Discover how much college really costs and how to build a savings plan that fits your budget using tools like 529 plans and UGMA accounts with Vanguard.
Nicole Townsend, CFA
Nicole Townsend leads Investment Product Strategy in Vanguard Personal Investor, where she conducts investment product research to inform decision-making and strategic action on Personal Investor's product portfolio. In her role, Nicole advocates for the needs and preferences of Vanguard clients as part of the enterprise investment product research process focused on Vanguard's mutual fund and ETF offerings. Prior roles Nicole has held include strategy engagement manager for Vanguard Wealth Management, fixed income specialist in the Portfolio Review Department, as well as a variety of roles held within the Finance division.
Nicole earned a B.A. and a B.S. from the University of Delaware and holds the FINRA Series 7 and 63 licenses. She's a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA Society of Philadelphia.
How much to save for college
Does a child in your life have big dreams? Since education can play a large role in determining that success, saving for college is top of mind for many. In this article, we'll give you some guidance on your college savings journey by answering common questions, including:
- What's a realistic college savings goal?
- How can you create a college savings strategy?
- What's the right college savings account?
How much does college cost?
The average cost of college varies significantly based on whether the school is public or private, and whether the student is in-state or out-of-state. While many families won't pay the sticker price for a university, it's helpful to keep the published costs in mind as a guideline. For the 2024–2025 school year, the average published tuition and fees for a public, 4-year, in-state university was $11,610, while the average published tuition and fees for a private, nonprofit, 4-year university was $43,350.1
On top of tuition, there are several other costs to consider. The average nontuition costs for the 2024–2025 school year were $18,300 for a public 4-year, in-state university and $19,640 for a private, nonprofit, 4-year university.1 These nontuition expenses include things such as:
Housing. If the student plans to live on campus, they'll have to pay for a dorm room and meal plan. If they live off campus, they'll need to budget for rent, utilities, and groceries.
Books and supplies. Textbooks, course materials, and supplies can add up quickly. Students will also likely need a laptop.
Transportation. This can include gas, public transit fares, or airfare. If the student plans on commuting to campus or traveling back home during breaks, the cost of transportation can be significant.
What's a realistic college savings goal?
The high cost of many schools can make coming up with a savings goal feel overwhelming. However, it's important to note that many families pay less than the sticker price because financial aid, discounts, scholarships, tax credits, and loans help bridge the gap between the stated price of tuition and the net costs.
You'll need to consider several factors when determining a college savings goal, including income, assets, and the number of children you'll be saving for. These can affect both how much you'll be expected to pay for college and how much aid might be available. Including these as part of your savings goal will help you create a realistic and achievable investment plan.
You'll also want to adapt your plan as your needs evolve. As a child grows, their strengths and ambitions will emerge and develop, giving you a better idea of what types of programs they might want to enroll in. Once you know what their goals are, you'll want to update your financial plan to ensure you stay on track. Additionally, you'll need to adapt your planning as your family's financial situation changes. If your household income increases or decreases as the child gets closer to enrollment, this could affect their eligibility for need-based aid.
Here are some realistic strategies you can use to help save for college:
- Start early. The earlier you begin saving, the more you can take advantage of compounding, which will help your investment grow.
- Invest in a college savings account. Consider opening an account that offers tax advantages, such as a 529 plan.
- Evaluate college options. Compare the costs of different colleges and consider schools with lower tuition expenses.
- Ask for help. Consider inviting family and friends to celebrate the child's milestones with the gift of education savings by using Ugift®. The money will then be directly deposited into the child's 529 plan account.
Estimating your college savings goal
Online education savings calculators can help you determine what your college savings goal should be. Our college savings planner and college cost projector are great places to help you come up with a savings target. You can also use net price calculators, which all colleges are required to have on their websites.
Creating a college savings strategy
When coming up with a strategy on how to save, you'll need to consider whether the student will contribute to the cost of education through loans or scholarships, or if you'll pay the full cost of tuition.
If you plan to start saving once the child is born, one suggestion is to save 3% of your household income per year, per child. If you wait to save until they're older, you'll need to increase that amount to reach your savings goal. The examples below show how this savings method would work.
Example 1
If the child is born today and your household income is $100,000, you might consider saving $3,000 a year in a 529 plan. If you break that down and contribute $250 at the beginning of each month until they reach age 18, and the account earned a 5% annual return, you could expect to have approximately $87,300 by the time they start college.
This hypothetical example assumes that contributions total $54,000, and that the rate of return is consistent over the 18-year period. The actual return can vary, and it's a good idea to consult with a financial advisor to get a more precise projection based on your specific investment choices and market conditions. The example doesn't represent any particular investment, nor does it account for inflation, and the rate isn't guaranteed.
Example 2
Another way to help reach your goal faster is by using an auto-escalation feature, which is common in many 529 plans. If you take the example above where the child is born today and your household income is $100,000, you can start by contributing $250 at the beginning of each month, but set it to increase the contribution amount by $25 each year. By the time the child starts college, you could expect to have approximately $149,180.
This hypothetical example assumes that contributions total $99,900, and that the rate of return is consistent over the 18-year period. The actual return can vary, and it's a good idea to consult with a financial advisor to get a more precise projection based on your specific investment choices and market conditions. The example doesn't represent any particular investment, nor does it account for inflation, and the rate isn't guaranteed.
Monthly savings needed to meet future goals
The table below breaks down how much you might need to save each month to reach certain savings goals for school. It looks at savings goals of $50,000, $100,000, $150,000, and $200,000, and shows how much you'd have to save depending on what age the child was when you start to reach that goal.
This hypothetical illustration assumes an annual 5% return. The illustration doesn't represent any particular investment, nor does it account for inflation, and the rate isn't guaranteed.
This hypothetical illustration assumes an annual 5% return. The illustration doesn't represent any particular investment, nor does it account for inflation, and the rate isn't guaranteed.
Choosing the right college savings account
When you're ready to start saving, you'll need to decide which type of savings account is right for you. Many of the different types of accounts available offer tax advantages and flexibility. The table below shows some of the benefits of saving in 529 plans, brokerage accounts, and custodial accounts like Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts.
| Account type | 529 plan | UGMA/UTMA | Brokerage account | |
|---|---|---|---|---|
| Tax benefits | Provides federal tax benefits and may provide some state tax benefits, including tax-deferred growth and tax-free withdrawals for qualified education expenses.2 |
Not applicable. |
Not applicable. |
|
| Contribution limits | Typically has high contribution limits, but these may vary by state. It also typically qualifies for the annual gift tax exclusion. For 2025, you can gift up to $19,000 per beneficiary without incurring gift tax. Married couples filing jointly can gift up to $38,000 per beneficiary. Note: Limits on contributions that qualify residents for tax deductions or credits will vary by state. |
Contributions to UGMA/UTMA accounts qualify for the annual gift tax exclusion. For 2025, you can gift up to $19,000 per beneficiary without incurring gift tax. Married couples filing jointly can gift up to $38,000 per beneficiary. |
There's no contribution limit for a taxable brokerage account. |
|
| Flexibility | Extremely flexible, allowing you to change the beneficiary or roll over up to $35,000 into a Roth IRA3 if the child doesn't need it for qualified educational expenses. |
Less flexible, as contributions to UGMAs and UTMAs can't be revoked, and the minor beneficiary can't be changed. |
Extremely flexible; money can be withdrawn for any reason. |
|
| Financial aid impact | Low: Assets in a 529 plan can reduce financial aid by up to 5.64%, depending on who owns the account. Under the new simplified Free Application for Federal Student Aid (FAFSA), 529s owned by grandparents no longer have an impact on financial aid eligibility for the beneficiary. |
High: Assets in the account are owned by the minor, which could reduce financial aid by up to 20%. Dividends and capital gains are counted as student income, which is assessed at up to 50% on the FAFSA. |
Moderate: Assets held in a brokerage account can reduce financial aid by up to 5.64%. Dividends and capital gains are counted as parent income, which is assessed at up to 47% on the FAFSA. |
529 plan
Provides federal tax benefits and may provide some state tax benefits, including tax-deferred growth and tax-free withdrawals for qualified education expenses.2
UGMA/UTMA
Not applicable
Brokerage account
Not applicable
529 plan
Typically has high contribution limits, but these may vary by state. It also typically qualifies for the annual gift tax exclusion.
For 2025, you can gift up to $19,000 per beneficiary without incurring gift tax. Married couples filing jointly can gift up to $38,000 per beneficiary.
Note: Limits on contributions that qualify residents for tax deductions or credits will vary by state.
UGMA/UTMA
Contributions to UGMA/UTMA accounts qualify for the annual gift tax exclusion.
For 2025, you can gift up to $19,000 per beneficiary without incurring gift tax. Married couples filing jointly can gift up to $38,000 per beneficiary.
Brokerage account
There's no contribution limit for a taxable brokerage account.
529 plan
Extremely flexible, allowing you to change the beneficiary or roll over up to $35,000 into a Roth IRA3 if the child doesn't need it for qualified educational expenses.
UGMA/UTMA
Less flexible, as contributions to UGMAs and UTMAs can't be revoked, and the minor beneficiary can't be changed.
Brokerage account
Extremely flexible; money can be withdrawn for any reason.
529 plan
Low: Assets in a 529 plan can reduce financial aid by up to 5.64%, depending on who owns the account.
Under the new simplified Free Application for Federal Student Aid (FAFSA), 529s owned by grandparents no longer have an impact on financial aid eligibility for the beneficiary.
UGMA/UTMA
High: Assets in the account are owned by the minor, which could reduce financial aid by up to 20%.
Dividends and capital gains are counted as student income, which is assessed at up to 50% on the FAFSA.
Brokerage account
Moderate: Assets held in a brokerage account can reduce financial aid by up to 5.64%.
Dividends and capital gains are counted as parent income, which is assessed at up to 47% on the FAFSA.
529 college savings plan
A 529 plan like the Vanguard 529 College Savings Plan is the preferred account type for college savings. These plans are state-sponsored qualified tuition programs that offer either prepaid tuition plans or investment accounts. Some states offer tax incentives for contributions, and the money in the account grows tax-deferred from both a federal and state perspective.
529 plans are popular because of the flexibility they offer for savings. The money can be used for college, trade school, vocational school, and even private K–12 education. And if the child doesn't need the money for education, you can change beneficiaries or roll the money over into a Roth IRA.3
Distributions from 529 plans are tax-free if they're used for qualified educational expenses. And you can use the money for more than just tuition. Room and board, computers and equipment, books and supplies, student loan repayments, and other general education costs are also considered qualified expenses.2
Additionally, 529 plans offer target enrollment or age-based investment options specifically designed for a college investment goal. These automatically adjust the underlying investment allocations over time to become more conservative as the beneficiary gets closer to when they'll need the funds for education expenses.
UGMA account
Custodial accounts under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act are set up to hold gifts or transfers a minor has received. An UGMA/UTMA account belongs to the beneficiary. The account owner must use the money for the beneficiary's benefit until the beneficiary reaches adulthood, at which point the beneficiary takes control of the account.
UGMA/UTMA accounts are permanent gifts to the beneficiary and aren't specifically designated for education. They offer flexibility, allowing you to invest and withdraw funds for any reason, provided it benefits the beneficiary. Once the beneficiary reaches adulthood, they can use the money however they choose.
UGMA/UTMA accounts don't have the same state and federal tax benefits as 529 savings plans and could affect financial aid.
Start saving for education today
Frequently asked questions about how much to save for college
The amount you should save for college will vary depending on a lot of factors, including your household income, when you start saving, and what type of school the student plans on attending. One rule of thumb is to save 3% of your household income per year, per child. However, if they're older, you may want to save at a higher rate.
If you aren't sure whether the child will attend college, remember that you can still use a 529 to cover the costs of trade school, vocational school, and apprenticeships. They also allow you to change the beneficiary and even roll the remaining money over into a Roth IRA if the student doesn't need the full amount.
Other account types—such as custodial accounts and brokerage accounts—offer more flexibility and aren't limited to spending on qualified education expenses.
You can update the plan's beneficiary so a child, grandchild, or other qualified family member can use the funds to pay for their education.
Starting to save as soon as possible, especially in a tax-advantaged account such as a 529 plan, is more likely to set you up for success down the road. Consider following a budgeting strategy and investing in a college savings account.
The amount of money you should have saved will vary depending on many factors, including your household income, the type of school the student plans on attending, and whether scholarships and loans will cover some costs.