average, respondents had saved $18,135. Unfortunately, even $18,000 may not stretch very far when it comes to higher education expenses.

How Much Do I Need to Save for My Child's College?

The main factor that affects the amount of money parents should save for college is the type of school their child might attend. Costs vary widely between in-state public, out-of-state public, and private colleges.

Parents should start saving as early as possible, but most families do not need to plan to cover the total cost. Expected contributions vary by income level and school choice. CollegeBoard's expected family contribution calculator can help parents determine how much to save for college.

How Should I Save for My Child's College?

Parents can use a variety of college savings plans to help secure their child's future. According to a survey by Sallie Mae, general savings accounts remain the most popular vehicle for college savings. However, 529 savings plan accounts hold the largest share of funds earmarked for college expenses.

Other popular options for college savings include investment accounts, checking accounts, and prepaid state plans.

Expert Interview: Stuart Ritter: Vice President, T. Rowe Price Investment Services

After earning a master's in political science from American University in 1993, Stuart Ritter embarked on a career promoting personal finance. His professional experience includes working as a senior financial planner at T. Rowe Price Investment Management since 2009. He also teaches college courses and works with individual clients. The following expert interview with Mr. Ritter includes valuable information on how parents should save for college in the 21st century.

What's the biggest mistake you see families make when saving for college?

The biggest mistake parents make is not saving at all. Some parents forgo contributing to a 529 plan, assuming their child will qualify for aid or scholarships, but that outcome is not guaranteed. In addition, individuals mistakenly assume that savings will hurt their chance of qualifying for federal loans, when in fact federal financial aid is primarily based on your income. The amount you have saved has very little impact on that formula.

If your child does earn a full scholarship to college, you can change the account beneficiary to another family member — or even yourself.

Are there any upcoming changes that will affect how parents save for college?

We don't anticipate any major upcoming changes that will affect how parents should be saving for their child's college education.

Do you recommend different strategies for families with more than two children?

Yes. We recommend a different 529 account for each child. The money needs to be invested differently since each child has a different time horizon.

Do you typically advise parents to use a Coverdell Education Savings Account, 529, both, or neither?

T. Rowe Price recommends that parents use a 529 plan to save for their child's college education, as there are some distinct advantages:

  • You control the account and can change the beneficiary at any time, subject to IRS regulations.
  • Any earnings are tax-deferred.
  • Distributions are exempt from federal income tax if used for qualified education expenses.
  • There are no income restrictions or limits to investing in a 529 plan.

A 529 savings account is a great vehicle to prepare for the rising costs of college and reduce your need to borrow money when your kids head off to school.

When is the best time to start saving for college? What's the latest age parents can consider starting a savings account for their child?

It's never too early or too late for parents to start saving for their children's higher education. A 529 plan can be opened as soon as, or even before, a child is born. The earlier you start setting money aside in a 529 account, the longer that investment will have to benefit from tax-deferred growth potential. If you can't afford to save enough to pay the whole bill, consider aiming to make a sizable “down payment” by saving for about half the costs.

What's the monthly contribution a family should consider to effectively save for their child?

To help families create a plan and start saving an appropriate amount for college, T. Rowe Price ran an analysis and found that a family would have to save over $400 a month from birth through the four years of college in order to cover the total costs at the average four-year, in-state public university. If this isn't feasible, consider starting with half the amount and aim to increase it. If you can work a couple hundred dollars into your monthly budget to help offset the future expense of college, you will be so much better off by the time your child is ready to enroll.

What should you do if you haven't saved for your child's education?

Do the same thing you would do for any purchase you hadn't saved for. Be very judicious about how much debt you take on. There are many colleges to choose from, at many different price points. Give careful consideration to the value you're getting for your money, given your financial situation.

What if you save for your child's college education and they decide not to attend?

If the beneficiary listed on the account doesn't go to college or, for any reason, doesn't use all the money, you have options:

  • You can change the beneficiary on the account to another sibling, a cousin, a grandchild, or even yourself — and use the money for the account beneficiary without any penalty.
  • For 529 college savings plans, the money can also be used for higher education expenses other than undergraduate tuition, such as graduate school tuition, room and board, books, and supplies.
  • If you do need to withdraw funds for anything other than a qualified educational expense, you'll need to pay income taxes on those earnings, as well as a 10% penalty on the earnings.
Is there any final advice you would like to give that wasn't covered here?

Remember that saving for college doesn't have to fall on your shoulders alone. Aiming to save a down payment, asking friends and family to make gift contributions to your 529 plan, having your child pay for a portion, as well as exploring alternative sources of college funding (such as scholarships, grants, and other financial aid), can all add up and make paying for college a reality.

Additional Resources

College Savings Plan Network

This website features a database of information about all the college savings plans discussed in this article, as well as up-to-date news coverage of legislative developments, economic trends, and other factors that impact financial planning.

Saving for College

In addition to comprehensive information about different savings plan options, this site offers blog posts, lists, infographics, and interactive maps.

U.S. News & World Report: Paying for College

In addition to a section devoted to 529 plans and other college savings options, this page features information about financial aid, net tuition cost calculations, and paying for online education.

Editor's Note: This article contains general information and is not intended to be a substitute for professional advice. Please consult a professional advisor before making decisions about financial issues.

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