Saving for College: The $1 Million Question
College costs $100K-$350K total for 4 years. Start saving when your child is born, and you need $500-1,000/month. Wait until they're 10? You need $2,000-3,000/month. The earlier you start, the easier it is.
How Much Does College Actually Cost?
| School Type | Annual Cost (2025) | 4-Year Total | In 13 Years (5% inflation) |
|---|---|---|---|
| Public In-State | $28,000 | $112,000 | $212,000 |
| Public Out-of-State | $45,000 | $180,000 | $340,000 |
| Private University | $60,000 | $240,000 | $454,000 |
| Elite Private (Ivy+) | $85,000 | $340,000 | $644,000 |
These costs include tuition, room, board, books, and fees. And they're rising 5-6% annually—double the normal inflation rate.
Monthly Savings Needed by Child's Age
Assuming $240,000 total cost (private university in 13 years), 7% investment returns:
- Start at birth: $725/month for 18 years = $156,600 contributed → grows to $299,000
- Start at age 5: $1,250/month for 13 years = $195,000 contributed → grows to $264,000
- Start at age 10: $2,350/month for 8 years = $225,600 contributed → grows to $263,000
- Start at age 15: $6,500/month for 3 years = $234,000 contributed → grows to $256,000
Notice the pattern: Wait longer, and you need to save MUCH more per month. Starting early leverages compound interest. Starting late requires brute-force savings.
529 Plans: The Best College Savings Tool
What is a 529 plan?
A 529 plan is a tax-advantaged investment account specifically for education expenses. You contribute after-tax money, it grows tax-free, and withdrawals are tax-free when used for qualified education expenses (tuition, books, room & board).
Tax advantages:
- Tax-free growth: No capital gains taxes on investment returns
- Tax-free withdrawals: No income tax when used for college
- State tax deductions: 30+ states offer tax deductions for 529 contributions ($1,000-10,000/year depending on state)
- Estate planning benefits: Can contribute up to $85,000/year ($170K for couples) without gift tax
Example tax savings:
If you save $500/month for 18 years at 7% returns, your 529 balance is $216,000. In a taxable account with the same returns, after 15% capital gains tax on the $108,000 gain, you'd net $199,800. The 529 saves you $16,200 in taxes.
Should You Save for College or Let Them Pay?
This is a values question, not a math question. Here's the math:
Option 1: You save $500/month for 18 years
- Total contributed: $108,000
- Total saved: $216,000 (at 7% returns)
- Your child graduates debt-free
Option 2: Your child takes $240,000 in student loans at 6% interest
- 10-year repayment: $2,665/month = $320,000 total paid
- 25-year repayment: $1,546/month = $463,000 total paid
- They start their career $2,000-3,000/month poorer
Option 3: Hybrid approach
Save $300/month (less than Option 1), build $130,000 by age 18. Your child covers the rest with scholarships, part-time work, or small loans ($30-50K). This reduces your burden while teaching them financial responsibility.
Most wealthy families choose Option 1 or 3. The ROI on giving your child a debt-free start is massive—they can invest, buy a home, or start a business instead of paying $2,000/month in student loans.
Common College Savings Mistakes
- Waiting too long to start: Starting at age 10 requires 2-3x the monthly savings vs. starting at birth.
- Saving in a taxable account instead of a 529: You lose 15-20% to taxes. Use the 529.
- Being too conservative with investments: If your child is 5 years old, you have 13 years. Use 80-90% stocks for growth. Switch to bonds closer to age 18.
- Not accounting for inflation: College costs rise 5-6% annually. Plan for higher costs than today.
- Sacrificing your retirement to save for college: Your child can get loans for college. You can't get loans for retirement. Max your 401k first, then save for college.
What If You Oversave?
If your child gets a full scholarship or doesn't go to college, you have options:
- Transfer to another family member: 529s can be transferred to siblings, cousins, or even yourself for grad school
- Save for graduate school: Medical school, law school, MBA—529s cover graduate education too
- Withdraw with penalty: Pay 10% penalty + income tax on gains (still better than nothing)
- New rule (2024+): Up to $35,000 can be rolled into the beneficiary's Roth IRA (restrictions apply)
Bottom line: It's better to oversave than undersave. Worst case, you have extra money. Best case, your child graduates debt-free.