How Much Should You Save for Kid’s Education?
(This page may contain affiliate links and we may earn fees from qualifying purchases at no additional cost to you. See our Disclosure for more info.)
As a parent, we always want to do what's best for our children.
Paying for a college education is a difficult choice to make for several reasons. But, no one wants their kids to be weighed down with tens of thousands of dollars of student loan debt either.
Sure, you can wait until your kid is nearly ready to leave for college to worry about how you or they will pay for it. But what if they can't?
What if the financial burden of tuition is too much?
College costs have seen a severe increase since the Great Recession. According to GoBankingRates research, tuition and fees rose 44% at four-year, private colleges, and 55% at public four-year schools from 2009 to 2019.
With that said, you'd be correct to assume tuition will only get more expensive as time passes – unless recent events create a wholesale change in the system.
Experts have predicted a 5% increase over the next twenty years. For most universities, this means thousands of dollars in additional tuition.
But don't panic!
Once you know what to save for and how much to save, you can rest assured your child won't spend the best years of their life with the dark cloud of debt hanging over their head.
Why Save for College Now?
Four words: The student loan crisis.
In America, student loan debt currently sits at $1.6 billion and is expected to reach 3 trillion by 2030. To break it down further, the average American graduate has $32,731 in student loan debt.
Proactively saving for college means you can give your kid a competitive financial headstart and avoid the negative aftermath of taking out loans altogether.
How Much Does College Cost?
Public vs. Private Four-Year Universities
When choosing between a public and private university, costs can vary dramatically – depending on factors like location, programs offered, and amenities.
According to research by Value Penguin, attending a public four-year university in the U.S. costs $25,290 for in-state students.
Meanwhile, tuition is significantly higher for out-of-state colleges, averaging at around $40,940.
When you plan to send your child to a private non-profit university, expect to spend about $50,900 for a bachelor's degree. That cost is approximately $25,000 more expensive than earning the same degree at a public university.
It might feel ridiculous to pay two times more for a private school, but the benefits are usually worth it.
The classrooms are much smaller, which means students have more access to instructors. Private education institutions often prioritize career field experience and networking with alumni, too.
In other words, you're paying for much more than an education.
Cost of Going Away
Although going away to college will provide your child with the experience of living independently, it also increases your out-of-pocket expenses.
The average price of out-of-state tuition is $40,940, and the cost of transportation without a car can run between $1,050 and $1,800 every year.
Alternatively, you can opt for a used car, which will put you at around $2,500 – $5,000 (at the right car lot.)
Room, Board, and Everything In Between
Another determining factor of the overall cost is room and board.
In case you're not familiar with this term, “room” refers to the dorm students are assigned to by the college of choice. It's usually pre-furnished, and your child will likely have roommates.
“Board” includes the meal plan offered by the school. It's worth noting that universities often schedule meals, so students have limited control over when they take advantage.
Colleges usually lump these two services into one flat fee, and according to this report, the average public four-year university student spent $10,800 during the 2017-2018 school year. For private non-profit university students, the price went up to $12,210.
On the other hand, your child might prefer an apartment over staying in a dorm (if allowed by the university). If so, the median rent for a one-bedroom apartment is around $6200 per semester, and eating costs for one American student would be about $1,200 per semester.
Other Purchases to Watch Out For
After paying for tuition and room and board, you'll want to plan for the additional expenses your college student will encounter like:
- Textbooks
- Computer
- Essentials (cleaning, hygiene supplies)
The amount you’ll pay for these items will vary depending on your child's lifestyle and budgeting habits.
How Much to Cover?
If you're looking to fund all of your child's college tuition, know that it will initially be more expensive.
However, neither you nor your child will be responsible for the expensive interest fees on student loans, and the funds you save will provide a sense of security that your child will be able to attend college no matter what.
Conversely, you might be looking to pitch in as little as possible. Completely understandable, as many people don't have the extra income to save for retirement, let alone start a college fund for their kids.
Although your decision to contribute less makes sense, there are risks involved.
To start, the average student loan interest rate is 5.8% before refinancing. To put this into perspective: For tuition of $24,290, you’ll pay an additional $1,409 in interest.
The better alternative to loans is grants and scholarships — although they pose a risk as well.
Most grants and scholarships are merit-based, requiring students to have a relatively high GPA, extracurriculars, and community service on their resumes. There's no guarantee your child will qualify for them.
Moreover, the Free Application for Federal Student Aid (FAFSA) typically gives more funds to students from lower-income households, leaving those from middle-income families to fend for themselves.
Cutting the Cost of Education
While tuition is a set price, there are some expenses with wiggle room.
Consider community college
Students can save about $8,000 by choosing to attend a community college.
And according to recent reports, graduates with associate's degrees are out-earning those who graduated from a four-year university.
That said, your child might have their eyes on a career that requires a bachelor's degree.
A common tactic that saves students boatloads of money is attending a community college as long as possible and then transferring to a four-year university later.
Living Off-campus
Students who stay at home can save around $10,800 every semester by avoiding the room and board fees.
Similarly, students can save approximately $2,000 by living on-campus, as opposed to renting an apartment.
Living off-campus means students will generally spend less on a larger living area than a dorm. That’s great, but once you factor in the overall apartment cost and hassle of commuting to school, a stuffy dorm might turn out to be a better move.
Be sure to look at college expenses as a whole because each aspect affects the next.
Continue Applying for Scholarships
Just because your child is already enrolled doesn’t mean they should stop trying to apply for funding.
College students who have put in the work for their chosen career path are better applicants than high school students who aren't sure about what they want to major in yet.
Pro tip: Focus on scholarships from local businesses and the school of choice for a higher success rate.
Finishing College Early
Some students can earn an associate’s degree or at least some college credits while still in high school, enabling them to finish their college education in three years.
Many schools offer Advanced Placement (AP classes) or joint programs with local colleges and universities, so students graduate with some of their college freshman year credits already behind them.
While there may be some costs to take AP exams or dual enrollments with colleges while a student is still in high school, they are minimal compared to a year of tuition and room and board.
Also, there may be grants available to help cover exams and defray college course costs while students are in high school. Ensure you reach out to your guidance department or college bursar’s offices to see what aid may be available.
How to Set a College Education Savings Goal?
With an idea of what to expect, you can now figure out the best way to save for college with your specific budget and income.
Knowing approximately how much money you'll need to put aside in a college savings plan every year, month, and week will make saving up such a large sum feel less intimidating.
Determining A Monthly Savings Goal
The first step to establishing a monthly college savings goal is figuring out the overall maximum amount you'll pay for your child to attend college.
For example, a student who stays at home and attends a public 4-year university in their home state will require around $26,000 in total, including the commute.
From here, you can determine a monthly savings goal.
If $26,000 is your overall goal, and your child is currently ten years old, you'll have eight years to save about $3,300 per year.
That's $275 per month — less than some people's car insurance!
Staying on Track
Keeping up with your college savings plan is the same as sticking to any financial goals and commitments in your life. Remember that the long-term goal is worth the short-term sacrifices.
If you fear you can't handle this task alone, have family and friends help out. Instead of Christmas and birthday presents, ask loved ones to contribute to your child's college fund.
Adding it Up
Establishing a savings goal for your child's college tuition fund can provide a sense of security and a noticeable financial advantage once they graduate.
Just ensure you have an ample emergency fund, and your retirement savings are on track first.
After you estimate how much college will cost, how much you want to pitch in, and how you plan to save for it, you'll naturally feel less overwhelmed.
Remember that experts expect tuition to increase by 5% in the next twenty years, adjust your estimated costs accordingly, and multiply everything by the number of kids you have or plan to have.
While you might not be able to do this now, it's essential to communicate with your child as they get older to find out what their future looks like to them.
Your kid might want to stay home and attend a local University. Or they might have their sights set on going out of state and living on campus.
Discussing and establishing these plans early on can help you both make the necessary financial adjustments.
Article written by Lyric
