The Student’s Guide to Saving for College

We all know that college is expensive, and the sticker price of college has been steadily increasing year over year. Students not only have to pay for tuition and fees, but also for course materials, travel or commute expenses, and housing costs.

While many students rely on financial aid like scholarships and grants to afford their programs, the high tuition costs mean it is important for students and families to start saving early.

This is especially true considering the investment to go to college is worth it in the long run — particularly if you can graduate with less debt. Explore our guide to saving for college so you can prepare for your financial future.

How much you need to save will depend on your own personal circumstances. These include where you are attending college, what type of institution you are attending, and whether or not your family will be contributing. You will also need to have extra money to purchase textbooks and other supplies for your classes, which can get surprisingly expensive.

Consider whether you will attend a private or public school. Public schools are government-funded and may have cheaper sticker prices upfront. However, some private schools offer better financial aid packages, which could lower your overall costs. You will also want to consider if you will be attending a school in-state — at public schools, in-state students usually pay less tuition than out-of-state students.

In the 2022-2023 academic year, the average total cost for a year at college was $38,270, or about $153,000 for four years, according to the National Center for Education Statistics. After financial aid, however, the average cost of college was $14,270 at four-year public schools, $27,950 at four-year private schools, and $7,800 at two-year public colleges in the 2021-2022 academic year.

Some students try to live off campus to save money, but national data shows that the costs are pretty similar. The cost of room and board for one year in 2022-2023 was $12,320 to live on campus or $12,270 to live off campus.

However, your family’s income, contributions from your family, and how much financial aid you receive can affect these numbers. Every student’s experience is different, and there’s no universal correct way to save.

“I think there is a lot of pressure on students and their families to do something the ‘right’ way when it comes to college, and a lot of the time the advice offered is one-size-fits-all,” says Doryann Barnhardt, director of financial aid at Gallaudet University.

Barnhardt stresses the need to reframe the question “How much should students save for college?” as “How can students begin saving for college?” This, she argues, can help reduce the pressure students and families feel to save a specific amount for college.

Regardless of how much tuition is and how much or how little you think you might get from your family, having college savings to fall back on can help you be financially secure while earning your degree.

Is it ever too soon to save for college? The short answer is no. By investing early, you give your savings more time to grow through compound returns. Therefore, you may need to save less overall to reach your goal. Additionally, if you earn any money while you’re young, you may have fewer commitments or demands on how you spend your money, so you can put more in your college savings.

“The sooner you start saving, the better,” says Barnhardt. “Every dollar you can contribute from your savings is one dollar less you will need to borrow or divert from other household expenses.”

There are a couple different ways to save for college, including through a college savings account, investing in the stock market, budgeting, or earning extra income to squirrel away.

Landing a job is one of the best ways to save money for college. High school students can find part-time jobs in a variety of fields. You could work for a shop at the mall, become a waiter at a restaurant, scoop popcorn at the movie theater, or serve as a lifeguard over the summer.

Nontraditional students may be able to dedicate their time to earning a full-time income. Some companies even offer tuition reimbursement programs to help employees earn or finish their degrees.

Putting money aside specifically for college in a college savings account means you won’t be tempted to spend that money on other things, like a trip. A 529 plan, for example, remains a popular option among college students and their parents.

Remember that most states don’t allow anyone under the age of 18 to open a 529 plan. Your parents can open a 529 account with you as the beneficiary, and you can make contributions to it. If you choose this route, keep in mind that your parent or guardian ultimately owns the funds within the account.

“The great thing about a 529 plan is that you do not pay taxes on its value as long as you use the money for educational expenses,” explains Barnhardt. “So if you are going to use savings to pay for your college expenses, it might make sense to put the money into a 529 plan instead.”

Setting up automatic transfers means you don’t need to consciously set money aside into a savings account. Instead, an automatic transfer will regularly move money from your checking account into your savings account.

This is a good option for anyone who has a part- or full-time job and who can afford to take a set amount of money out of their checking account on a monthly basis.

Investing can be risky — if you invest, you may lose or gain money based on the health of the economy. The downside is the possibility of losing money. The upside? Your money can gain value, sometimes even faster than the rate of inflation.

If you’re 18 or over, you can begin investing on your own. If you’re under 18, speak with your parents or guardians about opening a custodial account. This allows them to oversee your investment account until you turn 18, at which point you can take it over.

When it comes to personal finance in general, budgeting is essential. And it’s especially true when you’ve got a big expense on the horizon, like college. Budgeting may sound overwhelming for beginners, but you can find online budgeting guides to help break everything down.

Consider following the 50-20-30 budget rule. Under this plan, you’ll dedicate:

While using this framework, you’d be saving up to 20% of your income every month for college. If your living expenses are lower, consider saving even a larger percentage for college.

It’s worth remembering that many students do not pay the full sticker price of their tuition. Most undergraduate students pay for college with help from parents, grants, student loans, or working part time. But what works for the average student may not be the best fit for you.

BestColleges previously reported that 82% of bachelor’s degree students get financial help from their parents, and 33% of parents pay over $10,000 a year to their child’s college education.

But regardless of whether or not your parents are going to contribute financially to your college savings, the Free Application for Federal Student Aid (FAFSA) still considers your family income and assets when determining how much to award in financial aid.

However, if it is not tenable for your family to financially contribute, there are other ways you can save for college. Some schools meet 100% of students’ financial need if they meet certain criteria.

Scholarships and grants are some of the best ways you can pay for college because, unlike loans, they don’t have to be paid back. Grants tend to be need-based, whereas scholarships can be need-based or merit-based.

As a student, you’ll typically have to search for and apply to scholarships or grants yourself, but your high school counselor and college financial aid office can be great resources to point you in the right direction. Scholarship criteria and applications depend on the purpose of the scholarship and which organization is granting it.

One simple way to become eligible for various institutional, state, and federal grants and scholarships is by filling out the FAFSA.

“The FAFSA is not just used to determine how much federal financial aid a student will get; states and schools also use the FAFSA to determine eligibility for their grant assistance, so you could pass up money if you don’t complete the FAFSA,” says Barnhardt.

For the 2020-2021 academic year, around 38% of full-time undergraduate students took out federal student loans. Unlike scholarships and grants, loans must be paid back and accrue interest.

Students can apply for federal loans by filling out the FAFSA. Private loans may offer more money, but usually have higher interest rates. In addition, with a private loan you may lose some borrower protections and favorable options in the long term. The money you receive through your loan can be used to pay for tuition, housing, or textbooks. Repayment on the loans usually doesn’t start until after you graduate. It’s typically better to choose a loan with lower interest rates so you pay down more of the original amount of the loan rather than the interest.

Typically, savings accounts cover a relatively small amount of college costs for most students, but even a small amount of savings can be helpful in the long run if it means you have to take out less in loans. If you start saving now, you can rely less on your own income or federal or private loans to cover your later college costs.

Saving might be particularly important for you if you’re a nontraditional student or have dependents.

“There can be more at stake for older students because they have other people in their lives who rely on them, or they don’t have other people who can support them financially,” says Barnhardt.