How to Save For A Child’s Higher Education

According to an article posted in, the cost for an academic year from 2010-2011 is approximately $56,500 including tuition plus room and board. And since that only covers a year of education, it seems students are looking forward to a four-year degree at the cost of $200,000.


If you’re looking at the age of your kids right now, it seems inflation and the rising cost of consumer goods will hike up this price even more in the following years to come. With the home mortgage still racking up bills, and the impending date of retirement drawing even closer, how can we save for our child’s education? Below are some tips that could effectively leave you with some breathing room when enrollment time finally comes.

Tips to Save More and Save Smart:


Save Early


This tip applies to just about anything. Whether your child is ten or two, the best time to save for your kid’s education is now. This theory isn’t just about having more time to save more, it’s about using the power of compounded interest to your advantage. Compounded interest allows the interest you’ve earned to earn even more interest. Meaning, the more time your money is left in a savings account, the more earnings it can accrue.


For example, if your started saving at $5,000 per year for your child at the age of ten at an interest rate of 11%, by the time your child reaches 18 years of age, you would have a total of $65,820.39. Total money invested? Only 40,000. However, if you started saving the same amount per year for your child when he was only two years of age and at the same interest rate, by the time he reaches 18, you would have a total of a whopping $217,505.95. Total investment? Only $80,000.


 Choose Where To Save


There are different platforms you can choose from when it comes to saving for your child’s schooling. Some of these areas have different benefits such as a higher interest rate, or tax advantages. It depends on you which investment vehicle you are most comfortable using, and what would give the highest and safest returns when your child is ready to go to college.


    • Certificates of Deposit – Although savings accounts have been the most common choice for most parents for many years, this type of account offers the lowest interest rate next to burying your money underground. A better alternative would be certificates of deposit. These are instruments that give a fixed interest after the maturity date. This is one of the safest places to put your money, however, its rates are still lower than other options. 



  • Educational Savings Account – Governed by IRS regulations, earnings from this account are tax-free if used for qualified education expenses. However, contributions are limited to only $2,000 a year, and there are some qualifications that must be met before account opening. 


  • Prepaid College Plans – Having a prepaid plan allows parents to start paying for college tuition at current prices. Although room and board costs will not be covered, this plan offers tax-free benefits on expenses used for education. The only downside is if your child chooses to go to school elsewhere. Some plans do allow students to go to out-of-state colleges, but they will only fund at the tuition rate of the in-state college. Students and parents must then pay whatever the difference in tuition fees. Another concern is that some states will charge a penalty for the cancellation of prepaid college plans, which will result in a loss to whatever interest is earned. 


  • 529 Plans – These are state managed investment accounts that allow larger annual contributions as compared to the ESA. Earnings as well as withdrawals are also considered to be free from federal taxes and furthermore will not affect a student’s eligibility to receive financial aid. However, this type of account carries more risk since it is subject to the stock market’s volatility, and thus is not guaranteed to make a profit at the time when you need it the most.


  • IRA retirement plans – It is actually possible to withdraw money from an IRA retirement plan that will not be charged a 10% early withdrawal. This exemption is only applicable if the money is to be used for qualified education expenses.


Other Useful Tips


When it comes to saving for your child’s education, it may be beneficial to consult with a financial planner who can help you understand how to better manage your money. It is important to recognize that saving for your own retirement should be put first before your child’s education since this goal is considered to be more important. It is also beneficial to start thinking whether or not you will encourage your child to take on a student loan to cover extra cost. If this is the case, begin preparing your child for this occurrence.


It is also smart to put any accounts for college savings under your name rather than your child’s since any asset under your child’s name could be counted against him or her when he seeks financial aid. This is especially true for federal funding.


A college education can be a great financial burden for both the parents and the student, which is why it is crucial to prepare for it as early as you possible can. Creating a savings plan and saving early can both be effective strategies for reaching your financial goals in terms of education.



Reader Actions!


Leave a comment specifying the following:


How was your college education paid for?


If you currently have children what are you doing to pay for their higher education?


How much do you expect the higher education to cost?



  1. Every parents plans a lot for the better future of their child.They give their best effort for securing the money for the child's higher education..And for this all the services and money insurance plans which you have been mentioned are revolutionary in the field of child development…Certificates of deposit is one of the best option for child education and it gives very high interest after maturity.One can use it for the future safety of their child..

  2. Wow. Anything assuming an 11% return should be labeled an idiot and laughed at.

    • I value your opinion on the matter but, the example was simply to show why saving early rather than later makes most sense.

      Would you have preferred I used the 20 year rolling period average of the S&P 500 in my time value of money calculation?

      If I used 9.1% rather than 11% my point would remain the same.

      What else did you like or dislike about the article?

  3. We are looking at colleges right now for our oldest child. State schools are averaging $20K per year and private are ranging from $38K to $50K per year. It's a bit intimidating!

    • Woah 20k for a state school??? What state are you in? I'm in VA and it costs less than 15k

      • We are in Georgia. She is looking at the University of GA at Athens and GA Tech.

        • Ouch! 20k seems steep to me for a instate school. But, tuition costs seem to have not boundary so maybe I'm just out of the loop. What is she planning to study? Does it justify the cost of the education?

          • The $20K is the estimated cost of attendance. It includes tuition, room and board, books and supplies, transportation and living expenses. Most colleges, if not all, are now posting the entire estimated cost of attendance which makes for great comparisons. Her travel expenses would be far less than they estimate and I am hoping that the book cost can be reduced by going for the used textbooks. It's been a "few" years since I was in college so it has definitely changed!

            At this point, she is interested in the medical field, either the research part or biomedical engineering.

  4. So far, I'm working hard to put myself through college. I'm at a private college and spending significantly less than the CNBC estimate!

    Once I graduate, I'll start saving for the kids. The thing that worries me the most is how the cost of higher education has risen at a rate much higher than inflation. I don't know if today's estimates will hold true when my kids actually reach the age of needing an education!

    I'll definitely encourage my kids to take community college courses while in high school, and on summer breaks. It's free in California for high schoolers, and sometimes high schools will allow the courses to count for high school credit as well. Students might be able to kill two birds with one stone and get some general ed out of the way before even starting their college careers.

    • College cost are always rising it is amazing how selling the same information suddenly doubles/triples in cost!

      What do you think the cause of tuition increase is?

      I think it is a combination of demand and the capability that any and everyone who is breathing can get a student loan. If you owned a school wouldn't you just keep raising rates if you know that a student loan will be given regardless of what tuition is?

  5. Great post!

    My parents paid for my tuition. I had to pay for everything else (books, food, fraternity, rent, utilities, etc..). I couldn't agree more with saving early. If you can contribute even a small amount to one of your mentioned accounts/plans your future college graduate will be in such a better position. I recently posted a tip on how to get family members to contribute to your kid's college account. check it out here:

    • I see you listed Fraternity, rent and utilities. What Frat did you join and why? Also did you live off campus? I thought living on campus was always cheaper?

      • Fraternity was Sig Ep. Not exactly sure why I joined. I went through the formal rush process and came across a house with a bunch of great guys. Some of these guys remain my best friends to this day. I lived on campus for only one quarter. I rented cheap apartments with anywhere from 2-5 roommates. The campus housing and fraternity housing was not for me.

        • I went to GMU (George Mason University) when I was in college Sig Ep. Had some of the best parties! Living off campus in a group setting is a great way to save money. But, man 5 roommates!!! You have to have some stories. Feel free to share

  6. Saving early is the key. Can you imagine if you started 529 plan on the year your child was born and continued saving for next 18 years? You'll be in much better situation compared to if you started saving say 10 years prior to your child starting college. This sounds easy but difficult to actually execute.

    • This is the plan I have for my child. I won't start a 529 due to the restrictions and penalties if you do not use the money for educational expenses. But, I definitely will invest in a taxable account that is ear marked for my child.

      Why do you feel it is difficult to execute?

  7. Congratulations on having a PHD. What did you receive your PHD in? Also, what do you consider modest student loans?

  8. I did my undergrad in Bulgaria and this was free (apart from my Dad paying my living expenses); my Masters in the UK was paid by a schalarship, and my PhD was paid by a combination of a scholarship and part time work. We are helping our older sons through university but they also have student loans – modest ones. With the youngest son (now ten) we have started saving – tuition fees increased dramatically in the UK and the cost of living can be hight (a minimum of $30,000 per year, is my estimate but this may raise further).

  9. My parents paid for my college education and I paid for my children's education. Education was a priority for my parents and me.

    • That is so cool. I hope to start a legacy like that with my future children. What vehicle did you use to accumulate the money? Trust, 529, ESA, taxable account, prepaid tuitoin. What method did you take?

  10. A great way to save is also to get an early start on the classes themselves. If you can take classes for college credit in high school, that will knock a few credit hours off of the total cost. That was how I got started. Also, starting out at a 2-year college will also save on everything and sometimes, given the effort, the student can bump up their profile and gain scholarships and other aid which may not have been available previously.

    I took a couple loans and won some grants in addition to earning credits my senior year of HS.

    • Good suggestions! You can save a ton of money by sending your child to a junior college before a 4 year university. What are your thoughts on the child objecting to the junior college then 4 year university method.

      • Well, for one, no one ever asks if a degree was earned by attending all 4 years at the same University. Secondly, I can understand that going away to school is a very attractive thing, but it's not all that it's cracked up to be, and the whole "going away experience" can still be had in the final 2 years. Plus, where I grew up, we had a 2-year (now a full 4-year) college that half of everyone I grew up with attended anyway, so it's not like anyone was left behind.

        • I think that's why many children object to the 2 year school before 4 years school route. A lot of the 2 year colleges have people they have known / scene in highschool so it doesn't "feel" like college. I had a friend of mine child call the 2 year school "The 13th grade" because of it. I say this, if the child isn't paying for school via scholarships/grants or their own income they have no choice in the matter.

          When I was a credit counselor at the Money wise fair. I spoke with this lady who only had 400 bucks left at the end of the month. Her daughter was a senior and interested in going to an out of state college which will cost 40k a year. No it was not an ivy league school either. Her daughter objected to going the junior college route!

          What are you thoughts on limiting the student loans a person can have based on debt to incoem ratio's or some other metric?

          • I always thought that the grants and loans already too into account the debt-to-income ratio since the applications pretty much ask for a personal financial statement.

            • The personal finance statement is for eliminating your to get certain types of loans/grants. for example. If you make too much money you cannot get a subsidized loan. A person will still qualify for student loans. Weird huh?

  11. I gave my kids two kidneys. If they want college paid for, they can sell one of them.

    Seriously, I'm focused on debt repayment right now. My oldest is probably going to get screwed out of having me pay for his college education because of that.

  12. I wasn't very smart, I deferred my debt until I finished university and got a job. In Australia you can get a 25% discount if you pay your fees upfront, but I just didn't have the money at the time.

    I'm definitely thinking about my child's education, we have to tackle school first, so started a savings plan from birth.

    • Wow I wished college in the USA was discounted for full pay upfront. Great job on saving since birth. What investment vehicles are you using to save for your kids education? How much do you plan on saving?

      • At the moment we only save a small amount, but we have time on our side at the moment. Currently it just goes into a savings account, but as it grows I think we will use relatively safe term deposits or bonds to help it along a little.

  13. Well, I managed to get through college with no debt. I worked to pay one third of it, my parents paid a third, and I got scholarships for one third. Of course that was many years ago when tuition and room and board were much cheaper. Gas was less than $1 per gallon if that gives you a clue.

    • I also would assume that wages were reflective of the times. So, in my mind that was still impressive.

      My question to you is how did you get the scholarships? Where they given for you academic abilities, sports or did you have to win them through competition?


  1. […] @ Your Finances Simplified writes How to Save For A Child’s Higher Education – According to an article posted in, the cost for an academic year from 2010-2011 is […]

  2. […] @ Your Finances Simplified writes How to Save For A Child’s Higher Education – According to an article posted in, the cost for an academic year from 2010-2011 is […]

  3. […] you started saving for your child’s education? How to Save For A Child’s Education will guide […]

  4. […] presents How to Save For A Child’s Higher Education posted at Your Finances Simplified, saying, “YFS provides some tips for saving for a […]

  5. […] providing children with a solid financial foundation for the future.”  YFS presents How to Save For A Child’s Higher Education posted at Your Finances Simplified and says “Here are some tips for saving for a […]

  6. […] Finances Simplified offers several useful tips when saving for a child’s higher education.  Since Buck is getting visited by the stork, this would be a great article for him to check […]

  7. says:

    How to Save For A Child’s Higher Education | Your Finances Simplified…

    According to an article posted in, the cost for an academic year from 2010-2011 is approximately $56,500 including tuition plus room and board….

  8. Personal Finance Buzz…

    Your story was featured in Personal Finance Buzz! Please visit and promote your article….

  9. says:

    How to Save For A Child’s Higher Education | Your Finances Simplified…

    According to an article posted in, the cost for an academic year from 2010-2011 is approximately $56,500 including tuition plus room and board. And since that only covers a year of education, it seems students are looking forward to a four-yea…

Password Reset

Please enter your e-mail address. You will receive a new password via e-mail.