Saving for College

While it’s difficult to determine the average amount actually saved for college, since savings can be spread across multiple accounts and plans, the size of the mean college budget can offer some insight into the ideal savings target. According to the College Board, the average estimated budget (including tuition and fees, room and board, books and other school supplies, transportation, etc.) in 2021–22 for full-time undergraduate students in public two-year in-district colleges was $18,830. The average budget increased to $27,330 for public four-year in-state colleges, followed by $44,150 for public four-year out-of-state colleges and $55,800 for private nonprofit four-year colleges.

The amount of money you should expect to save for college will vary based on your family income, eligibility for financial aid, and the annual cost of attendance (COA) for the kinds of schools you or your child are considering attending. All U.S. colleges and universities are required by the federal government to publish their annual COA estimates, which include tuition and fees, room and board, books and supplies, transportation, and other expenses. According to the College Board, the average published price for just tuition, fees, as well as room and board in 2021–22 for public two-year in-district colleges, public four-year in-state colleges, public four-year out-of-state colleges, and ​​private nonprofit four-year colleges were $3,800, $10,740, $27,560, and $38,070, respectively. However, the net price most people will actually pay is typically lower thanks to grants and scholarships.

Even without federal or private student loans, prospective students may still be able to take advantage of scholarships, grants, and/or work-study programs. These resources can reduce or even completely cover a college’s cost of attendance (COA), potentially eliminating the need to pay out of pocket. In order to find out what kind of financial aid you or your child might be eligible for, the first step is to fill out the U.S. Department of Education’s Free Application for Federal Student Aid (FAFSA).

If you set up a 529 savings plan for your child's college education, and either they decide to skip college or there’s money left over by the end of it, you can still withdraw the amount representing your original contributions without any consequences. You can do the same for the account’s earnings, but these will be subject to taxes and a 10% penalty. There are several circumstances wherein the penalty won’t apply, such as if the beneficiary on the account is changed to another family member; if the original beneficiary dies, becomes disabled, or attends a U.S. Military Academy; or if the beneficiary qualifies for a scholarship or grant.