The Definitive Guide to Saving for College

Feb 18, 2022 5 min read

Every spring, high school seniors wait for life-changing news: whether they have been accepted into the colleges of their choice. It’s an exciting time for teenagers and parents alike. After all, being able to send your child to college is near the top of the wish list for most parents. But that diploma doesn't come cheap.

Check out this 2022 Tuition Madness bracket to see how much it costs to attend the schools in the NCAA basketball tournament.

Whether your child is in kindergarten or high school, there’s a college savings strategy that will put you on the right track. Which college savings option is right for your family? Below, we outline the basics of how to start saving for your child’s college fund.

How Much Does College Cost?

For the 2020-2021 academic year, the average annual cost of attendance for college is:

  • $26,820 for four-year public colleges (in-state students)
  • $43,280 for four-year public colleges (out-of-state students)
  • $54,880 for four-year private colleges (many private colleges cost substantially more)

What’s included in that cost? Cost of attendance encompasses tuition, fees, room and board, books, transportation, and personal expenses. It's a likely bet that costs will continue to rise, and historical trends point to annual increases between 3 and 6%.

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 difficult 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 time when you should start saving.

When your child is young, you have time to select investments that have the potential to outpace college cost. You'll also benefit from compounding, which is the process of earning additional funds on 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 may be able to 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! You can begin by saving a small amount, say $25 or $50 a month.

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, using the information above. Then decide how much of the bill you want to fund — remember, you don’t need to pay 100% of it. Then use a financial calculator to determine how much you'll need to save in your college fund each month to meet your goal.

In many cases, the amount of money you save each month comes down to how much you can afford. Every situation is different. You'll need to take a detailed look at your family's 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 (e.g., own only one car, eat out less often)
  • Add unanticipated windfalls like bonuses, raises or an inheritance to your child's college fund
  • Increase your work income, either at your current job or at a new job
  • Have a previously stay-at-home spouse return to the workforce
  • Ask grandparents to contribute to your child's college fund in lieu of gifts

What are My Saving Options for College?

Savings accounts are a great start, but there are many additional options for investing in your child’s future — you don’t want to put all your eggs in one basket. These popular college savings strategies will help you and your child save for college.

529 College Savings Plan

A 529 plan is one of the most common methods people use to save for college. Earnings grow tax-deferred, meaning there are tax advantages to these accounts. If withdraws are used to pay for qualified higher education expenses, savings in this kind of fund are free from federal income tax.

Coverdell Education Savings Account (ESA)

This option, which allows earnings to grow tax-deferred, can be used for qualified elementary, secondary and post-secondary school expenses, and distributions may be exempt from federal income tax. However, there are income restrictions. (529 plans and ESAs have a lot in common, but there are key differences, too.)

Mutual Funds for College Savings

Investing in mutual funds provides an opportunity for greater growth potential than fixed-income products. Mutual funds are investment vehicles that invest in a range of securities, often tracking an index. Withdrawals from mutual funds are taxed as ordinary income to the extent of the gain.

Roth IRA

Like other common college-savings vehicles, Roth IRA earnings grow tax-deferred. Earnings used for education are not subject to the 10 percent IRS penalty for early withdrawals (prior to age 59 ½) but are subject to being taxed 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, and that can affect your financial aid package. That’s because withdrawals are counted as income, even though the money isn’t taxed.   

Permanent Life Insurance

Cash values grow tax-deferred in permanent life insurance. They can be withdrawn for education without impacting eligibility for financial aid. However, any withdrawal reduces the amount that beneficiaries would inherit after death and any loans from your policy will have interest payments that you need to pay, either out of pocket or by borrowing against the policy (which further reduces the benefits your beneficiaries would receive).

What Are Other Options to Pay for College?

As your teen starts taking standardized tests and visiting colleges, reality about the cost of higher education will set in. Luckily, your family has additional options that don’t include taking on debt.

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. 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.  


Many parents dream of full-ride academic or athletic scholarships for their kids, but those shouldn’t be counted on. 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 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 on need, at up to $5,815 per year. 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 about building a financial plan to 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.