How much to save for college in 2021 |

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How to save for college

Tuition costs are always on the rise — find out how to make your money go further.

The cost to attend a public, in-state college has increased at an average of 3.1% per year since 2008, according to the College Board’s annual survey of colleges. That steady increase brings the average cost of a four-year degree to $96,464. Student aid and scholarships can help pay college expenses, but every bit you can save helps combat student debt.

How to save for college

If you have kids that you plan to send to college, consider these essential steps to getting started.

1. Establish financial goals

To estimate how much you’ll need to save, think about how many kids you plan on sending to college, how many years of saving you have before then and how much you can afford to contribute.

Factor in costs beyond tuition, like housing, textbooks, food, extracurricular activities, tutors and transportation.

2. Pick an account that fits your goals

A traditional savings account is an option for growing your college fund. But more specialized products like 529 plans and Coverdell Savings accounts come with tax advantages, higher returns and savings incentives to help you save more.

3. Make regular contributions

Routine contributions are by far the most effective way to save for large purchases like college. If you can afford to put away $200 a month from the time your child is born, you’ll have $43,200 by the time they’re 18 — not counting any returns on your investment.

How much should I save for college?

The amount you should save varies significantly depending the degree, where you live, your budget, financial aid and other factors.

Based on four years of schooling, these are the essentials the College Board says you should budget for as of 2018:

  • Average tuition: $96,466
    • Public in state: $40,920
    • Public out of state: $105,160
    • Private nonprofit: $143,320
  • Average room and board: $46,613
    • Public in state: $44,560
    • Public in state: $44,560
    • Private nonprofit: $50,720
  • Average food: $12,720
  • Average books and supplies: $4,960
  • Average transportation: $4,640
  • Average other expenses: $5,630
  • Average total: $171,029

Most students don’t end up paying the full amount, thanks to financial aid and scholarships. Students are awarded an average $9,337 a year in grants and tax credits, which could reduce costs by $37,348.

  • Average total after financial aid: $133,681

Plan for expenses beyond the essentials that can affect how much you pay:

  • Extracurriculars: $2,000
  • Travel: $4,000
  • Study abroad and internships: $10,000
  • Printer, laptop and other equipment: $2,500
  • Extra courses: $2,500 to $10,000+

Best accounts to help you save for college

Name Product Minimum deposit to open Annual fee Available asset types
No items match the given criteria.

Compare up to 4 providers

Name Product Annual percentage yield (APY) Fee Minimum deposit to open Interest earned
American Express® High Yield Savings
Finder Rating: 4.6 / 5: ★★★★★
American Express® High Yield Savings
Enjoy no monthly fees and a competitive APY with this online-only savings account. Accounts offered by American Express National Bank, Member FDIC.
Aspiration Spend & Save Account
Finder Rating: 3.8 / 5: ★★★★★
Aspiration Spend & Save Account

1.00% on $0 to $10,000 but you’ll need to be enrolled in Aspiration Plus and make at least $1,000 in debit card purchases a month
$0 per month or $15 per month for Aspiration Plus ($12.50 per month if you pay annually)
Deposits are fossil fuel-free and insured by the FDIC. Enjoy a spend and save combo account with unlimited cash back rewards and a $100 bonus when you spend $1,000 in your first 60 days.
Chime Savings
Finder Rating: 4.6 / 5: ★★★★★
Chime Savings
Grow your savings automatically with recurring transfers, round-ups on debit card purchases and 0.5% APY.
Axos Bank High Yield Savings
Finder Rating: 4 / 5: ★★★★★
Axos Bank High Yield Savings
No monthly maintenance fees. No minimum balance requirements. Interest compounded daily.
Discover Online Savings Account
Finder Rating: 4.6 / 5: ★★★★★
Discover Online Savings Account
Take advantage of a high-interest online savings account with no fees, no minimums and more.
UFB Direct High Yield Savings
Finder Rating: 3.6 / 5: ★★★★★
UFB Direct High Yield Savings
Earn an APY when your balance is higher than $10,000 with this no-monthly-fee savings account.

Compare up to 4 providers

Types of college savings accounts

A traditional savings account won’t offer the rates or compounding you’ll need to save adequately for education. College-focused accounts and plans are a more powerful way to save.

529 savings accounts

These investment accounts are designed to help you save for a beneficiary’s college expenses with high contribution limits and tax benefits.

Choose from two options:

  • Prepaid tuition plans. Allows you to purchase tuition credits at current prices to avoid the rising costs of tuition.
  • College savings plans. Allows you to invest after-tax contributions into a variety of investments like mutual funds or ETFs.

UGMA and UTMA accounts

Custodial accounts like those under the Uniform Gift to Minors Act and Uniform Transfer to Minors Act hold and protect funds until the beneficiary reaches ages 18 to 21, depending on where you live. They allow the account holder to invest the funds in various securities and offer tax advantages, making them effective college savings options.

Savings bonds

The government issues College Savings or Federal Savings bonds as a safe investment vehicle. Purchase bonds to earn a fixed interest rate, and receive the principal amount plus interest at the date of maturity. Funds are difficult to access until maturity, which ensures the investment is used for its intended purpose.

Coverdell Education Savings Accounts

Similar to 529 savings plans, Coverdell Education Savings Accounts are custodial accounts that allow the account holder to invest money toward future school expenses. You can invest the money in a number of securities with tax-free earnings growth and tax-free withdrawals when spent on eligible expenses. However, unlike 529 plans, Coverdell ESAs can also be used to pay for primary and secondary school.

Whole life insurance

Whole or permanent life insurance policies can protect you and your family, but they can also be used to pay for major expenses. Policies are broken down into a death benefit amount and a cash-value portion. After you’ve built up enough cash value, you can borrow from your policy. You aren’t required to repay the loan, but your death benefit may be reduced if you don’t.

Compare savings plans

Traditional savings accounts529 savings accountsUGMA and UTMAsSavings bondsCoverdell Education savings accountsWhole life insurance
Monthly feesMaybeNoNoNoNoYes
Tax advantagesNoYesNoYesYesYes
Can be investedNoYesYesNoYesNo
Contribution, age or income limitsNoNoNoNoYesNo
Financial aid impactOnly if in child’s nameYesYesOnly if in child’s nameYesNo
Guaranteed returnsYesNoNoYesNoYes
PenaltiesNoOnly when used for ineligible expensesOnly when used for ineligible expensesNoOnly when used for ineligible expensesNo
Avoid tuition increasesNoYesNoNoNoNo
Only for educationNoYesNoNoYesNo

Can I use a Roth IRA to save for college?

Yes. Though it’s technically designed for retirement savings, you can withdraw contributions from your Roth IRA without penalties. Though you may be on the hook for taxes if the money is used for a family member’s college expenses.


  • Tax-deferred growth
  • Wide range of investment options


  • Potential tax and penalties
  • Market risk
  • Fewer tax advantages

How to compare accounts for college

Because many college savings plan include investments, consider speaking with a financial adviser or accountant for guidance on:

  • Fees and taxes. Understand the fees and penalties you face before signing up, and compare tax advantages to ensure you get the most out of your account.
  • Investment options. To invest your savings, learn which products are available within each account.
  • Access. Consider how you’re allowed to access your savings, and find out whether you can use the money for educatoin.
  • Returns. Some options offer lower returns at a lower risk, while others have the potential to earn more at a greater risk. Weigh your options to find a balance you’re comfortable with.
  • Eligibility. Some of these options have contribution limits or income requirements. Know the limitations before opening an account.

Tips to save for college

  • Start early. The best way to save for college is to start early. Ideally, you want to start as soon as your child is born, but it’s never too late.
  • Save in a joint account. If you don’t already have one, a joint savings account can help you and a partner save and earn interest together.
  • Encourage early credits. Many AP and community college programs allow high-schoolers to earn college credits before graduation, which can save you a semester’s costs or more.
  • Automate it. Set up autopay or consider a roundup app to make recurring contributions without even thinking about it.
  • Invest unexpected cash. Whether you get a bonus, receive an inheritance or pay down other debts, consider redirecting extra money into your college savings plan.

Other ways to pay for college

Even with so many options available to save for their education, most people won’t have enough to cover the full cost of college. Luckily, other options can help you fund your child’s education:

  • Student loans. Federal and state financial aid programs can help cover outstanding college expenses and they have much lower interest rates than personal loans.
  • Crowdfunding. Consider a website like CollegeBacker that allows you to get help from friends and family as you save for college.
  • Grants, scholarships and bursaries. Take advantage of grants, scholarships and bursaries that could offset costs. It doesn’t hurt to apply, so look for any that seem even remotely relevant.
  • Tax credits. Claim up to $2,500 per student, per year with the American Opportunity credit. If you don’t qualify, the Lifetime Learning Credit allows you to claim up to $2,000 per student, per year. Speak with an accountant or tax specialist for more details.
  • Upromise. This loyalty program is a subsidiary of Sallie Mae and offers cash back on eligible purchases that go toward tuition to make it easier to save for college and repay student loans.

Bottom line

If you start early, set goals and look for areas to save, your college fund contributions could eventually have a huge impact. Compare the best student savings accounts to find a product that fits your budget and goals.

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