How (and How Much) to Save for Your Child's College Education

If you are a parent, your child’s future well-being is probably at the top of your mind all the time. One way you may consider doing this is by establishing a college fund for them to reduce the financial impact of higher education. It’s no secret that the cost of a higher degree is a huge expense—and it’s only going to get more expensive with time.

But is a college degree all it’s cracked up to be? Depending on you and your child’s life goals, research suggests it is. The skyrocketing costs, however, means most of us will need a long-term, disciplined approach in saving for kids’ college educations.

According to collegedata.com, the average annual cost of public college tuition and fees for the 2023-2024 school year was $28,840 for in-state residents and $46,730 for out-of-state students. And the average $60,420 price tag for private school can be even more intimidating with some costing even more than that. An annual rise of about 4% across the board for college expenses only adds to the price tag over time.

How Do I Save for My Child’s College Education?

There are a few methods you might utilize to begin a college fund for your child. Each comes with its own advantages, and your Financial Advisor can help you determine which option is right for you.

529 Plans

A 529 plan is a tax-advantaged savings plan designed specifically for education expenses. This education-oriented investment account allows you to invest in various funds, with the account growing tax-free provided the withdrawals are used for qualified education expenses. An advantage of 529 plans is that, should your child choose to forgo a traditional college education, these funds may be able to be applied toward primary school expenses, a trade school or other educational venture.

Coverdell Education Savings Accounts (ESAs)

Similar to a 529, a Coverdell Education Savings Account (ESA) is a tax-advantaged investment account designed to encourage savings for future education expenses. These accounts are designed for non-high-income earners and come with more flexibility in how funds can be applied than a similar 529 plan. One important factor to consider with ESAs, however, is a $2,000 per year contribution limit as well as age limits for contributions and when the funds may be used by its recipient.

Which college strategy is right for you? 

As with many financial questions, the answer is: it depends. Your financial advisor can help guide you through this process, but one of the most important aspects of an investment this large is to start as early as possible. In fact, the earlier you start saving, the less you should need to put aside on a monthly basis. Use our Saving for the Future calculator to determine how much you should be saving based on the age of your child and the anticipated tuition. Regular, automatic transfers can help keep you on track as well.

Let’s say you want to save $100,000 for your child’s education by the time they turn 18. Using our calculator above, you can see that if you begin depositing about $295 per month into an account returning 5%, you could accumulate that figure.

How Military Families Can Pay For College

Serving in the military may grant you access to a host of benefits that could assist your family in paying for college, either for yourself or your children.

Post 9/11 GI Bill

There are many benefits of the Post-9/11 GI Bill. For starters, it covers the full cost of public school tuition for four years. For those with their hearts set on a private college or university, it can put a dent in the tuition bill, but there are funding limits. In exchange for additional service time, eligible recipients can transfer their benefit for use by a spouse or child. There are certain limitations to this benefit, but those with families may find this an enticing option. This may be an enticing option for those who are currently serving in the military and would rather pass these benefits to their children rather than use them on themselves. There are a few more restrictions on this benefit, which you can find listed here.

Scholarships for Military Families

Another way you may be able to help is by guiding your child through the scholarship application process. There are a host of scholarships available to the children of military veterans, some offering up to $40,000 total toward the cost of higher education. They can also usually be combined with other scholarships (academic, athletic, further military scholarships), VA/GI Bill benefits, and university financial aid. A preliminary list of scholarships for children of veterans can be found here.

Other Tips and Tricks

1. Community college can be a great option for those looking to maximize the value they receive for their college education. Many community colleges have programs to transfer credits to a four-year institution to reduce the cost of a bachelor’s degree.
2. Student loans can cover the difference between your expenses and savings, but proceed with caution. These loans can last for years and weigh down your child’s income. Federal loans are generally a better option than private loans, as the rates are almost always lower and the payment terms tend to be more favorable.
3. Almost every school may offer some form of financial aid for students from lower-income and middle-class backgrounds. Each school has different programs available, and asking for financial aid can reduce tuition or living costs.
4. Remember to care for your own financial health while helping your child pay for college. Think of it this way: in the event of an airplane emergency, passengers are instructed to put their own oxygen mask on first before helping others. You probably can’t be as helpful to your children in the long run if you are sacrificing the whole of your savings or compromising your retirement.

Connect with a Financial Advisor

The college savings process may sound complicated, but there are qualified professionals that can help you make and stick to a plan devised for your individual financial circumstances. As you take steps to invest in your child’s future, your Financial Advisor can provide guidance on 529 plans and ESAs, fund allocation, and how savings can impact financial aid eligibility. And then they can serve as your personal financial coach, helping you make smart, informed decisions at every step of your financial journey.

Prior to investing in a 529 College Savings Plan, you should compare the Plan with any 529 college savings plan offered by your home state or your beneficiary's home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state's plan. Please read the Plan's Disclosure Document which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing. For this and other information on any 529 College Savings Plan, contact your First Command Financial Advisor.

Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions or other factors as applicable. 

As with any investment, it is possible to lose money by investing in a 529 College Savings Plan.

Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.