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How Much Should I Save for College?

How much should I save for college?

How will you help your child save for college? This could be a scary thought. For one thing, most people have no idea how much college is going to cost  years from now when their child starts attending. The actual amount is as varied as the number of institutions there are to attend. But this shouldn't stop you from trying to come up with a basic plan.

This is a process you should begin when your child is young. As with other savings goals, the earlier you start the better. If you have a teenager, come up with a plan as soon as possible. Some things to consider:

  • How much of your child's education will you pay for?
  • Do you assume they are going to a private school, local state school, or out-of-state?
  • Are you paying for the entire undergraduate degree or a specific period of time? What about grad school?
  • How much of their education might be funded through grants and scholarships?
  • Will it be necessary for them to get student loans?
  • Have you looked into various college savings plans, and should you even use them?

While these questions may be difficult to answer up front, try to answer them as best you can. You'll probably find your savings plan will need some adjustments as time goes by. I'd recommend working with your child when they're old enough.

Average Cost of College

When some of the above questions cannot be answered (such as where your child will go to college), it's common to base your plan on an average college cost. According to, the average cost of tuition and fees in 2010 is $7,020 per year for in-state and $11,528 for out-of-state. Private four-year tuition and fees are in the neighborhood of $26,273. This College Cost Finder tool can help figure out approximate costs of public or private schools by entering the name of the college or state where your child will attend school.

Not all students begin their education at a four-year university. Students can obtain general education credits or an Associates degree at junior or community colleges. The average cost for a two-year school tuition and fees is about $2,500 for the current school year. Most end up saving money when starting off this way. Another incentive is that kids can boost their GPA if needs be. Students will want to make certain the credits they  take with transfer to their future university.

Plan for Rising College Costs

There is no set formula to determine how much college costs will increase over time. Based on historical pricing data from (webpage no longer available), the average annual percent increase between the 2000-2001 and 2009-2010 school years was an average 5.2% for private schools and 6.5% for public schools including tuition, books, fees, room and board. To estimate how much you may have to pay for college in the future, you could use the Inflation Calculator (entering the inflation rate and the current cost of college as the Present Value). It will benefit you to keep up-to-date with inflated college costs so that you can adjust your savings plan as needed.

Should Your Child Help Pay for College?

The answer is yes, but how much is something you will need to decide. Some students get a job to pay for the day-to-day expenses, but cover the tuition and other tax-deductible expenses. The benefit to this approach is that it can help teach them better money management skills--something they need to learn. Involving your child in with the budgeting will help them know what they will need to pay for.

Using the College Savings Calculator

College Savings Calculator

Now that we've talked about the costs and how much you may be planning to contribute (vs. what your children will pay themselves), you can plug the numbers into the College Savings Calculator to develop a plan for reaching your goals. You can make the necessary adjustments according to your child's age and amount needed for the school. This is a great way to keep track of your college savings goals.

Download the College Savings Calculator

Let's try an example: Say we begin saving for my child's college education when he turns eight years old. We think he will attend the local public university full-time. We will cover his books and tuition for his undergraduate degree.  We researched savings options and found a CD (Certificate of Deposit) with a 2% interest rate and decided on that because we know the money will be in there for some time.

We plan on making payments for ten years until he graduates from high school. Tuition inflation will occur over the given time period. We use the Inflation Calculator and the current figure of $7,020, adding 6% to every year and discover that tuition and books will cost around $12,572 the first year, as shown in the screenshot of the Inflation Calculator below.

College Cost Inflation Example

Inflation Calculator Example - College Cost Inflation

We estimate the costs to be $13,326, $14,126 and $14,974 for the following 3 years. We put the cost for each of the 4 years of college into the "Costs This Year" column of the College Savings Calculator as shown in the screenshot below.

College Savings Yearly Schedule

The calculator shows us that we'll need to save about $383.27 each month if we are going to be able to pay these college costs (see image below).  We'll have deposited $48,000 and earned more than $7,000 in interest during that 10 years of saving. The total cost of tuition and books for our child will be $54,998. We may be able to find a better interest rate using some other type of account or investment, but one of the reasons we selected a CD instead of a 529 or Coverdell account is flexibility. If our child receives a scholarship or uses other financial methods, we can apply any excess funds to retirement or other investments.

College Savings Example

Using this calculator, you can figure out how much you need to save each month by adjusting the inputs based on your specific situation. Your student will be ready to begin their college experience before you know it.



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