Saving for college in some capacity—whether its 15 years in advance or while you’re a college student—is worth it. Money saved now means less money you’ll need to borrow and payback in the future.
Continue reading to learn about several long-term and short-term college saving strategies and programs for parents and students.
Long-Term Saving for College—10 to 15 years Out
Saving for college ahead of time can make financing your child’s or grandchild’s education less stressful.
If you have 10 or 15 years until your loved one starts college, try saving for college with some of these long-term saving strategies.
529 Savings Plan
A 529 Plan lets you put money aside in a tax-free investment account for education savings. You can use the funds to cover college tuition, fees, room, board, and other qualifying educational expenses like a laptop or books. 529 Plans also let you save money to fund elementary and secondary school expenses.
529 savings plans operate like a regular investment account but offer several tax benefits:
- Contributions are deductible on your state income tax in select states
- You don’t pay taxes on any money withdrawn for qualified education expenses*
- You can contribute up to $14,000 per year in a beneficiary’s account without triggering the gift tax in some states
*This tax benefit applies to all states
Each state runs at least one 529 Plan program. To view information about your state’s plan, visit your state’s website. While it’s possible to enroll in a program in another state, it’s usually most beneficial to stick with your state-sponsored plan.
Prepaid College Savings Plans
Colleges continually raise tuition prices each year. This makes it difficult to estimate how much you need to save. Several states and institutions sponsor prepaid college savings plans that lock in the college plan prices and prepay tuition (and sometimes room and board).
With a prepaid college savings plan, payments are based on your child’s age and how many years of college you want to pay for. These plans differ from a traditional 529 savings plan because you know exactly how much you need to save. Plus, the funds can only go toward tuition and room and board depending on the plan you choose.
Want more info on prepaid college savings plans? Learn about oldest prepaid college plan in the country here.
Saving for College Tip: A lot of families use a prepaid college savings plan to cover tuition, room, and board costs and use a 529 savings plan to save for books, supplies, and a computer.
High-Yield Savings Account
If your savings account isn’t earning you money, it should be. Saving for college can be as simple as opening a high-yield savings account. These accounts offer 1.8% or higher APY and keep your savings accessible.
Look at how a high-yield savings account could work for your family:
You open a savings account with a 2.0% APY and an initial deposit of $5,000. Your child is three, so you plan to add $20 each month until they start college at age 18. After 15 years, the account balance will equal $10,917.67–$8,600 contributed by you and $2,317.67 earned as interest.
Sure, $10,917.67 won’t cover the full cost of college, but it means $10,917.67 less that your child needs to take out as loans. The money can also help cover expenses like plane tickets to and from school, books, or other supplies.
Just know that if you choose this saving strategy, you must pay taxes on the interest. The amount also counts toward the parent contribution part of the FAFSA—meaning it could affect your child’s status for need-based financial aid.
A tax-advantaged Roth IRA works great as both a retirement account and an educational savings account. After-tax contributions grow tax-free, making it easier to maximize your savings. Plus, you choose where to invest the money—stocks, bonds, mutual funds, etc. Best of all, money withdrawn to cover qualified education expenses is penalty-free.
If your child decides not to attend college, no worries. You can keep the money in the Roth IRA and continue building up your retirement funds.
Since you can only contribute up to $6,000 annually depending on your age, it’s a good idea to use a Roth IRA along with another long-term saving method.
Short-Term Saving for College Tips
It’s never too late to start saving for college. Whether college is just a couple years away or you’re currently enrolled, there’s a lot you can do to build up your savings.
Reduce Monthly Spending
Want to save more? Create a budget and then spend less.
First, go through your bank account or use an online financial planning tool like Mint by Intuit to see where your money goes each month. Identify which expenses you can cut back on and which are essentials.
Expenses to cut back on might include:
- Bank fees—switch to a fee-free bank
- Eating out
- Unused or unnecessary monthly subscriptions
- Coffee from a coffee shop
- Buying books, movies, and music—check these items out at the library instead
Next, create a weekly, bi-weekly, or monthly budget for yourself. Break down essentials into categories like grocery, rent, utilities, medical, etc. to keep yourself from overspending. Plan to budget at least 20% for savings and 80% for essentials. If you don’t have many essential expenses, bump up the savings percentage as high as you’re comfortable with.
Finally, to maximize savings, put the money saved into a high-yield savings account.
Start a Side Job to Earn Extra Money
It’s easier than ever for high school and college students to earn extra money during their free time. Mobile apps make it easy to find babysitting, dog walking, or food delivery clients. The internet makes it easy to sell your artwork, work remotely, and profit off vlogs and blogs.
Start a side job to earn extra cash for your college expenses like books, supplies, and transportation. See if any of these side hustles fit your skills and interests:
- Walk dogs
- Sell artwork/crafts on Etsy, Redbubble, and related sites
- Resell products on eBay, Facebook Marketplace, and Craigslist
- Freelance writing
- Monetize your YouTube channel, blog, or Instagram account
- Delivery driving
- Rideshare driving
- Sell stock photos
- Start a photography business
Apply for Scholarships
Scholarships make saving for college a breeze. You could win a competition, write an essay, or enter a contest and walk away with enough money for your first year of tuition. Throughout high school and college, spend time each month looking for and applying to scholarships.
Get the most out of your efforts by following these scholarship tips:
- Start searching and applying in 9th grade and don’t stop until you graduate college
- Look for scholarships posted on guidance office, library, or community center bulletin boards
- Ask your parents if their workplace offers scholarships
- Ask your boss if your employer offers scholarships
- Prioritize local, church-based, and school-sponsored scholarships
- Only apply to scholarships you 100% qualify for
- Tailor your resume, essay, and application responses to the sponsor’s goals
Final Thoughts on Saving for College
Saving for college is a process that requires careful thought. Do thorough research as you decide which options make sense for you and your family.
If you’re concerned with the tax implications of saving for college, reach out to your tax advisor. They can provide specific answers based on where you live and your financial situation.
If you’re concerned about how saving for college affects financial aid, read about how the expected family contribution is calculated. Doing so can help you estimate how your savings would affect your student’s financial aid package.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)College Ave Refi Education loans are not currently available to residents of Maine. (2)The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. (3)$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 9/24/2019. Variable interest rates may increase after consummation. (4)This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 9/24/2020. Variable interest rates may increase after consummation.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.