How Much Should You Save for Your Child’s College?

Quick Answer

The amount you decide to set aside can depend on a few factors, including where you anticipate your child will attend school, how much of their expenses you want to cover and your budget.

Father using his laptop with son to plan college savings.

When it comes to saving money for your child's college education, there are no hard-and-fast rules. Some college experts provide some rules of thumb, but how much you should save is ultimately determined based on your budget, how much of your child's expenses you want to cover and where you anticipate they'll attend school.

With that in mind, these steps can help you get a rough idea of what you should start saving right now.

Determine Your Ability to Contribute

Before you open an educational savings plan, figure out how much you can reasonably contribute to it every month. Here are some steps you can take to make your decision.

1. Take Care of Your Financial Plan First

It's a worthy goal to help your child financially, but as you'll hear during every airplane safety demonstration, it's crucial that you make sure your own oxygen mask is affixed before you help others.

More specifically, it's important to first focus on your own financial security. In particular, you'll want to have a good start on your emergency fund and be on a good track with your retirement savings—in order to protect the interests of your child now and ensure you don't burden them in the future.

Note that you don't have to have everything else in your financial plan completely secure before you start saving for college. But if your other financial goals still need some work, you may consider starting with a lower college savings contribution to start, then increasing it later on.

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2. Review Your Budget

If you haven't already made a budget, review your income and expenses over the past few months and categorize each expense, so you know where your money is going.

Then, figure out how much you can afford to consistently set aside each month toward education savings, taking other important financial goals into account. Over time, you can track your expenses and make adjustments to your budget to increase your savings.

Remember, though, that 529 plans and other educational savings accounts may not allow you to withdraw money for non-educational expenses without incurring a penalty. So, avoid setting aside money that you might need access to later.

3. Set a Limit

You'll also want to determine your limit for how much you want to save. Here are some potential scenarios:

  • Pay for all four years at a state university.
  • Pay for all four years at a specific college or university.
  • Cover a portion of the costs and have your child make up the rest with scholarships and other financial aid.
  • Pay only for tuition and expenses.
  • Cover all expenses not related to tuition and fees.

As you consider these options, make sure you're aligning your goal with your budget.

Aim for at Least One-Third of the Total Cost

Some college experts recommend that families should aim to cover about one-third of the average cost of tuition using their college savings. In theory, you could then cover the remaining costs using current income—assuming you'll be making more money in the future than you are now—and financial aid in the form of scholarships, grants, student loans and more.

Keep in mind, though, that the cost of college keeps rising. So, if you're using tuition figures from the current year, you may need to use an online college savings calculator to get an idea of what tuition might look like by the time your child graduates from high school.

And because you can invest college savings in a 529 plan, you can also factor in average annual returns based on the makeup of your portfolio.

Help Your Child Set Realistic Goals

As your child gets older, start a conversation about where they want to attend school and how much it'll cost. Also, talk to them about alternatives and the importance of applying to multiple schools, so they can compare financial aid packages.

For each school they're considering, talk about the potential advantages and disadvantages. For example, they may want to attend a more expensive university to take advantage of better resources and more prestigious programs, but they may need to cover a more significant portion of the costs with a part-time job or student loans.

On the flip side, if they opt for a less expensive school, they may be able to graduate with little to no debt, but they may not get the experience they want.

In the end, it's important to empower your child to make the best decision for them based on all of the information that's available.

The Bottom Line

Deciding how much to save for college can be challenging, especially if your children are still very young. You can make assumptions about the future, such as how much tuition will cost, whether your child will get scholarships, which school they'll attend and more, but a lot of it is guesswork.

However, walking through these steps can make it easier to gauge your ability to save for college and also determine the right amount to set aside each month. Take your time to consider all of the important factors in the decision-making process, and don't be afraid to make adjustments to your savings plan along the way.