How Much to Save for College: A Parent’s Guide
Wanting what’s best for your kids, keeping them safe, and raising them up to become good and thriving adults—these are the pillars of parenthood. But underneath those pillars are an endless supply of questions, most of which stem from the ultimate question, “Am I doing this right?”
We can’t help you with all the current debates of how to raise your kids. But we can help you when it comes to the topic of how much to save for college.
So, boil up some 15-cent packaged noodles to get yourself in that college mind frame, and then get out your No. 2 pencils to take notes. (Okay, you don’t actually have to take notes.) Your very own College Savings 101 is about to begin.
How Much Do We Need to Save for College?
This question doesn’t have a direct answer. It’s affected by several variables, like how much your child earns in scholarships or what college your child attends. The point isn’t how much you need to save for college—it’s when you should start saving for college and how to make paying for college in cash a priority. Let’s break it down.
Put yourself first.
These words seem completely illogical for any parent. When was the last time you put yourself first? Parenting is about sacrificing your time, your emotions—and your money. But when it comes to saving up for your kids to go to college, you need to step back and put yourself first.
What we mean is that you should invest in retirement before you save for college. Listen, your kids may or may not go to college—but you will retire. Putting retirement first is not selfish. It’s wise.
That’s why we have our Baby Steps in the order we do—it’s a tested path that’s been proven time and again. Don’t turn off the path shown in the image below—because you might get lost in the financial woods or fall off a debt cliff.
Explore college options.
Unless your local community college or vocational school has a tuition-free program, no college is “cheap.” Still—some options are far, far, far more affordable than others. Check out these numbers:1
In other words, you could save up to $32,000 by sending your kid to a public vs. private college. Here’s the deal: Having a fancy school listed at the top of your kid’s eventual resume won’t get them a job. Being qualified, hard-working, enthusiastic, knowledgeable and a team player—these are the things employers are looking for. You aren’t robbing your children of a fantastic future by selecting a more economical academic option.
Of course, we have nothing against private schools as long as you’ve got the money to pay cash—from savings, income, scholarships or grants—for those tuition bills. But do not take out loans, compromise your budget, or stop investing in retirement just to get your kids into their dream school.
Make paying cash for school the only option.
Most people believe you can’t go to college without taking out a loan. But that’s a freaking lie. A lie that is ruthlessly strangling the future right out of far too many Americans.
Right now, the total amount of student loan debt in the U.S. is about $1.5 trillion.2 Yes. Trillion. That’s higher than auto debt, which is $1.28 trillion.3 That’s higher than household credit card debt, which is $848 billion.4
Walking across the stage, grads carry not only their degrees, but also an average of $37,000 of debt with interest rates ranging from 5.05%–7.6%. 5 6 They can’t truly move forward under that weight. Seriously. Of the various forms of household debt, student loans carry the highest delinquency rate.7
Is that what we want for our children—to have them so suffocated by debt the minute they toss their caps in the air that they’re unable to breathe life into their dreams for the future?
No. It’s the opposite of what we want.
So, let’s do something different. Because even though taking out student loans is normal for most people, normal sucks. Your child can go to college debt-free. We’ll tell you how.
The Best Ways to Save for College
Before you start stuffing money under your mattress or burying it in the yard as a college fund, how about you look over these more profitable options:
Set up an Education Savings Account (ESA).
When you’re ready for Baby Step 5, don’t start with the mattress or yard holes, but with an Education Savings Account (ESA). An ESA works a lot like a Roth IRA because your savings grow tax-free. You can contribute up to $2,000 per year, per child. You’ll use your ESA to invest in good growth stock mutual funds that have a history of strong returns.
So that’s $2,000 a year per child. What if you’re able to sock away even more? (As in save, not store in a sock. Don’t hide your money around the house, unless it’s quarters in eggs for Easter.)
Invest in a 529 College Savings Fund.
A 529 plan is a great option because it also grows tax-free. Just know there are such things as bad 529 plans. Just say no to prepaid tuition plans and any with fixed investment options. A good 529 plan is like a ring from Captain Planet—you have the power to pick your funds and choose how much you invest in each type.
Build saving for college into your budget.
Any time you start paying or saving for something new, you need to make room in your budget. It’s time to make a sparkly, new budget line!
If you have EveryDollar, simply scroll to your SAVINGS category, click “Add Item,” and label it. Then you can tap the dollar amount and enter how much you’ll put away each month. If you’re investing in both an ESA and 529, create a new line for each. If you don’t have EveryDollar, you can download it at this very moment—or after you finish reading this blog.
Whether you’re just filling up the ESA at $2,000 per child, maxing that out, and saving up even more into a 529, or doing your very best to get a few extra hundred a month for this new savings goal—remember that anything you’re able to put away is a wonderful gift for your children.
Teach Your Teen to Save for College
Another wonderful gift for your children is teaching them money management, work ethic and savings skills. All three of these things are key for your teen to go to college debt-free—and to excel while they’re there!
1. Start a budget.
You budget. Your teen should budget too. Having that expertise before going off to college will be more valuable to them than a dorm room filled with pizza. (And that’s pretty dang valuable.) Teach them to:
- list their monthly income and expenses
- always pay for their needs before their wants
- make sure they have a budget line to save every month for college
2. Take advantage of free money.
If we told you someone was handing out cash, and all you had to do was fill out some paperwork and maybe write a brief essay about your life accomplishments and goals, you’d be all over it, right?
Good news—grants and scholarships offer free money to help pay for college. Have your children start searching down these opportunities with an intensity unmatched by any WWE contender ever. Treat it like a job and spend time online searching and applying—one hour each school day and a couple hours on breaks and weekends.
This is legit! Our friend Anthony ONeal, a bestselling author, speaker and Ramsey personality, once mentored a high schooler who earned $88,000 by applying for scholarships for one hour every day for three years. Look at that number again. A little math breakdown shows that this student made about $80 an hour by investing her time this way. What? That’s well worth the time. And then some.
3. Get a job.
Another way to make college happen debt-free is for your kid to get to work. We’ve heard all the excuses to ignore this tip: Johnny should just focus on his studies, or Jane should just enjoy the college experience.
Question: Is that “enjoyable college experience” really going to be worth it when Jane is still paying off school loans at age 52? Because grads can be making payments on that debt for up to 30 years!8 And as for Johnny—research shows that students who work part time (less than 20 hours a week) often have better grades than those who aren’t employed.9
When your child works during college, they don’t just earn money. They learn time management skills. They build a level of ownership for every single credit hour they are working toward paying. These benefits are priceless.
The gift of cash and lessons on money responsibility—these are two of the best financial foundations you can create for your children. And debt-free college isn’t just possible, it’s very possible. And necessary. Make financial security, for you and your child, a priority. It’ll pay off now and well into the (debt-free) future!
If you want to get into the super fine details of how to make this possible, check out Anthony ONeal’s new book—Debt-Free Degree: The Step By Step Guide to Getting Your Kid Through College Without Loans.