How much to save for college: 4 common questions

College financial planning comes with some big questions—not least of all its looming, uncertain price tag. Get answers to four of the biggest ones so you can start preparing for your child’s education.

1

How much do I need to save for my child’s college fund?

The cost of college depends on several factors, such as:

  • Your savings timeline: How long do you have until your child will be ready to attend college? More time means more opportunities to contribute to savings and more time for any investments to have the potential for growth. Less time means fewer opportunities to build up savings or any potential earnings from investments.
  • Public or private: While public colleges receive funding from their states, private colleges rely heavily on donations and tuition, so tuition at private schools tends to be higher. In 2018–2019, the average cost of tuition and fees for in-state students at a public four-year college was $10,230, according to the College Board; a private four-year college was $35,830.
  • Special programs: Spending a semester abroad or pursuing special coursework during the summers are enriching opportunities. They come at a cost, however, such as airfare, program fees and extra housing and food expenses. Talk to your student now about whether they’re interested in taking part, because planning ahead for them can help put them more easily within reach.
  • Advanced study requirements: Pursuing a profession that requires a post-graduate degree means funding more schooling than just a four-year degree—either by you or your student, or a combination of both. It isn’t always practical for your graduate to work for a few years after college to fund that study, as in the case of a would-be physician. Understanding how much additional schooling is needed and what it could cost can help you both understand the size of your education savings goal.
  • Living expenses: It will be tough to get an idea of how much the costs of daily life could affect your college savings until your child has a short list of potential schools to attend, but it’s worth knowing about. Consider how different the costs can be for a student whose college is in a rural setting where on-campus housing is available for all four years but a car is a necessity. It’s quite different than for a campus in a major city where housing costs are likely to be much higher but a car isn’t needed.

Once you have considered these variables, estimate your tuition bill. Just keep in mind that if you’re starting early, costs are likely to be higher in 10 or 12 years.

2

What can I do if I start saving for college late?

Look for ways to trim your budget so you can free up money to save. You can also ask friends and family to make contributions to your child’s college savings as birthday gifts. You might also encourage your teen to consider starting at a two-year community college, where they can earn credits at a fraction of the cost of a four-year program—and may be able to transfer those credits to a four-year school later on. While you’re spending less on tuition for those introductory, transferrable credits, the bulk of your child’s college fund can have the potential to continue growing. Compare college savings plans from Merrill.

3

How else can I pay for college if I can’t save enough?

Families pay for college by using several sources. In 2018, 47 percent of tuition payments came from parent and student income and savings, Sallie Mae notes. Other sources, including scholarships, grants and loans, help pay the rest. A variety of government and private sources, including the schools themselves, offer these.

Ask your child to meet with their high school guidance counselor about how to qualify for aid and any local scholarships. Cultural, professional and religious organizations in your area—and perhaps even your employer—may offer aid that you weren’t aware of. And if you and your child have started looking at schools, contact each school’s financial aid offices to learn about resources and opportunities they might have.

Tip: The federal government awards about $120 billion in grants, work-study funds and low-interest loans each year. To tap into that aid, you must fill out a FAFSA—the Free Application for Federal Student Aid.

4

What is a 529 plan and how can it help me save for my child’s education?

A 529 education savings plan is a tax-advantaged account designed to help families put away money for future education expenses. 529 education savings plans generally offer a mix of investment options. In addition to offering the potential for tax-free growth, withdrawals from 529 plans, including any earnings, are tax-free when used for qualified higher education expenses such as tuition, room and board, computers, and books or supplies.1 Keep in mind that, as with any investment, a 529 can lose money. Learn more about Merrill 529 education savings plans.

Tip: Some states offer state tax deductions for contributions made to in-state plans; check with your state before choosing a plan.

Prepared with these answers, you and your child can start planning for college with the confidence that comes from knowing how to make good choices for the future—no matter how close that future may be.

  1. To be eligible for the favorable tax treatment afforded to any earnings portion of withdrawals for Section 529 accounts, withdrawals must be for “qualified higher education expenses,” as defined in the Internal Revenue Code. If the funds are not used to pay for qualified higher education expenses, any earnings are subject to income tax and an additional 10% federal tax, and may also be subject to state and local income taxes. As of January 1, 2018, distributions for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school are also federal income tax free up to a maximum of $10,000 of such distributions for such tuition expenses per taxable year per designated beneficiary from all 529 accounts.
Close Disclaimer

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

Up Next

Contact Us

  • Mon-Fri 8 a.m. to midnight Eastern
    Sat 8 a.m.-8 p.m. Eastern, Sun 9 a.m.-8 p.m. Eastern

    866.736.2205 Mon-Fri 8 a.m. to midnight Eastern
    Sat 8 a.m.-8 p.m. Eastern, Sun 9 a.m.-8 p.m. Eastern
  • Schedule an appointment

Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation (BofA Corp.). MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of BofA Corp.

Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC and wholly owned subsidiaries of BofA Corp.

Investment products:

Are Not

FDIC Insured 

Are Not

Bank Guaranteed

May Lose Value


Neither Bank of America Corporation nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.