How Much to Save for a College Education — And What Parents Should Know

Ask just any parent about their top worries while raising a child, and among the top list will be the ever-climbing cost of college. Along with the dreams of watching your child grow up, you face stress over how much you should save for college.

College costs have risen sharply over the past two decades, now at an average of $35,720 per year. For a student living on campus at an in-state, four-year school, the average cost is $25,864 per year, or $103,456 if you take all four years into consideration. Private school tuition and expenses mean a much higher tab, as do out-of-state programs, so that $103,456 figure might be a low estimate for some.

When you factor in inflation and tuition hikes, the total cost of attendance will increase as your child prepares for college. The flip side of this situation is in your favor. Money that’s sock away in a 529 plan or other education-savings plan has many years to compound before it’s time to use the funds toward school.

The College Savings Plan Network reported the average balance of 529 plans as of December 2020 was $28,679, which represents an increase from $13,188 in 2009. This includes families early in their saving journey and families with students nearing the end of their four years in college.

Whatever amount of money you can save for college, remember that you can influence your child’s college decisions to help them save money overall.

Keep your financial priorities in order

When deciding how much to save for college, parents can’t ignore their personal finances. College is important, but it should be secondary to meeting your other financial obligations and preparing for retirement.

Secure your emergency fund

It’s best not to put money into a 529 plan or other educational funds if you don’t have a solid emergency fund. Even high-income individuals don’t always have sufficient emergency funds, and that creates a lot of financial stress. Saving three to six months’ worth of expenses provides an essential cushion for difficult financial times.

Prepare for retirement first

Although self-sacrifice might be ingrained in you as a parent, prioritize your own retirement above your children’s college education. Although students can take out loans to pay for their college classes, parents can’t take out loans to pay for retirement. Plus, children have more time to earn money, while retirement age isn’t that far off for parents.

If you’re only saving a small percentage of your income (or none at all), increase your retirement contributions rather than worrying about how much you should’ve saved for your child’s college. Try to get beyond the minimum recommended amount to save for retirement.

Once you’ve maxed out your 401(k) or similar retirement accounts, you can put more money into other investments. It’s not selfish to take care of yourself before your child’s schooling. It’s typically better to come up short on college savings than retirement savings, in the long run.

Other financial obligations

Parents have other financial obligations to meet besides paying for a bachelor’s degree. House payments, covering an elderly relative’s medical care, taking care of your retirement — each of these should hold more weight than college savings. Plus, if you have multiple kids, that’ll impact how much you should save for college per child.

Of course, you’ll have multiple financial goals to strive for simultaneously, and the choices can be tough. Just remember that you shouldn’t put college above your home, retirement, savings, or other personal goals.

College options that impact your total cost

Helping your child decide where to attend college and nudging them toward economical possibilities can help reduce their long-term expenses. The following are some aspects of higher education that you (and your future college student) should consider:

Undergraduate vs. graduate school: For students who expect to go to graduate school, it’s extra important to minimize undergraduate expenses. Since the cost of a postgraduate degree will inflate the total education bill, help your child approach an undergraduate degree frugally.

Public vs. private institutions: Attending a private four-year college is much more expensive than attending a public college, and the added expense isn’t always worth it. A private university student may spend $53,949 annually, versus $43,721 annually for an out-of-state public school or $25,864 for an in-state public university.

Resident vs. non-resident: The difference between in-state (resident) and out-of-state (non-resident) tuition, even at public institutions, is huge. When deciding “how much should I save for my child?” you can help decrease your child’s college expenses by encouraging them to stay in-state.

Annual average tuition costs:

• In-state public tuition: $9,580
• Out-of-state public tuition: $27,437
• In-state total cost of attendance: $25,864
• Out-of-state total cost of attendance: $43,721

Other strategies to minimize costs: As a parent wondering how much to save for college, it’s useful to note strategies that decrease the cost of college. Even if you can’t save as much as you’d like, there are alternative ways to support your student.

Students can take AP tests or CLEP tests during high school. This option knocks out some of their college course requirements, lowering the number of courses during their undergraduate program, and reducing the total cost of their degree.

In addition, your child can work part-time or even full-time during summers, and during their college years. This gives them some skin in the game and forces them to manage their time and responsibilities.

Guidelines to follow when saving for college

There’s no universal rule for how much you should save for your children’s education.

Yes, as a parent you want to provide the best for your child, and college just might be the optimum route for them to reach success. However, your job as a parent is to keep them healthy and cared for throughout the first 18 years of life. Paying their way through college is a wonderful gesture — but not if it decimates your own finances.

Some parents are dead-set on fully financing their children’s entire college education. If you’re saving more than enough for retirement while maintaining a robust emergency fund, paying the entire college bill is a generous gift.

There are other levels of participation in college financing, though. You might decide you’ll only cover the cost of an in-state school. That, as we saw above, drastically cuts the total cost of a degree. Similarly, you can set limits by promising to finance a public school degree, not a private school education.

Some financial experts recommend making it a goal to save one-third of the cost of a public, in-state school. The reasoning is that students can take out loans to cover a portion, and parents can also pay a portion from their income while their child is in school. You don’t need to worry about saving 100% of the total.

College savings resources

One thing to remember is to factor in rising costs in your estimates. You can find an online college savings calculator like this one from Fidelity to help you determine whether you’re on track to save your goal amount. This type of calculator lets you play with the numbers like the percentage of the cost you plan to cover and the amount you can contribute monthly.

Although saving for college is a daunting task for many parents, it doesn’t have to consume every thought. Whether your child has just been born or is a senior in high school, save a reasonable amount for college if you can. But don’t allow stress about the cost of college to overwhelm you.

If you’d like in-depth guidance on ways to invest your money wisely, including the best way to use a 529 Plan, you can check out Student Loan Planner®’s Six-Figure Debt to Six-Figure Net Worth Investing Course.

Your child will appreciate any financial contributions you can offer toward their college expenses, and they can also learn from the opportunity to find alternate sources of funding. Save what you can, but remember to balance your desire to help your college-aged child with other financial needs.