How much to save for college
It's easy to find an "average" price for college, but understanding your own needs takes a little more digging.
Tax updates coming soon
We're working on updates that will reflect the new U.S. tax law. In the meantime, this page may not address this development.
In summary, the law expands 529 plans to include tax-free distributions of up to $10,000 per year per student to pay for K-12 expenses. Currently, 529 plans offer tax-free withdrawals only for college expenses.
We recommend that you consult a qualified tax advisor about your personal situation.
First, figure out what you'd like to cover
With multiple financial goals to juggle, most parents don't plan to pay 100% of their kids' college costs. It's smart to think about how much you plan to pay well before that first tuition bill comes due.
If setting a target seems daunting, here are some helpful ways to think about it.
Follow the crowd
In 2014, parents hoped to cover 38% of the cost of college through a combination of income, savings, and borrowing.
Source: Sallie Mae.
If you prefer to have your child shoulder some of the load, explain how much you plan to pay and what you expect him or her to cover.
What do others do?
In 2014, 56% of students reported that they paid some of their college costs with their own income and savings.
Source: Sallie Mae.
Figure out what you might be expected to pay
Many schools take into account your expected family contribution (EFC)—a formula used to calculate federal financial aid—when determining your tuition bill.
In general, the cost of a particular college minus your EFC equals your financial aid package. You can get an idea of what your family's expected contribution would be today using the calculator below.
Plan to cover 100% of certain costs
For example, you might plan to save enough for:
- Tuition only (about 50% of the total cost for public schools; 75% for private schools).
- Room and board, books, and fees (about 50% of the total cost for public schools; 25% for private schools).
- The first two years of college (50% of the total cost).
Next, calculate an amount based on your target
Our college savings planner makes it easy to see how much you'll need to save per month in order to meet the goal you've set.
The college savings planner assumes that you'll earn a specific rate of return on your college savings. So once you know which asset mix you'll be investing in, you may want to come back and adjust your return expectations.
If the planner's recommended contributions seem high for you, figure out whether you'll be able to use some of your income to pay for college while your child is attending. If so, this amount can be deducted from what you'll need to save.
Typically, the biggest way parents contribute to college costs is by using their current income. In 2014, parents used an average of $6,973 of their income to pay for college.
Source: Sallie Mae.
Keep in mind:
If you used the EFC calculator to get the amount you'd be expected to pay today, you'll need to account for inflation during the years before your child reaches college. To do so, choose to "Enter a custom amount" in the college savings planner and put your target annual amount in that field. Then set the "% of cost you plan to cover" to 100%.
If you have more than one child
The EFC formula takes into account both the size of your household and the number of children you have in college at one time, so you'll probably be expected to pay less per child.
You may also expect to need less for one of your children if he or she plans to go to a lower-cost school or is likely to get merit-based aid.
Run the numbers for each of your children separately. If it turns out that you won't be able to cover your target percentage for all your children, adjust your plan accordingly.
Bottom line: Save as much as you can
When it comes down to it, you'll need to reconcile your numbers with what you can truly afford. Saving for college is important, but it needs to work with your other priorities, like saving for retirement or building an emergency fund.
Be sure you're doing all you can, though. Cutting expenses to save an additional $25 a week could have a huge impact in the long run—and make it less likely that you'll struggle financially when it's time for college.
Saving more can have a huge impact
This hypothetical illustration assumes an annual 6% return, as well as a weekly deposit for 18 years, for all examples. This illustration does not represent any particular investment nor does it account for inflation. There may be other material differences between investment products that must be considered prior to investing.
Got your number?
One way to boost your college savings is to take advantage of tax breaks offered by certain kinds of accounts. See which ones can help you reach your goal faster.
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Get the basics on college saving
WHERE DOES COLLEGE FIT INTO YOUR PRIORITIES?
The amount of money you'll be expected to pay for college out of pocket, which influences the amount of need-based federal aid you'll qualify for. It's mainly based on parent income and assets, student income and assets, the size of your household, and the number of people currently attending college in your household.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
This chart shows what your final balance might be if you save different amounts each week. If you save $25 a week for 18 years, you could have a total balance of about $42,600. Increase your contribution to $50 a week over 18 years and your balance could go up to about $85,200. See an even more dramatic spike in your balance when you contribute $75 a week over 18 years—and boost your savings to about $127,800. (All examples assume a 6% annual return.)