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Saving for College: How to Determine Your Ideal Monthly Savings Plan

Lendstart Updated: February 25, 2024 • 7 min read

Key Points:

  • Today, saving for college has become more crucial than ever.

  • You can kickstart your college savings journey with our simple, actionable plan.

  • Set a solid foundation for your educational future by understanding the steps involved in financial planning.

Today, saving for college has become more crucial than ever. As tuition costs rise, parents and students face significant financial challenges. The burden of student loans can linger for decades, emphasizing the importance of early and effective savings strategies. You can kickstart your college savings journey with our simple, actionable plan. Families can set a solid foundation for their educational future by understanding the steps involved in financial planning.

Families can set a solid foundation for their educational future by understanding financial planning.

Step 1: Understanding Your College Savings Goals

  • Setting Clear Goals: Establishing clear, measurable goals is the first step to saving for college. Knowing exactly what you want can transform an overwhelming task into a manageable plan. Decide whether you'll cover only tuition or room, board, and other expenses for your child's education. Once you've defined the scope, you're ready to crunch some numbers. Tuition inflation has historically risen twice as fast as general inflation when estimating future college costs. Calculators can help you estimate college expenses based on current costs, inflation rates, and time before your child starts college. Your savings goal can be specific and measurable with these tools.
  • Assessing Time Horizon: The time horizon—how many years until your child starts college—plays a crucial role in shaping your savings strategy. For those with a long-term horizon (10 years or more), consider equity-based investments within college savings plans, which historically offer higher returns. If you're getting a late start and the time horizon is short (less than 5 years), focus on safer investments like bonds or savings accounts designed for education savings, which offer steady, albeit lower, returns.
  • Adjusting Your Strategy Over Time: As the college start date approaches, gradually shifting from higher-risk investments to more conservative options can help protect your savings from market volatility. This approach, known as "age-based asset allocation," ensures that your investment risk decreases as the need for funds becomes more immediate, securing the hard-earned savings you've accumulated for your child's education.

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Step 2: Choosing the Right College Savings Plan

Saving for college involves choosing from various savings plans, each with benefits, limitations, and tax implications. Understanding the differences can help you select the best option(s) for your family's needs and goals. Here are some of the most common types of savings plans used to save for college:

1. 529 College Savings Plans

  • Description: Tax-advantaged investment plans operated by states or educational institutions are designed specifically to save for future education costs.
  • Benefits: Earnings grow tax-free, and distributions for qualified education expenses are also tax-free. Many states offer additional tax benefits for contributions.
  • Limitations: Investment options are limited to those offered by the plan. Non-qualified withdrawals may be subject to taxes and penalties.

2. Coverdell Education Savings Accounts (ESAs)

  • Description: Tax-advantaged savings accounts that can be used for both K-12 and higher education expenses.
  • Benefits: Contributions grow tax-free, and withdrawals for qualified education expenses are tax-free.
  • Limitations: Contribution limit of $2,000 per beneficiary per year, and contributions are phased out at higher income levels.

3. Custodial Accounts (UGMA/UTMA)

  • Description: Accounts that allow minors to own assets under the supervision of a custodian until they reach the age of majority.
  • Benefits: Flexibility in how the funds can be used, not limited to educational expenses.
  • Limitations: Fewer tax advantages compared to other education savings accounts. The assets become the child's property at the age of majority, which could affect financial aid eligibility.

4. Traditional and Roth IRAs

  • Description: While primarily retirement savings accounts, both IRAs can also be used for education expenses under certain conditions.
  • Benefits: Roth IRA contributions (but not earnings) can be withdrawn tax-free and penalty-free for qualified education expenses. Traditional IRAs offer tax-deferred growth, with taxes due upon withdrawal.
  • Limitations: Using retirement savings for education can impact your retirement nest egg. Contribution limits and potential taxes on earnings.

5. Savings Bonds

  • Description: Government-issued securities that offer a fixed interest rate over a fixed period.
  • Benefits: Some savings bonds, like Series EE and I bonds, offer tax advantages when used for education expenses.
  • Limitations: Lower return compared to other investment options. Interest may be taxable if not used for qualified education expenses.

6. High-Yield Savings Accounts and Certificates of Deposit (CDs)

  • Description: Savings accounts and CDs offer higher interest rates than traditional savings accounts, making them a safer, though less lucrative, savings option.
  • Benefits: Low-risk; FDIC insured up to certain limits.
  • Limitations: Lower potential returns compared to investment-based savings options. Early withdrawal penalties for CDs.

Choosing the right savings plan(s) for college depends on your financial situation, risk tolerance, and savings goals. It's often beneficial to consult with a financial advisor to tailor a strategy that best suits your family's needs.

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Step 3: Implementing a Saving Strategy

Once you've chosen the right college savings plan, the next step is to implement a strategy that ensures consistent growth of your fund. A solid strategy encompasses automated savings, wise investment choices, and regular adjustment reviews.

  • Automated Savings: Automating transfers to your college savings account is a powerful way to ensure consistent savings. By setting up automatic deposits, you're applying the "set it and forget it" principle, which helps build your savings without making transfers manually. This method leverages the concept of paying yourself first; money is saved before you have a chance to spend it on non-essential items. Additionally, automated savings can help capitalize on the power of compounding interest over time, significantly increasing the growth of your college fund.
  • Investing Wisely: The choice of investment options within your savings plan can greatly affect the growth of your college fund. Most savings plans offer a range of investment portfolios that vary in risk and growth potential, including stocks, bonds, and mutual funds. Opting for a diversified investment mix that aligns with your risk tolerance and time horizon is crucial. You might lean towards more aggressive investments for longer time horizons, while shorter horizons may call for more conservative choices. The key is selecting investments with a balanced growth and risk management approach.
  • Regular Review and Adjustments: The financial market's volatility and changes in educational goals necessitate regular reviews of your college savings plan. An annual review of your savings strategy allows you to assess the performance of your investments and make necessary adjustments. This might involve rebalancing your portfolio to maintain your desired risk level or increasing your contributions to meet your savings goals. Additionally, as your child grows and their educational aspirations become clearer, you may need to adjust your savings target to align with the actual costs of their chosen path.

Implementing a disciplined saving strategy, making informed investment choices, and regularly reviewing your plan are key steps to growing your college savings fund. This proactive approach ensures that you are well-prepared to support your child's educational journey, minimizing the need for debt and maximizing the opportunities for their future success.

How Much Should I Save for College per Month?

Determining how much you should save for college per month depends on several factors, including the current age of your child, the type of college (public or private) they might attend, the estimated cost of attendance at that time (considering inflation), and how much of the cost you wish to cover. Here's a simplified approach to get a rough estimate:

  1. Estimate the Total Cost: Use current tuition rates for the type of college you're considering (public or private) and adjust for inflation. Include room and board, books, and other expenses in your calculation. There are online calculators available that can help project these future costs.
  2. Decide What Percentage of Costs You Want to Cover: Some parents aim to cover 100% of college costs, while others aim for a portion, such as 50%, with the rest covered by scholarships, grants, or student loans.
  3. Calculate the Total Savings Needed: Once you have the estimated total cost and have decided on the percentage you wish to cover, you can calculate the total savings needed when your child starts college.
  4. Determine Your Time Horizon: Subtract your child's current age from when they will likely start college to determine your time horizon in years.
  5. Monthly Savings Goal: Divide the savings needed by the months until college begins. This gives you a monthly savings goal.

For example: If you estimate you'll need $100,000 for college costs and you have 15 years until your child starts college, you would divide $100,000 by 180 months (15 years x 12 months), resulting in a monthly savings goal of about $556.

This is a simplified calculation and doesn't account for the potential growth of your investments over time, which can significantly impact your savings plan. Using a college savings calculator that includes variables for investment growth can provide a more accurate monthly savings amount. Additionally, consulting with a financial advisor can help you create a personalized savings plan that considers your financial situation, risk tolerance, and educational goals.


By understanding your options and choosing a savings plan and strategy that aligns with your financial goals, you can take a significant step toward securing your child's academic pursuits. Don't hesitate to take that first step today. Consider consulting with a financial advisor for a plan tailored to your circumstances. Their expertise can provide personalized advice, helping you navigate the complexities of college savings with confidence and ease.



How much should I save for college?

Your child's type of college, number of years before he or she enrolls, and percentage of costs you want to cover determine how much you should save for college. Public institutions are generally less expensive than private ones, but costs can vary widely by location and program. Generally, one-third of the expected costs are saved, with current income, scholarships, grants, and loans covering the rest.

Can I use college savings for expenses other than tuition?

Yes, funds from college savings plans like 529s can be used for qualified education expenses beyond tuition. This includes room and board, books, supplies, and equipment required for enrollment or attendance, and even computers and internet access. However, non-qualified expenses, such as transportation and health insurance, are not covered and withdrawals for these purposes may be subject to income tax and a 10% federal penalty on the earnings portion of the withdrawal.

What happens to the savings if my child doesn’t go to college?

If your child decides not to go to college, you have several options. You can change the beneficiary of the account to another family member who can use the funds for education. Alternatively, you can withdraw the funds for non-educational purposes, though this may incur income taxes and a 10% penalty on the earnings. Some plans allow for tax-free withdrawals up to the amount of a scholarship.

Is it too late to start saving for college?

It's never too late to start saving for college. While starting early gives your investments more time to grow, making contributions at any stage can still make a significant difference. For late starters, consider increasing your savings rate, exploring high-yield savings options, and looking for scholarships and grants

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