Money Essentials

College savings strategies

If you save early and wisely, college may be affordable after all


Few people question the value of a college education, but the cost is enough to break the bank for a lot of families. With the cost of higher education rising faster than inflation, parents of today's 4-year-olds may face college bills of more than $200,000 - and that’s for a public college! Private universities are more like $400,000.

Sure, the numbers are scary. But if you start saving regularly while your child is in diapers, you'll put yourself in a good position financially by the time your son or daughter is ready to hit the co-ed bathrooms. (For help in setting up a savings plan, try our College Planner.) Also, don't forget that the availability of financial aid, loans, and education credits and deductions means you may not have to foot the entire bill yourself.

Indeed, you shouldn't if you're short on retirement savings. As a parent, you might think your most important financial duty is to pay for your children's education. You'd be wrong. Saving enough money for your own retirement is even more crucial.

Your children have a lot of resources besides you to help feed the tuition monster, but no one is going to help you finance your golden years. And, you don't have to worry that socking money into a 401(k) will be held against you if you apply for financial aid. Formulas used to assess need generally don't consider retirement savings as an available asset when determining how much parents can contribute to tuition.

Putting too much money in your child's name, however, might work against you. While it's true that a child's income is usually taxed at a lower rate than a parent's income, keeping funds in a child's name can reduce your financial aid package. Colleges use a formula for aid that assesses a family's need based on up to 5.64% of parents' available assets and on 20% of assets in a child's name or custodial account.

calculator
How much will you need for college?
glossary
Glossary
take the test
Take
the test
more lessons
More Money Essentials
lessons
Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
Some Converse copycats cost big bucks A few bargain brands got swept up in Chuck Taylor's net, but others cost a pretty penny. More
Urban infrastructure gets a second life Railroad beds become parks, power plants become aquariums and slaughterhouses are now art centers as an industrial past turns people-centric. More
Boomtown moms From working mothers raising their kids in RVs to stay-at-home moms who spend their days organizing events for the Oil Wives club, meet the moms of North Dakota's oil boom. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.