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Saving for College

Saving for College

May 17, 2019 | 7 min. read

Saving enough for college may seem like an impossible task, but if you start early and stick to the plan, it can be done.

Upward mobility made possible by hard work and persistence is the essence of the American dream. When you’re a parent, it’s also natural to want to pass on a better life to your children. Journalist Dan Rather said it best: “A college degree is the key to realizing the American dream, well worth the financial sacrifice because it is supposed to open the door to a world of opportunity.”

But is a college degree all it’s cracked up to be? According to research studies — yes. College graduation benefits include:

  • Earning more money. In 2015, the Economic Policy Institute reported that college graduates, on average, earned 56 percent more per year than adults with only a high school diploma.
  • Lower unemployment and poverty rates.
  • Higher career satisfaction and a greater sense of purpose. 
  • Better health. According to the University of Maine study It’s Not Just Money, college graduates are less likely to smoke, more likely to exercise and, on average, live seven years longer than adults with a high school diploma or less. 

Given these significant benefits, saving for their child’s education is understandably a top savings priority for many parents. However, the skyrocketing cost of a college education means most of us will need a long-term, disciplined approach. According to CNBC, over the past 30 years, tuition costs at in-state public schools have increased over 200 percent, and at private schools, tuition costs have increased more than 120 percent. The resulting average sticker price, including room and board, is $21,370 annually for public schools, and $48,510 per year for a private education.*

As daunting as these figures may be, it’s important to remember that saving for college is a marathon — not a sprint. Any long-term goal worth achieving will require planning and perseverance. To help guide you, remember to follow these two core principles:

  • Start early. In fact, the earlier you start saving, the less you should need to put aside on a monthly basis. Use College Savings Calculator to determine how much you should be saving based on the age of your child and the anticipated tuition.
  • Stick with it. Set up an automatic monthly transfer into a savings plan. Be patient and let the magic of compounding interest go to work. 

The two most popular college savings options are 529 plans and Coverdell Education Savings Accounts (ESAs). Both accounts grow federal tax-free and potentially state tax-free. As long as the funds are used for qualified educational expenses, the money is not taxed when you withdraw it. In addition, both options receive more favorable treatment than traditional savings accounts on financial aid applications. 

529 plans offer an array of investment portfolios to select from, including age-based options that automatically reallocate the money into less aggressive mutual funds as your child gets closer to starting college. There is no income restriction to contribute, and there are generous contribution limits that vary by state. 

By contrast, Coverdell ESAs allow you to control exactly where your money is invested, so this is an attractive option for active investors. However, you can only contribute $2,000 a year per beneficiary, and there are additional restrictions on contributions for singles whose income exceeds $95,000 and married couples with an income of more than $190,000. 

As critical as it is to save for your child’s education, don’t fall into the trap of ignoring your own financial health. Think of it this way: in the event of an airplane emergency, passengers are instructed to put their own oxygen mask on first before helping others. So make sure you are well positioned to pay off your debt, fund your emergency savings and invest in your retirement before you overcommit. This eye-opening MarketWatch article describes how more parents than ever are drowning in debt from their kids’ student loans. 

So, if you’ve fallen behind on saving for college, don’t panic — there are other resources to consider. Financial aid is available through the federal government, universities and charitable organizations, and there are both need-based and merit-based offerings. Online marketplace is a great place to search for scholarships that have been fact-checked for legitimacy.

There are also educational loans available, but proceed with caution. Federal loans are generally a better option than private loans, as the rates are lower and the payment terms are more favorable. Figure out how much your student will need to borrow for all four years and how that will translate into monthly payments after graduation. The bottom line is to make sure your child has a solid plan for paying back the money. 

Last, think outside the box. The first two years of core classes can be taken at community college for a fraction of the cost, at which point your student can transfer to a four-year school to finish their degree plan. Many high schools also offer AP or dual-credit classes, which are considerably cheaper than most college courses.

As you take steps to invest in your child’s future, your Financial Advisor can provide guidance on 529 plans and ESAs, fund allocation, and how savings can impact financial aid eligibility. Most importantly, your Advisor will work with you to create a customized plan based on your family’s specific circumstances.


Prior to investing in a 529 College Savings Plan, you should compare the Plan with any 529 college savings plan offered by your home state or your beneficiary's home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state's plan. Please read the Plan's Disclosure Document which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing. For this and other information on any 529 College Savings Plan, contact your First Command Financial Advisor.

Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions or other factors as applicable. 

As with any investment, it is possible to lose money by investing in a 529 College Savings Plan.

Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.

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