How Much You Need to Save for College

November 18, 2022

It’s hard to know exactly how much to save for college for every parent but one-third of a four-year program’s tuition and fees is a good place to start. Using the 1/3 of college education rule, that adds up to $45,120 for a private non-profit, $24,266 for a private for-profit, and $12,533 for a public state college. This might look like $400 or $700 per month, depending on how early you start.

You should also consider inflation in your projections, but a strong 529 plan takes care of that return. Of course, you might want to consider costs for accommodation and residence if your child attends an out-of-state school. In that case, you might tack on an extra $44,000, or a third, which is $14,666. Let’s cover how much you may need to save for college to cover your education.

The Average Cost of College by Type of School

College costs depend on the type of school — private for-profit, private nonprofit, and public schools tend to have varying tuition rates. Here’s a quick look at how college tuition and fees across different types of colleges.

Tuition for Different College Types

	Public	Private For Profit	Private Nonprofit
Four-Year Programs	$9,400	$18,200	$37,600
Two Year Programs	$3,900	15,800	$18,000

Of course, these figures creep higher with inflation.

How to Determine How Much You Will Need to Save

Tuition costs increase annually, by at least 6%. The National Center for Education Statistics found a sharp increase between 2010 and 2020 in private nonprofit college tuition, which is a $5,900 jump! Imagine you began a college savings plan in 2010 and saved up to your 2010 tuition goal in 2020. If you could lose nearly $6,000 in value then, you could certainly face the same dilemma ten years from now.

The solution? Your savings need to increase with inflation, too. That means you need to supplement your original college savings target with an investment model that accommodates inflation. The 529 plan is the best solution, but more on that later. For now, let’s cover some standard college savings amount principles.

The 3X Rule

The 1/3 Rule is based on the idea that people rarely pay for a major expense in one big lump sum. Rather, they spread out the costs over time by combining savings and debt with current income. One-third of the cost might come from past income (savings), one-third from current income, and one-third from future income (loans).

The one-third ratio provides a rough cut of a split. It is possible that some parents will save more and therefore need to borrow less. Other parents don’t save as much and may be forced to borrow more or send their children to less expensive colleges.

Most families plan to save about a third of future college costs for each child. On average, however, families save only about 10% of college costs by the time the child turns 18, falling short of the goal.

The ⅓ Rule

Based on historical college cost data, the cost of a college education roughly triples over any 17-year period from birth to college enrollment.

That’s the equivalent of an average college cost inflation rate of 6.6%. Tuition and fees tend to grow faster than the total cost of attendance, which includes room and board. Tuition inflation rates are lower at private non-profit four-year colleges than at public four-year colleges, in part because private college costs are higher.

FREE TOOL: College Savings Calculator

College Savings Calculation Example

College savings will look different depending on your children’s age when you start saving and household income. Keep in mind these college tuition estimates for 2039:

$134,260 for a four-year, in-state public college
$208,038 for a public, out-of-state college
$336,216 for a private college.

Here are a few scenarios for you to consider:

- Monthly contribution: $610
- Child’s age: 1
- Current college savings: $5,000
- Rate of return: 7%

Overall savings with a traditional savings account: $131,411

Overall savings with a 529 plan: $255,744

See how much more you can save with a 529 plan compared with a traditional savings account. Now, let’s try a scenario where you start saving a little later for college:

Monthly contribution: $610
Child’s age: 10
Current college savings: $5,000
Rate of return: 7%
Overall savings with a traditional savings account: $64,033

Overall savings with a 529 plan: $87,397

The earlier you start saving, the more likely you’ll be able to save enough for college. The second example above wouldn’t likely cover a full 4-year education. If you start later, you might need to budget and try to contribute more each month — or hope your child receives some scholarships.

Now, let’s pair your savings amounts with whether you can actually afford future college tuition. Here are a few scenarios demonstrating figures that will enable you to save enough money for your child’s college education.

$100K household; In-state public college

Household income: $100K
College: Public, in-state
Current college savings: $1,000

Rate of return: 7%
Child’s age: 1

Monthly contribution: $335

$100K household; Out-of-state public college

Household income: $150K
Scholarships: $11,000
College: Public, out-of-state
Current college savings: $5,000
Rate of return: 7%
Child’s age: 6
Monthly contribution: $610

Best Ways to Save for College

Parents use a wide range of college-saving methods to prepare for tuition fees, ideally ones with tax-free growth. Here’s a quick summary of each account:

1. 529 Plan

A 529 plan is a dedicated education savings account that offers tax benefits when you use withdrawals to pay for qualifying expenses.

Most 529 college savings plans will let you set up an automatic investment or payroll deduction for as low as $25 per month.

529 plans have an added advantage over an everyday savings account. When you save in a 529 plan, your money grows on a tax-free tree, causing it to accumulate more quickly. Your state may also offer additional tax benefits such as tax credits or deductions for 529 plan contributions.

You can make tax-free withdrawals from a 529 savings account when used for qualifying college expenses, such as college tuition. Wondering how your 529 plan may impact financial aid? Use our Financial Aid Calculator to estimate the expected family contribution (EFC) for FAFSA and your financial need.

2. Coverdell ESA

Coverdell education savings accounts function similarly to a 529 tax-wise, with a few differences. Only families under a certain income threshold are eligible. Furthermore, the maximum contributions are much lower each year than with 520 plans. Finally, a Coverdell ESA has more qualified expenses for K-12 children.

3. Custodial Account

A custodial account is a savings account with a child beneficiary and custodian, usually, a parent or grandparent, who makes investment decisions in the beneficiary’s interest. The account is held under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Upon reaching adulthood, the beneficiary gains control of the account.

4. Traditional Savings Account

A traditional savings account is your average, run-of-the-mill savings account. They’re attractive for minimal restrictions and easy access but aren’t the best fit if you want to save for college. You typically will not earn the same return as putting your money to work in the market and you won’t get any tax benefits.

5. Prepaid Tuition Plan

A prepaid tuition plan allows you to prepay for in-state public college tuition, the same for private and out-of-state in some cases. It can be a good way to lock in today’s tuition prices if you think they are going to increase by the time your child goes to college, which it always does.

How to Use a 529 Plan to Reduce College Costs

You might find it difficult to visualize 529 plan savings for the many years to come. After all, college isn’t for another few or many years, depending on your child’s age.

Earlier on, we demonstrated a couple of examples where 529 savings garnered much more overall savings than a traditional savings account. We’ll cover a similar example to show the stark difference and superiority of a 529 plan versus traditional savings or personal loans.

Let’s use our scenario from above, a $100K household income family saving for a child’s in-state public college without assuming any scholarships.

Household income: $100K
College: Public, in-state
Current college savings: $1,000
Rate of return: 7%
Child’s age: 1
Monthly contribution: $335

We know that these specs are enough to prepare for your child’s college tuition. But how much does the 529 plan save you compared to another loan or traditional savings? Well, these figures would garner you $134,740 in a 529 plan. A traditional savings account would only garner you $70,371. That’s almost double the savings for the 529 plan.

Now, what if you tried to take out a $134,740 loan for your child’s education in 2039? Assuming you had decent credit and a substantial down payment, you might get away with a lower interest rate. Let’s say you managed to borrow the full amount at 3% interest.

$134,740 (3%) = $4,042

Not only will you have to pay the $134,740 back, but you’ll also tack on an additional $4,042 in interest. Our take? 3% is generous. Let’s try with a higher interest rate.

$134,740 (6%) = $8,084

With the 529 plan, you could save $134,740 only contributing a total of $70,371. It would take you to double the time to save for college with a traditional savings plan, and cost even more to borrow a personal loan.

Resources for Saving for College

Saving for college involves a lot of planning. Even if you have an idea about how much to set aside each month, you’re left thinking about other aspects of 529 plans.

How can you leverage each one to save as much as possible? Here are some extra resources and tips:

How to Open a 529 Plan: Explore everything you need to know to get your 529 plan up and running.
Which is the Best 529 Plan Available? Pick from private and state-based 529 plans with this guide.
529 College Savings Calculator: Play with different contributions to see how much money you can save with a 529 plan.
How Much Can You Contribute to a 529 Plan? You might contribute more to a 529 plan than the maximum — learn about the consequences here.
What You Can Pay For with a 529 Plan: Learn about what counts as qualified educational expenses, and what doesn’t.
How Much to Save Per Month for Children Who Aren’t Newborns? Check out monthly 529 plan recommendation amounts based on your children’s ages.

What If I Have More Than One Child?

Sending one kid to college is hard enough — but what if you have two? Some parents maintain one 529 plan for multiple children and simply change the beneficiary once the second goes to college.

But we think setting up a separate 529 plan for each child is more prudent. You’ll be able to contribute more tax-deductible funds to each one, meaning more tax breaks for you.

Ideally, you’d want to double your savings figures so that each child has the same amount of college funds available. If that’s not possible, try to keep things fair by allocating a slightly smaller yet equal amount into each 529 plan. Multiple 529 plans are also great for diversifying your investments.

The Bottom Line

It’s nearly impossible to save enough cash for college in ten or twenty years, especially with inflation and rising tuition. But nevertheless, today’s parents have a path toward college savings.

The best course of action for every parent is to use a 529 plan and start saving early. Check out our latest 529 guides for more information.

Frequently Asked Questions (FAQs)

When should I start saving for college?

Ideally, you should start saving for college as soon as possible. Tuition rates are predicted to double by the time your child starts school, so you should ensure you’re adequately prepared. However, starting later in life isn’t the end of the world, either.

What is a good amount of money to save up for college?

Many parents save up one-third of their child’s predicted college tuition, on the premise that the rest will be covered by their child’s own funds, as well as scholarships and grants.

How much does the average person save for college?

The average family sets aside about $300 for their children’s college education. Here are some more specific figures below indicating parents’ average college savings amounts as their children age:

0-5: $20,700
6-13: $39,300
14-18: 52,300

How much should I save for college monthly?

You should save as much as you can afford for your child’s education, without hurting your quality of life. Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.