Setting Your Financial Goals
According to U.S. News1, the average cost of college tuition and related fees per year in 2023-24 is:
- $10,662 for public, in-state
- $23,630 for public, out of state
- $42,162 for private
This means that for current students without scholarships or grants, in-state, public college may cost over $42,600 to get a four-year degree. That figure doesn’t include room and board, so that’s an additional consideration, and of course, there will be increases in tuition over time. But don’t let the numbers stress you out. Instead, plan and prepare ahead so you can start to earn compounding interest from savings accounts. This will let your money do a lot of the work for you.
College tuition doesn’t necessarily go up every year. Some universities freeze prices and occasionally even lower them. However, you should expect the cost of education to at least keep pace with inflation, so it’s conservative to think that tuition can go up 2 to 3 percent a year. To give your family a cushion, consider saving between $60,000 and $100,00 for your child’s education.
Creating a Budget
The best way to start saving is to create a realistic budget that takes into account all your necessary and recurring expenses, and then being able to stick to it. Life circumstances, and of course budgets can be revised, but the more you can save early, the less you need to save later — so try and start out with a realistic, yet rigid plan.
Expenses you should budget include:
- Rent or mortgage
- Health and childcare
- Transportation and vehicle costs
- Groceries and toiletries
- Retirement savings
- Internet and entertainment (cable, satellite, streaming services, etc.)
- Utilities (water and sewer, heating and cooling)
- Insurance (renter’s, auto, homeowner’s, etc.)
- Debt payments (personal loans, credit card interest, etc.)
- Phone bill
Maximizing Savings Vehicles
There are several types of savings vehicles that can help in your quest to save for your child's education, but let’s focus on two of the best: 529 plans and Coverdell Education Savings accounts.
529 College Plans
529 plans are state-sponsored, with their terms and conditions varying slightly from state to state, but they don’t need to be used for in-state education expenses. For example, if you live in Massachusetts, your child can go to school in New York and still be able to use funds from the family’s 529 plan to pay for education expenses.
A big perk of using 529 plans is they are flexible and offer tax-free growth. Most states allow you to save as little as $50 a month or you can even set aside a total of $100,000 or more. Withdrawals for qualified expenses are exempted from federal income tax and 529 plans can even be used to pay down student loans.
Coverdell Education Savings
With a Coverdell Education Savings account from DCU, you can contribute up to $2,000 per year, with tax-free distributions when you need the funds. All of DCU’s IRA programs can be used for Coverdell Education Savings accounts, offering a variety of options to save.
You can make contributions to your fund until your child reaches the age of 18. Funds must be used to pay for qualified education expenses by the time your child turns 30. If your child doesn’t use the money by the time they’re 30, the money will still be distributed to them but the amount will be taxed.
Other Savings Vehicles
In addition to 529 plans and Coverdell savings, certificate accounts, and high-yield savings accounts are great for growing money. The trick with these is to make regular contributions in order to grow your money. Use our college costs calculator to help determine how much you should save for college.
Learn About Grants and Scholarships
While you can’t bank on your child to receive these, especially when education costs are far down the road, you should still look into these and understand what kind of assistance is out there and how to apply for them when the time comes.
To pair with grants and scholarships, community and junior colleges can also be good, more affordable options. Some young adults reach their late teens unsure of their future and career prospects, and focusing on much of their general education credits while figuring that out at a cheaper, local school can be a great way to save on the bottom line.
Monitor Your Savings, Update as You Go
As your life changes, so will your budget. Some years it will be easier to save more than others. When times are good, consider going the extra mile and setting aside more than you need to. That way, if things worsen, you’ll be better able to absorb rougher times when it’s harder to save. And no matter what you do, never stop contributing to your retirement savings.
If you are interested in additional ways to increase savings, speak with staff from your local DCU branch or a trusted financial adviser.
Keep Your Child in the Loop
In addition to saving, keep your child in the loop. In addition to them learning about financial literacy and responsibility, you can help prepare for the future together. Let them share their dreams and goals with you, that way you both understand what you’re saving for.
Make Saving Easier With DCU
Saving for college doesn’t need to be a daunting task. Save early, save often, and take advantage of the tools available to you for best results. Centered around the needs of our members, our not-for-profit credit union is ready to help you and your family achieve your financial goals. In addition to Coverdell Education Savings accounts, DCU has high-yield savings accounts that pay one of the highest rates in the United States. Check out our Parents’ Guide for additional consumer education that can help you save.
