When Should I Start Saving for College?

By Brett Carolan, CFP® | Jun 21, 2023 |
The Complete Guide to 529 Plans
Determining the right amount to contribute to college savings can be complicated and depends on your family’s financial situation

For many parents, it isn’t easy to contemplate saving for their childrens academic future while still fulfilling their financial goals and obligations. But starting as soon as possible—perhaps before your children are born—will go a long way toward avoiding the crushing weight of student loans. 

Start saving in your 529 plan as early as you can

According to EductationData.org,a public four-year college costs an average of $26,027, including tuition, room and board, food, and additional expenses — $104,000+ for four years.  

If you start saving for a public university while your child is in the first grade, you’ll need to set aside $8,000+ per year; if you start when your child is in 8th grade, that number more than doubles. 

In short, you need to contribute twice as much per year if you wait to start saving.  

Open a 529 plan to give you more time to stow away funds and prolong your compounding interest to increase your payout.

Pay yourself first

Determining the right amount to contribute to college savings per month can be complicated and depends on your family’s financial situation. It’s easy to lose sight of your plan for retirement when saving for your child or grandchild’s education.  

While your children are just beginning their adult lives, you’re in the midst of planning for the remainder of your own. Many parents let their retirement funding take a backseat to their children’s college costs. However, doing this may prevent you from retiring when you want—if at all.

You cannot take loans for retirement, but you can for college.

Look at your discretionary income to determine how much you can feasibly contribute to your child’s education.  

You cannot take loans for retirement, but you can for college; Fund your retirement first, then contribute what you can from the leftovers.  

Talk to a financial advisor to determine the right amount to set aside for your kid’s college. Questions you’ll need to answer to select the right amount are: 

  • What is our current household budget and income? Understanding your current financial situation, including your monthly income, expenses, and any existing savings or investments, is crucial.  
  • What are our savings goals and priorities? Determine how much you want to contribute to your child’s college fund relative to other financial goals, such as retirement savings or paying off debt. Include 3-6 months of living expenses for a rainy day.  
  • How much do we anticipate college costs to be? Research the estimated education costs, including tuition, fees, room and board, and other expenses, to gauge the potential financial burden. 
  • What type of college funding vehicles are available? Explore options like 529 plans, Coverdell ESAs, and taxable investment accounts, considering their tax advantages, potential growth, and withdrawal flexibility. 
  • What adjustments can we make to our finances? Evaluate possible changes to your budget, such as cutting discretionary spending or reallocating funds, to determine how much you can comfortably set aside for college savings without compromising your overall financial stability. 

To learn more about common mistakes with college savings plans, read 529 Plan Mistakes That Can Derail Your Savings Plan.

Compare public vs. private tuition when calculating your 529 contribution

Another significant factor when setting a monthly college savings goal is whether a student is headed to a public or private college—you’ll need much more for a private institution.  

When you open a 529 plan, your child may not know where they want to go to college or what career they want to pursue. Depending on how much you plan to contribute to their education, you may make part of that decision for them. 

It’s no secret that private four-year universities carry a much higher sticker price than their public counterparts, often at double or more the rate.  Scholarship America reveals that a public education can cost nearly $21,000 less per year than a private school.

If your child doesn’t know what they want to do, you should consider a junior college.

You can buy a condo with the $44,000+ (in-state) or $92,400+ (out-of-state) money you’ll save in tuition, plus it gives them time to figure out what they want to do with their lives. In addition, you can look for programs like Running Start  where high school students can earn college credits tuition-free.  

This can result in savings between $50,000-$100,000, depending on if your child matriculates to a state or private university. 

Start saving for college for your child, grandchild, or anyone else as soon as possible. How much to contribute to your 529 plan largely depends on your unique situation and the college the student aspires to attend. 

Talk to a Certified Financial Planner to determine the best plan for your situation. Your investment might be the difference between four years of college payments or a tough financial lesson you’ll be paying on for a lifetime. 

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