Saving for your child's higher education is no small task—especially with what tuition costs these days. Read what experts have to say on the best ways to save money for college.

By Hiranmayi Srinivasan
May 13, 2021
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College is expensive—so the earlier you start saving, the more prepared you will be. Plus, you probably won't have as much sticker shock if you know what's coming. According to College Board, the current estimated budget—this includes tuition, room and board, textbooks, transportation, and other personal expenses—for a full-time undergraduate student is $26,820 for a public, in-state, four-year college, and $54,880 for a private university. And that's just for one year. Starting early not just with saving, but also having conversations with your teen about making the best financial decision when choosing a college, will help give you a better idea about how much to save—and help narrow down the search early on. Here are ways to start saving for college early, so you can be as prepared as possible for your child's future.

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1 Open a 529 account.

A 529 account is a tax-advantaged account that is specifically for college savings. 529 accounts compound over time, allowing you to maximize the money you're saving. Each state offers a 529 plan, and over two-thirds of them offer tax deductions or credits for contributions made to the account. While you can invest in any state's 529 plan, you won't be getting the in-state tax breaks if you choose this option—college savings expert and author Mark Kantrowitz advises always looking at your own state's plan first.

Kantrowitz recommends allocated investments in the 529 based on how old your child is. This means choosing a more aggressive investment mix—like 80 percent or more in stocks— when your kid is young, so if the market does crash, you have time to recover and the losses will be minimal. "As college approaches, you should shift into a mix of investments where there is low or no risk of loss, to lock in the savings," says Kantrowitz.

One thing to keep in mind about 529 accounts—while you can make tax-free withdrawals from the account to pay for education-related costs that qualify, once you take money out of the account for tuition, FAFSA will consider it income for the next two years, and it may affect your child's eligibility for financial aid. "Some experts suggest holding off making contributions from your 529 plan until students are college juniors and have filed their last FAFSA," says Jack Schacht, founder of My College Planning Team

2 Use a Roth IRA.

A Roth IRA account is also tax-advantaged, and can be used to save for retirement as well as college. Since a Roth IRA is not specific to education savings, your child can just put the money toward retirement if they choose not to go to college. However, you can only contribute $6,000 a year to a Roth IRA account if you're under 50. Returns on contributions are tax-free, but similar to 529 accounts, FAFSA counts Roth accounts as untaxed income, which can affect the amount of need-based aid your student receives. Kantrowitz recommends waiting until your child graduates from college, and using Roth IRA contributions to help pay off student loans

3 Apply for scholarships and grants.

Apply for scholarships and grants—and start early. Educational consultant Nancy Gorman advises her students to start freshman of year of high school and continue through senior year. When it comes to finding the right scholarship, Gorman says to aim for quantity over quality. Don't just apply for the big scholarships; apply for the ones with smaller award amounts because there are not many people applying to them. "You have a greater chance of winning a $150 or $500 scholarship because most people would ignore such a small payout," says Gorman.

Look within your county for local scholarships your teen can apply to as well, because the competition will usually be less than a big national scholarship. "The more specific the scholarship, the less competition," says Gorman. She recommends the website Going Merry to her students, which has a wide range of scholarships that your student can apply to. The site allows students to apply to similar scholarships using the same essay—which is a big plus if the thought of writing a ton of essays on top of schoolwork could scare a teen off from applying. 

4 Cut down on senior year expenses.

Senior portraits, prom, graduation parties, and senior class trips are all moments that are fun and really important in a high school senior's life—but they can definitely do some damage to your budget and take away from college savings. Shymika Stephenson-Davison, college readiness coach at Precollege Solutions, says that families can spend anywhere between $1,000 and $5,000 on senior year celebrations.

Consider having your teen rent their prom outfits, or opt for a budget-friendly graduation party at home, so you can still celebrate those special senior year moments while saving most of your money for college. 

5 Start saving for college ASAP.

You want to start saving for college when your child is still young. Kantrowitz recommends saving about one-third of future college costs. "Like any major life-cycle expense, the costs will be spread out over time," says Kantrowitz. "With about a third coming from past income (savings), a third from current income, and a third from future income (student loans)."

Based on current costs, you should save $250 per month for a child born this year who will attend an in-state public college, $400 per month for out-of-state, and $500 per month for a private college. Start the college savings—and the conversation—early so you and your child can make the best academic and financial choice for their future.