How Much to Save for College & Savings Goals by Age
Whether your child or loved one is getting ready for their first day of kindergarten or gearing up for their first week of high school, preparing for college can be a daunting task. Some of the biggest stressors are around saving for college. Families often struggle with this part, but we’ve answered some of the most common questions people have when trying to figure out how much to save for college.
How much, on average, will four years of college cost?
Before discussing how much to save for college, let’s look at how much college can cost. According to the College Board’s Trends in College Pricing report, tuition and fees at a public four-year, in-state college are, on average, $11,260 a year (just over $45,000 for four years). Average tuition and fees for a public four-year, out-of-state college are $29,150 a year (more than $116,000 for four years). The average cost for a private four-year non-profit institution is about $41,540 (or around $166,000 for four years).
The above numbers reflect only tuition and fees. The average cost for room and board at a four-year school will run around $12,000 a year. Plus, books, supplies, and other expenses will add to the annual expense.
As you can see, depending on which type of school a student chooses, the future costs of college could vary widely.
How much should I save for college?
That’s the million-dollar question! Many financial experts recommend planning to save at least one-third of your child’s projected college expenses. The other two-thirds can come from financial aid, scholarships, working during school, and student loans.
When thinking about how much to save for college, it’s best to have an end goal in mind and make a plan to get to that goal. Use the College Savings 529 Plan Calculator to estimate how much money you may need when it comes time for your child to go to college, and then calculate how much you should set aside each month to reach your goal. Once you choose that amount, consider making extra contributions if you get a tax refund or a bonus at work. Here are some useful savings targets:
From Birth
In an ideal world, you would begin saving for college as soon as your child is born. The earlier you start investing and saving with a college fund, the more it will grow and the more funds there will be for your child’s education.
Of course, it can be challenging to contribute to a college fund when you’re paying for childcare and other living expenses. Start by thinking about how much you can afford, whether it’s $50 a month or $500 — something is always better than nothing. Don’t forget that grandparents, family, and friends can also contribute to a child’s education with financial gifts for birthdays and holidays.
Middle School
If your child is in middle school and you want to start saving, you still have a number of years to watch those savings grow. This might be a good time to consider an automatic payroll deduction. Funds are deducted from your paycheck and go directly into your child’s college savings fund. If your employer doesn’t participate in this program, you can also set up automatic bank drafts from your checking or savings account.
Students in middle school can also start applying for scholarships. This is a great way to get them involved in the college process and work on their essay skills at the same time!
High School
Just because your child has started high school, that doesn’t mean it’s too late to open a college savings account. Obviously, the money you invest now won’t have as much time to grow, but every dollar you save is a dollar your child won’t have to borrow in student loans.
Your child can also make contributions to their account if they work part-time during the school year or during the summer. And since they’ve been applying for scholarships since middle school, they can continue their search for free money all during high school with the CFNC Scholarship Search.
Do I need to plan to pay full price for college?
That really depends on your family’s financial situation and goals, but there are lots of financial aid opportunities out there for students. Every student should complete the Free Application for Federal Student Aid (FAFSA) to become eligible for scholarships, grants, student loans, and work-study programs. Most students will qualify for some form of financial aid.
What are some good college savings options?
There are several ways to save for college. Choose the option that works best for your risk tolerance and saving goals.
- Mutual Funds: This type of investment is typically used for retirement, allowing post-tax money to be invested in different securities, including stocks and bonds. However, funds can be used for anything, including education. Earnings are subject to annual income taxes, and mutual funds owned by the student can impact financial aid eligibility by up to 20%.
- A General Savings Account: This can be an easy way to automatically add money using bank accounts you or your child already have. However, interest rates and growth potential in savings accounts tend to be lower than other saving and investing options.
- The NC 529 Plan: One of the best ways to save for college is with the NC 529 Plan. The earnings on your money grow tax-free and can be used for any qualified education expense — not just college. Your child can use it for a career and technical program, an apprenticeship, K–12 tuition, and more. Best of all, funds your child doesn’t use for college can be rolled over into a Roth IRA for their retirement fund or transferred to another family member for education expenses.
Determining how much to save for college can be challenging, but the NC 529 Plan helps make the saving process itself simple. Ready to get started? Learn more about the tax benefits of the NC 529 Plan and open an account today with as little as $25.