The Student’s Guide to Saving for College

College is a big investment, which is why saving for college is so important. Learn how to save for college using smart strategies with your money.
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  • College tuition costs are increasing, putting a financial strain on students.
  • Strategizing around how to save for college can help you lower these costs.
  • There are several ways to save for college, including budgeting and investing.

College is an investment of time and money — and for many, that cost can seem intimidating or even prohibitive.

A 2021 report from the College Board found that the average estimated budgets for full-time undergraduates ranged from $18,830 at public two-year colleges to $55,800 at private nonprofit four-year colleges. These estimates included tuition and fees, room and board, and other expenses for the 2021-22 academic year.

Although these figures may seem scary, saving for college can help you tackle higher education costs in a smart and purposeful way.

This guide offers comprehensive advice on how to save for college, answering key questions and walking you through critical money-saving strategies.

How Much Do You Need to Save for College?

The amount you need to save for college likely won't be the same as your neighbor or even your fellow classmates need to save. Ultimately, your savings goal depends on your circumstances.

"I think there is a lot of pressure on students and their families to do something the 'right' way when it comes to college, and a lot of the time the advice offered is one-size-fits-all," says Doryann Barnhardt, director of financial aid at Gallaudet University.

Barnhardt stresses the need to reframe the question "How much should students save for college?" as "How can students begin saving for college?" This, she argues, can help reduce the pressure students and families feel to save a specific amount for college.

Even so, it can be helpful to estimate college costs, just to get a general idea of how much money you'll be putting toward your education.

First, consider whether you want to attend a public or private school. Public four-year universities cost an average of $10,740 in tuition in 2021-22 for in-state students, according to the College Board. In comparison, students who attended a private nonprofit four-year university paid an average of $38,070.

Keep in mind that these figures represent the sticker price of tuition — if you secure any scholarships or other financial aid, you may pay less.

You should also consider your family's income. Keep your savings goals realistic in light of how much money you're bringing in.

When Should You Start Saving for College?

While the answer to this question varies depending on factors like age and socioeconomic status, many experts agree on one thing: Start saving as soon as you can.

"The sooner you start saving, the better," says Barnhardt. "Every dollar you can contribute from your savings is one dollar less you will need to borrow or divert from other household expenses."

Without income from a part-time job, you may be unable to begin your savings journey at a young age. However, you can speak to your parents or guardians about setting aside a certain amount of money every month to begin building your college fund.

When you do begin earning your own money, start saving right away.

How Do Most Students Pay for College?

Many myths surround the dilemma of how students can afford the high price of tuition. As it turns out, many students do not pay the advertised sticker price of tuition. Instead, they take advantage of scholarships and grants.

Over half of U.S. college students received financial aid through scholarships in 2021, according to a survey from Sallie Mae. This type of aid is a great way to minimize the overall cost of college, allowing you to take less out of your savings and avoid taking out loans.

The survey also found that nearly half of families borrowed money to pay for college.

To learn whether you qualify for low-interest federal student loans, make sure you fill out the Free Application for Federal Student Aid (FAFSA).

"The FAFSA is not just used to determine how much federal financial aid a student will get; states and schools also use the FAFSA to determine eligibility for their grant assistance, so you could pass up money if you don't complete the FAFSA," says Barnhardt.

Scholarships and Grants

Securing scholarships and grants is one of the best ways to fund your higher education. Unlike loans, these forms of financial aid do not require repayment. While grants tend to be primarily need-based, scholarships can be need-based or merit-based.

According to the National Center for Education Statistics (NCES), 77% of full-time undergraduates received grants in 2015-16. This includes federal, state, and institutional grants.

One of the most commonly awarded federal grants for college is the Pell Grant, which targets students with exceptional financial need.

As for scholarships, students normally must search and apply for scholarships themselves. Eligibility criteria can vary depending on factors such as financial need, minority status, major, academic achievement, and affiliation with a particular organization.

Your high school counselor and college financial aid office are great sources for learning more about scholarships and grants. Students can start searching for sources of financial aid for college as early as their sophomore year of high school. Getting a head start can help you secure scholarships and grants before you enter college.

Federal and Private Loans

Fifty-five percent of full-time undergraduates received loan-based financial aid in 2015-16, according to NCES.

College loans can be divided into two main categories: federal loans and private loans. Loans maintain different policies around eligibility, interest rates, benefits, and repayment terms.

Federal loans are generally the best option for students. These loans typically offer lower interest rates than private loans and more repayment options. You're also not required to make any payments on federal loans while in school.

Students can determine their eligibility for federal loans and grants by filling out the FAFSA.

Part- and Full-Time Work

Another common method of paying for college is to work while in school. High school students who get part-time jobs during the school year or summer can begin building their college savings.

You can then continue to work part time while in college. See whether you qualify for the Federal Work-Study Program by submitting the FAFSA.

If you're applying to college as an older student, you may work a full-time job up until you start college or even during college. Most people who work full-time jobs while in school attend school on a part-time basis.

Understand that working full time while in school will likely be challenging, especially for established professionals.

"There can be more at stake for older students because they have other people in their lives who rely on them, or they don't have other people who can support them financially," says Barnhardt.

Being able to balance academics and employment requires a strong work ethic and proven time-management skills.

Savings and Other Sources

Saving money is a great way to prioritize the financial investment college requires. Because the most effective saving happens over a long period of time, you should plan ahead.

If college is approaching and you haven't reached your savings goals, consider taking a gap year between high school and college. Working a full-time job can also help you build up your savings account. If you have the privilege of living with your parents or guardians, you may be able to cut down your expenses as well.

Finally, consider investing to grow your savings. This comes with risks, though, which could cause you to lose money. As such, you may only want to invest a small percentage of your savings — no more than 10%. Then, maintain the remaining balance in a high-yield savings account.

5 Essential Ways to Save for College

Even if you're starting from scratch, you can follow several smart strategies to help you pay for college. Below, discover five ways to bolster your college savings.

1. Open a College Savings Account

If your parents or guardians didn't open a college savings account for you, consider opening one yourself. Putting money aside specifically for college means you won't be tempted to pull out the money for other purposes, like a vacation.

A 529 plan, for example, remains a popular option among college students.

"The great thing about a 529 plan is that you do not pay taxes on its value as long as you use the money for educational expenses," explains Barnhardt. "So if you are going to use savings to pay for your college expenses, it might make sense to put the money into a 529 plan instead."

College savings accounts differ from normal savings accounts and have certain eligibility requirements. These requirements differ depending on the type of account. Some may maintain annual contribution limits, while others may set certain income requirements.

2. Set Up Automatic Transfers

Setting up automatic transfers means you don't need to consciously make the decision to set money aside into a savings account. Instead, an automatic transfer will regularly move money from your checking account into your savings account.

This is a good option for anyone who might have a part- or full-time job and who can afford to take a set amount of money out of their checking account on a monthly basis.

Automatic transfers also work well for people who are a bit more forgetful about their personal finances and could use an automated savings system.

3. Learn to Invest

Investing can be risky — if you invest, you may lose or gain money based on the health of the economy. The downside comes with the possibility of losing money. The upside? Your money can gain value, sometimes even faster than the rate of inflation.

If you're 18, you can begin investing on your own. If you're under 18, speak with your parents or guardians about opening a custodial account. This allows them to oversee your account until you turn 18, at which point you can take it over.

If you're investing through a 529 plan, most brokerages have a set of professionally managed portfolios that are optimized based on when you're attending college. These are ideal for hands-off and beginner investors.

4. Become a Pro at Budgeting

When it comes to personal finance in general, budgeting is essential. And it's especially true when you've got a big expense on the horizon, like college. Budgeting may sound overwhelming for beginners, but you can find online budgeting guides to help break everything down.

Consider following the 50-20-30 budget rule. Under this plan, you'll dedicate:

  • 50% of your after-tax income to financial needs and obligations (e.g., rent, bills)
  • 20% on savings and debt repayment
  • 30% on anything else (your "fun" money)

5. Get a Job

Landing a job is one of the best ways to save money for college. High school students can find part-time jobs in a variety of fields. You could work for a shop at the mall, become a waiter at a restaurant, scoop popcorn at the movie theater, or serve as a lifeguard over the summer.

Nontraditional students may be able to dedicate their time to earning a full-time income. Some companies even offer tuition reimbursement programs to help employees earn or finish their degrees.

What If Your Family Can't Afford College?

Many students, especially those fresh out of high school, rely on their parents, guardians, or other family members to help cover college costs. But what if your family doesn't have a lot of savings — or even none at all — to contribute to your college plans?

Fortunately, greater financial need often provides you with more opportunities for need-based grants and scholarships, such as the Pell Grant. Many renowned private universities also aim to meet 100% of students' demonstrated financial need, some without any loans at all.

Another option is to apply only or primarily to need-blind colleges. These schools don't take into account financial need when making admission decisions.

To see whether you're eligible for federal aid, you must file the FAFSA, which typically requires your parents' or guardians' financial information if you're a dependent.

Even if your parents or guardians do not plan to financially support your higher education, you can still submit the FAFSA and potentially qualify for grants and low-interest federal loans.

If you still don't have enough money to attend college, it may be time to consider the tradeoffs, advises Barnhardt.

"Do [you] have unexplored options like scholarships, education benefits, or employer tuition remission? Which other paths to college completion can [you] choose if this particular school is not affordable?" says Barnhardt. "It is really important to be honest with yourself about what is realistic and possible, and then plan accordingly."

Frequently Asked Questions About Saving for College

How much does the average person save for college?

Fidelity Investment's 2020 College Savings Indicator survey found that families save a median of $24,000 for college — if they have a plan. If families do not have a plan, that median amount of savings drops to $10,000. This difference is one of the main reasons financial planning is so important for prospective college students.

At what age should I start saving for college?

Ultimately, the best age to start saving for college is as soon as possible. As a younger child, you may not have the resources to begin setting aside money for your college fund. But once you begin earning money from your allowance, odd jobs, or part-time or summer jobs, you can start saving little by little.

If you're too young to earn money, speak to your parents or guardians about setting up a college savings account.

How much money should I have saved by 18?

If you ask different experts, you're likely to receive different answers to this question. The truth is that a one-size-fits-all financial goal cannot encompass every student's socioeconomic background and opportunities.

The best general advice is to follow the 50-30-20 rule, which entails putting 20% of your monthly earnings into savings.

How much money per month should I save for college?

To figure out how much money you should save for college each month, you must first determine your final savings goal. For instance, if your goal is to save $10,000 and you have four years before you start college, then you should save around $209 every month. If you only have two years before starting college, aim to save at least $418 per month.

The earlier you start saving, the less you have to save because your money will also earn interest.

With Advice From:

Portrait of Doryann Barnhardt

Doryann Barnhardt

Doryann Barnhardt currently serves as director of financial aid at Gallaudet University. She has worked as a financial aid professional for over 15 years, with a majority of her career dedicated to serving underrepresented and nontraditional students. She calls herself an "accidental aid administrator," stumbling into the profession after taking a job at a small college in New York City without even so much as having glanced at a FAFSA application before in her life.

DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.

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