5 Tips for Easy College Savings

When you have a baby, there are many initial financial concerns, especially when a family is still working hard just to make ends meet. College savings on a tight budget may seem like something you'll do later when the kids start elementary school but time goes by so fast. The reality is by the time today's toddlers are in college, the costs of higher education will be outrageous.

To get a jump start on saving money for college, here are ideas for starting to save when kids are still young and money's still tight. Also check out our 40+ College Resources for Parents and Students to get more information.

Choose the Right Savings Plan for College

You can start the account in your child's name to save on taxes but be warned — if you are later eligible for financial aid, it can be cheaper to have the funds in your own name. Colleges expect contributions toward tuition to be 5-6% of your assets each year. Assets in a child's name are marked considerably higher at 20%. Savings bonds are also affected in this manner.

Balance the Budget

The earlier you start, the smaller increments you can deposit. If your child is still in elementary school, work through your parenting budget to find at least $50 a month to invest into a college account. Make a serious commitment to socking away $50 each month until the college years loom. It may seem like an insufficient amount but in 18 years time at 6% interest a year, that $50 a month can be worth around $20k.

Invest Extra Cash

Any windfalls in money (bonuses, inheritance, etc.) should have an allocation right off the top of at least an additional $50 to invest, if not more, into the college account. It can be easy to find uses for "extra money" but $50 is rather small and you'll feel better making that extra deposit during the month.

Automate Your Savings Plan

Psychologically speaking, you can save more when you see less. Talk to your payroll department about having $25 a check (if you get paid bi-monthly) deposited directly into the college account. After a month or so, you'll likely never even notice it is missing.

Look But Don't Touch

It's great to track your progress and see that $50 start adding up but don't touch it, not even for emergencies. Start a similar plan where you deposit money into an account for emergencies like home or vehicle repairs. Since you have been dedicated to the savings process, a second account should be just as simple. It can be tempting to withdraw the money but consider instead how good it will feel when your child is getting ready to go off to college without additional financial stress on them — or you.

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Guest's picture

There are a couple smart things that families can do to increase the amount of financial aide that their kids get. Two of them that I think make the most sense are the following:
1) Pay down consumer debt with assets that you have
2) Pre-pay your mortgage, houses are generally exempt

In both cases, debt does not factor in to the equation but assets do. So paying down your debt with parental assets makes a lot of sense. And if your child has assets, even more sense to pay down family debt. If you acquired your home around the time your kids were born, you are hopefully 18 years into your mortgage, and using the college money might let you retire your mortgage outright. Once you do that, use what you would have paid for mortgage to fund their education.

Also, don't forget one of the biggest issues. Make sure that you are making the right choice about college for your kids. The ROI on an expensive college is questionable today. Harvard is one thing, but mid tier schools that will set you back $40K a year will likely have a negative ROI.

Send them to community college or a state school and you'll not have to worry as much about financial aide. And most of all, Make Sure Your Kids Pay Their Fair Share of College Expenses.

Guest's picture

Good point. Last October I calculated, based on data from the Census Bureau and the College Board, that the median ROI on private college is negative. Details:


Guest's picture

You should check out upromise.com. My son is 4 and I've already earned about $2200 for him for college from this site. It cost me nothing and if you are wise in how you use it you can earn a lot.

Guest's picture
Amy K.

@LiveCheap, are you sure home equity isn't counted as an asset for the parents? Back when I was getting ready for college in the 90's I remember my parents' disgust that the seminar they went to expected them to use a home equity loan to pay for my education. I assumed that was the financial aid expectation to.

Does anyone know if retirement accounts are counted as assets with regards to financial aid? I would hope not, but I haven't seen anything one way or the other.

I'm not saying that one shouldn't save for college, I'm thinking more of eligibility for better loan rates for any gap.

Julie Rains's picture

I have looked at financial aid requirements and I think that things have changed Amy K., apparently home equity and retirement are not counted as "assets" anymore.

Guest's picture

A 529 College Savings plan is also a great way to set aside money to save for college. As an advocate of Allstate Insurance, I would suggest taking a lot of their site: http://myallstatefinancial.com

It has a lot of great articles and resources on college savings including a financial planning calculator that I've found really helpful while budgeting.

Guest's picture

I would also recommend checking out this blog


It's written by a college student and has a lot of helpful information on how to find "free money" for college students through grants, FAFSA, etc.