It's easy to find an "average" price for college, but determining your own college savings goal may require some homework.
Investing for life events
How much to save for college
6 minute read
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.
Split it
If you prefer to have your child shoulder some of the load either through working or taking a student loan, explain to them how much you plan to pay and how much you expect them to cover.
See the difference between saving & borrowing
Figure out how much schools might expect you to pay
Many schools consider 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.
Calculate your potential expected family contribution
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 2 years of college (50% of the total cost).
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Expected family contribution (EFC)
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.
Where are costs headed?
It's hard to say what’ll happen to overall college costs in the future, but they generally increase an average of 8% a year.* Over time, that adds up. That's why it's so important to start saving early and make saving a priority.
See why you should start saving for college early
Use our college savings planner to see how much college could cost in the future
How much does college cost and how much will it cost in the future?
Source: The College Board, "Trends in College Pricing," 2014. Based on The College Board's 2014-2015 average cost of tuition, fees, and room and board. This example assumes an average college-cost inflation rate of 6%.
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 to meet the goal you've set.
The college savings planner assumes you'll earn a specific rate of return on your college savings. So once you’ve determined your asset mix, you may want to come back and adjust your return expectations.
Use our college savings planner
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, you can deduct this amount from what you'll need to save.
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How much does college cost and how much will it cost in the future?
This chart shows that the annual cost of public and private college is getting more and more expensive every year. In 2014, the average cost of tuition was $18,943 for public college and $42,419 for private. Fast-forward 5 years and the cost of school was $25,350 for public and $56,766 for private. In 10 years, the projected cost will be $33,924 for public college and $75,966 for private. In 15 years, the projected cost of school will be $45,398 for public and $101,660 for private. And finally, 18 years from now the projected cost of college will be $52,070 for public and $121,078 for private.
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Rate of return
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.
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Asset mix
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
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 1 child
The EFC formula considers 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 money for 1 of your children if they plan to go to a lower-cost school or if they’re likely to get merit-based aid.
Run the numbers for each of your children separately. If it turns out 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 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 considerable 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.
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Saving more can have a huge impact
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.)
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.
Open a Vanguard 529 account
Open a Vanguard 529 account
More about 529 and your options
*Source: Tuition Inflation. (n.d.). Finaid
All investing is subject to risk, including the possible loss of the money you invest.