The Definitive Guide to Saving for College

May 29, 2024 6 min read

Many parents dream of sending their child to college. A college education can open the door to a lifetime of opportunities. But that education can come at a high expense. So, if helping your child pay for college is one of your financial goals, you’ll need a savings plan.

Whether your child is in kindergarten or high school, there’s a college savings strategy that can put you on the right track. What’s the best way to save for college for your family? It depends on how many children you have, their ages, your income and your other financial needs. Here, we outline the top saving-for-college options.

How Much Does College Cost?

According to College Board, for the 2023-2024 academic year, the average annual cost of college is:

  • $28,840 for four-year public colleges (in-state students)
  • $46,730 for four-year public colleges (out-of-state students)
  • $60,420 for four-year private colleges 

What’s included in that cost? Cost of attendance includes tuition, fees, room and board, books and supplies, transportation and personal expenses. And it's a likely bet that costs will continue to rise.

When Should I Start Saving for My Child’s College?

The short answer: You should start a savings plan as soon as possible. Perhaps the most challenging time to start a college savings program is when your child is young. 

New parents face many financial strains that always seem to come first — the possible loss of one income, daycare costs, child-related spending, the competing need to save for a house or car and the demands of your own student loans. Yet, this is the ideal time to start saving.

When your child is young, you have time to select investments that have the potential to outpace college costs. You'll also benefit from compounding, which is where you earn additional funds from the interest and/or capital gains that your investment earns along the way. With regular investments spread over many years, you may be surprised at how much you can accumulate in your child's college fund.

But don't feel bad if you can't put aside hundreds of dollars every month right from the start. Everyone must start somewhere! When it comes to how to save for a college fund, you can begin with a small amount, say $25 or $50 a month. If your child is in daycare, once they no longer need that care you may want to add that money to your college savings account.

You can use this college savings calculator to estimate how much money you’ll have by the time your child is college-age, based on how much you contribute and how old your child is now.

How Much Should I Save for College?

The more money you put aside now, the less you or your child will need to borrow later. Start by estimating your child's costs for four years of college, based on your child’s age and whether you expect them to attend an in-state, out-of-state or private university. 

Then, decide how much of the bill you want to fund — remember, you don’t need to pay 100% of it. You and your child may be able to cover some of the cost of college with income you’re earning at the time, scholarships, grants and loans.

In many cases, the amount of money you save each month comes down to how much you can afford. Every family’s situation is different. You'll need to take a detailed look at your household finances to determine what you can afford to add to your child's college fund each month. 

To increase the amount of money that you're able to save, consider these options:

  • Cut back on nonessential spending
  • Reduce your standard of living (for example, own only one car or eat out less often)
  • Add any unanticipated windfalls like bonuses, tax refunds, raises or an inheritance to your child's college fund
  • Increase your work income, either at your current job, a new job or a part-time or side job
  • Have a stay-at-home spouse return to the workforce
  • Ask grandparents to contribute to your child's college fund instead of giving gifts

You should also consider putting money in savings right after payday. When you leave that money in your general account, it’s easy to spend it on other things.

What Are My Savings Options for College?

Savings accounts can be a good option, especially with today’s rates topping 4%. But there are many additional choices for investing in your child’s future. These popular college savings strategies will help you and your child save for college.

529 College Savings Plan

A 529 plan is designed specifically for saving for college, and it’s one of the most common methods people use. Earnings grow tax-deferred, meaning there are tax advantages to these accounts. 

As long as you use withdrawals to pay for qualified higher education expenses, savings in this kind of fund are free from federal income tax. And if your child doesn’t go to college or doesn’t need this money to pay for college, you can use the funds for another family member’s education.

States operate 529 plans, and your state may offer the best option for you. But you can choose any plan you like, so it makes sense to review all of the options to find one that best meets your needs.

Coverdell Education Savings Account (ESA)

This option, which allows earnings to grow tax-deferred, isn’t only for college costs. It can cover qualified elementary, secondary and post-secondary school expenses as well. Distributions may be exempt from federal income tax. 

However, you can only contribute $2,000 a year to an ESA (in 2024). And income restrictions start taking effect if your adjusted gross income is above $95,000. (529 plans and ESAs have a lot in common, but there are key differences, too.)

Mutual Funds for College Savings

Investing in mutual funds allows you more growth potential than fixed-income products like CDs. Mutual funds are investments that include a range of securities. They often track an index like the S&P 500. 

Unlike 529 plans, withdrawals from mutual funds are taxed as income. But you can use the gains from mutual funds for whatever purpose you like, not just for paying for college.

Roth IRA

Roth IRAs are typically considered retirement savings strategies, but you can use them for college costs as well. 

Like other common college-savings vehicles, the earnings in a Roth IRA grow tax-deferred. Generally, withdrawing money from a Roth IRA before age 59½ means you have to pay a 10% penalty. But earnings used for education are not subject to this penalty. However, you may have to pay taxes if you withdraw any earnings within the first five years after opening the account.

Money that’s inside a Roth isn’t counted for financial aid purposes. However, withdrawals are counted as income, and that can affect your child’s financial aid package. 

Permanent Life Insurance

Cash values grow tax-deferred in permanent life insurance. They can be withdrawn for education without impacting your child’s eligibility for financial aid. 

However, taking money out means that your beneficiaries would inherit less after your death. And you’ll have to pay interest on any loans from your policy, either out of pocket or by borrowing against the policy. Borrowing would further reduce the benefits your beneficiaries would receive. 

So, you’ll want to balance the peace of mind you get from your life insurance policy with your needs for funding your child’s education.

What Are Other Options to Pay for College?

As your teen starts taking standardized tests and visiting colleges, the reality about the cost of higher education will set in. Luckily, your family has additional options for supporting college students.

Contributions From Your Teen

Once your child becomes a teenager, encourage them to get a part-time job. This is a good way to teach your teen financial responsibility. Be sure to outline a plan with your child that covers how much of their income they are expected to save for college.

If your teen’s academic workload is a full-time priority, have them consider a summer job. Seasonal work like mowing lawns, raking leaves and shoveling driveways also presents earning opportunities. And flexible work like babysitting allows your teen to work when their schedule allows without sacrificing time they need for studying.


Many parents dream of full-ride academic or athletic scholarships for their kids, but you can’t count on them. However, there are countless scholarship opportunities based on community, field of study, college and more. 

Your teenager should start searching for and filling out these scholarship applications in their final years of high school. Federal Student Aid outlines scholarship opportunities and is a good place for your child to start their scholarship search.

Federal Pell Grants

Federal Pell Grants are money that you never have to repay, so if your child qualifies for one, it’s a handy way to shrink your college bills. Pell Grants are awarded based on need, up to $7,395 per year (in 2024). Every student should fill out a FAFSA (Free Application for Financial Student Aid) to find out what other financial aid they qualify for.  

Investing in Your Family’s Future

It’s never too early to plan for your child’s education. Learn more college savings tips on Farm Bureau’s College Funding page. We have a variety of options that can put you at ease and make you feel secure about your child’s college fund. 

Talk to a Farm Bureau financial advisor who can help you build a financial plan that will help you balance college funding with your other financial commitments. 

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.