Paying for college has become a huge concern for many families as the cost of higher education continues to rise. Over the past few decades, tuition and fees at colleges and universities have increased faster than the rate of inflation, leaving families struggling to cover these expenses. For many, this creates financial stress and difficult decisions about how to pay for a child’s education.
Starting to save for college as early as possible can make a huge difference. By planning ahead, you can reduce the need to rely on student loans and avoid financial pressure later on. Even small amounts saved over time can add up and lighten the burden for both you and your child.
The Benefits of Starting Early (If You Can Afford To)
When it comes to saving for college, the earlier you start, the more you can fight the impact of rising tuition costs. College expenses increase every year, often at a rate higher than general inflation. That means over time it takes even more money to cover the same education. By starting your savings early, you give your money time to grow and help it keep pace with these rising costs.
One powerful tool that works in your favor when you save early is compound interest. This means your money earns interest, and then that interest also earns interest, helping your savings grow faster over time. For example, if you start saving $100 a month in a 529 plan from the time your child is born, you could save close to $40,000 by the time they turn 18, assuming a 6% annual return. If you wait until your child turns 10 to begin saving the same $100 a month, you’d only end up with about $11,000 by the time they’re 18.
Keep in mind while $40,000 sounds like a lot of money, that covers about 1 year of college, in today’s costs. Costs could be much higher 18 years from now. In fact, according to the Charles Schwab 529 calculator you would need to save $619 a month now and for the next 18 years to cover the average cost of college for one child. You would need to save a whopping $792 a month to cover the anticipated in-state costs to attend UCLA.
Saving Strategies for Families in the "Middle Ground"
Stats like that can look impossible to overcome, especially if you’re in a financial "middle ground" — not qualifying for significant financial aid but still wanting to avoid taking on heavy debt. By planning ahead and understanding your options, you can create a savings strategy that works for your family.
529 Savings Plans
A 529 savings plan is one of the most popular ways to save for college, and for good reason. These plans are designed specifically to help families set aside money for education. Here's how they work: you contribute after-tax dollars to the account, and any earnings grow tax-free. Even better, when you use the funds for qualified education expenses like tuition, books, or room and board, you don’t have to pay federal taxes on withdrawals.
529 plans are also flexible. If your child decides not to attend college or has leftover funds, the money isn’t wasted. You can transfer the account to another eligible family member, such as a sibling or cousin, without penalties. It’s a great way to ensure your savings can still be put to good use even if plans change.
State Prepaid Tuition Plans
Another option to consider is a state prepaid tuition plan. These plans allow you to prepay for tuition at today’s rates at participating colleges and universities within your state. Essentially, you’re locking in tuition costs and protecting yourself from future increases.
The advantage here is predictability — you know exactly what you’ve paid for and can avoid worrying about rising tuition costs. However, prepaid plans have drawbacks. They’re typically limited to in-state public colleges, and if your child decides to attend an out-of-state or private school, your plan might not cover as much. Prepaid plans also don’t typically include money for non-tuition expenses like housing or books, unlike 529 savings plans.
Parent Income Budgeting
One of the simplest, yet most effective, ways to save for college is by incorporating savings into your family budget. Creating a plan to regularly contribute, as much as you can, can make a big difference over time. Start by reviewing where your money goes each month and identifying areas you can scale back. For example, cutting a few unused subscriptions, reducing how often you eat out, or opting for a more modest family vacation can free up money to put toward college savings.
By redirecting these small savings into a fund like a 529 plan or a general savings account, you’ll build a habit of prioritizing education. Even $50 or $100 a month can grow significantly through the power of compound interest when you start early and stay consistent.
Alternative Funding Options
When it comes to funding college, saving isn’t the only option—you can also explore a variety of alternative funding sources to help ease the financial burden. Scholarships are one of the best resources, and they’re available for students with various talents, achievements, and backgrounds.
To make the most of this opportunity, it’s important to start researching and applying early. Building a strong foundation in academics, extracurricular activities, and volunteer work as early as middle school can significantly increase your chances of earning scholarships. Scholarships often reward good grades, leadership roles, and community involvement, so staying focused on these areas is a smart move.
Another valuable avenue is merit-based aid, which is not tied to financial need. Colleges and private organizations award merit-based scholarships to students who excel in areas like academics, athletics, or leadership. These scholarships recognize achievements such as high GPAs, top test scores, or exceptional performance in a particular field. By striving for excellence in your areas of strength, you or your child may qualify for significant financial help.