How Much to Save for a Kid's College Education

As the saying goes, it’s never too early to start saving for your child’s college education. But if you couldn’t start saving when they were young, the need becomes more urgent as they approach middle and high school. 

You've likely covered expenses like school activities, extracurriculars, and summer programs, but have you made a plan to help with their higher education? And if so, how did you determine the right amount to save?

Decide on the type of education you’re saving for

Saving for college (as a mom of five) feels like a goal where the posts keep moving. The cost of college keeps increasing, and the interest rates on the debt seem to rise faster than the costs. My youngest is almost two—I struggle to imagine what yearly tuition would be when he goes to college—and I know I’m not alone. 

When I worked to determine how much monthly we would save for our kids' college funds, I had to answer the first question: What were we saving for? A local community college? An in-state university? A private institution? 

How many years are you willing and wanting to pay their tuition for? Two, three, or all four years? If your child decides to pursue a master's degree, do you also want to fund that? Answering these questions will allow you to have honest discussions with your kids as they approach college. 

Once you determine the type of institution and the number of years you want to save for, you can begin putting numbers on paper and figuring out your next steps. 

Estimate the future cost of college 

After deciding on the type of institution and years you want to contribute, you need to estimate the cost. If you recently had a child, college costs will look different in eighteen years than they do today. 

Or maybe you’re starting to save when your child is older, so the cost of college will hopefully be a little more in line with costs today. Either way, the next step is determining the sticker price in the future. You can use a future value calculator or a projection from a website like Mefa.Org. 

For example, let’s say you decided to fund four years at an in-state college, and your child will begin their freshman year in 2040. Once you choose the year in the drop-down, you can see the approximate sticker price for your child. It looks like it would be about $160,100 in future dollars for all four years. 

Now that you have a starting point, you can determine how much to save. 

Using a present value calculator (or talking to a financial advisor), the present value of $160,100 is about $93,000. To simplify the math, we can divide that out over 18 years (or how many are left before college) and then 12 months to determine if we should save about $430/month.

Once you’ve determined what you need - you should look at your household budget and figure out if you’ll be setting aside the maximum amount or something smaller. If it’s less- just be prepared to reduce your cash flow in the future or find other ways to fund college.

Decide where to save your money

The benefit of saving for college is that it can be a state tax deduction if you save it in a 529 account. A 529 is a special education account that allows the funds to grow and that growth not to be taxed when applied toward appropriate education expenses (the IRS has the details on what does and doesn’t qualify). 

Working with a financial advisor or researching yourself and picking suitable investments within the 529 can help reduce the amount you need to save monthly, as the funds will grow over time. This strategy depends on how much time you have for the funds to grow. 

Worried you can’t afford it? There's good news

Determining what you need and what you can afford are entirely different. Some factors can be in your favor if you feel like you can’t afford the whole monthly amount right now, such as: 

• If you start early, statistically, your income will increase over time, allowing you to set more aside later.
• Also, starting early gives you the benefit of time and allows you to invest the funds to make them earn more. 
• You will have different expenses when the kids go to college and may be able to find more cash flow later.
• The sticker price isn’t necessarily the net price (Learn more about net price here).

Don’t be discouraged if you can’t afford as much as you want to right now- things change! 

Saving for your kid’s college is a personal decision

What you can afford and how much you should save is a personal family decision. What you should save ultimately comes down to your family values and plans. Every dollar you have should be put toward something that meets your family's needs or wants. 

We can’t see into the future, but hopefully, with some planning, you can feel better prepared. Determining early on what you are willing to pay for and having open, honest discussions with your children about what you can afford as they get older will reduce the stress and help get everyone on the same page. 

Don’t forget- scholarships can help 

You can help your student supplement the money you save by checking out Appily's scholarship database. We have millions of dollars worth of scholarships to help bring down the cost of college, and they've all been vetted, so they're legitimate and scam-free. (Yes, that's something else to worry about)

Click the button below to create a free account and get personalized scholarship matches sent to you.