For many, admission to college is a tremendous milestone — it’s the mark of a young adult’s first venture into the world, where they’ll focus on continuing their education and further developing their own sense of identity. While it’s a great next step after graduating high school, saving for college is also an extremely expensive undertaking. 

Whether your student chooses a state or private school, you could be responsible for paying a small fortune either way. Did you know that for the 2023-2024 school year, the average cost of tuition and fees per year for college is between $10,622 and $42,162 (public vs. private)? Just to put it in perspective, a Bachelor of Arts from a private college will cost you the same as a brand-new Porsche 911 Turbo!

The good news is that saving, investing, and strategic planning can all add up to make paying for college an attainable goal.

Want to start a college savings plan? Here’s how:

  1. Invest wisely. Coverdell? 529? If you don’t know the difference between a UGMA and UTMA, don’t even sweat it — we’ve got you covered.
  2. Save wherever possible. Cutting costs and sticking to a budget are great financial habits to master, but they’re especially helpful when saving for college.
  3. Leverage financial aid and scholarships. Both can help substantially, but they’re contingent on financial need and academic performance, respectively. 
  4. Choose the right student loans. Not all student loans are created equal. Whether you decide to take out a loan from a private, FDIC-insured banking institution or a direct PLUS loan from the government, be sure you know the details.
  5. Keep building good financial habits. Unless you hit the Powerball Grand Prize, you should look at college savings as a long-term endeavor. Plan on budgeting, saving, investing, and paying off high-interest debt to help you stay on track.

Ready to learn more about affording education expenses? Let’s dive in! 🎓

5 steps to start saving for college in 2024

1. Invest wisely

If you still have a few years (or even decades) before college enrollment, one of the best ways to generate enough money to pay for higher education is through tax-advantaged investment accounts that are focused on planning for college. Here are a few to look into:

Coverdell Education Savings Account (ESA)

A Coverdell ESA is a trust or custodial account fund established for a beneficiary to use exclusively on their education — it can even cover costs associated with secondary school. 

Contributions to these accounts are not tax-deductible, but the distributions made to the beneficiary are tax-free up to the amount of their qualified educational expenses.

To set up a Coverdell ESA, your beneficiary must be under 18 years of age unless they qualify as a special-needs beneficiary. 

As an individual, you can only contribute to the fund in a given year if your adjusted gross income is below a certain level, but organizations can contribute regardless of their income. Still, total contributions to that individual, even across multiple accounts, can’t exceed $2,000 per year.

Check in with the IRS for more information. 

529 plans

Similar to the Coverdell ESA, a 529 plan (or “qualified tuition plan”) is a tax-advantaged investment account to be used for qualified higher education expenses. Broken down into two categories, a 529 can be either a college savings plan or a prepaid tuition plan. These plans differ by state, so be sure to look up your own state’s rules.

Generally speaking, contributions to 529 Plans are not tax-deductible, but states with state income tax may offer deductions for contributions up to a certain amount. Like the Coverdell ESA, distributions are deductible as long as they’re used for qualified education expenses.

At its essence, the prepaid tuition avenue lets you pay tuition expenses at a given school (or group of schools) at today’s prices, buying “credits” to lock in the current price and beat inflation. The savings plan route works more like a Coverdell ESA, but without the hard income and contribution caps. You can even open one for yourself!

Learn more from the IRS Fact Sheet, or look up 529 plans in your own state for more details.

UTMA and UGMA accounts

The Uniform Transfer to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) are two common investment avenues that provide some tax benefits in saving up money for a minor child. Both are custodial accounts that allow you to save money for the beneficiary’s college education (or anything else, in fact) — all without establishing a formal trust.

Here too, contributions are not tax-deductible. You can contribute as much as you like, but keep in mind the limitations on gift taxes. The earnings in these funds are also taxed, but at an advantaged rate. Look them up in your own state for more details.

The beneficiary can use the funds for anything they need, making them much more flexible than the 529 Plan or Coverdell, but a UTMA/UGMA fund can also affect the beneficiary’s eligibility for financial aid since the account is an asset that belongs to them. 

2. Save wherever possible

Want to find more money to put toward the cost of college? One thing that can help is to create a monthly spending plan so you can find more places to save. 

Start by listing out all the money you spent over the past 2 to 3 months. This isn’t about judging yourself — it’s about understanding where your hard-earned money is going. Do you have subscriptions you don’t use anymore? A membership you don’t really care about? These are some of the easiest, fastest ways to start saving money.

If figuring out all your spending sounds overwhelming, Quicken Simplifi will gather all that spending together for you and create a personalized, flexible spending plan for you automatically. It can also help you set goals for your savings so you can track your progress along the way. 

Remember, you don’t have to save up every dime you’re going to need for college — just work toward a goal that feels reasonable. You can make up the rest with a combination of loans and financial aid.

3. Leverage financial aid and scholarships

With financial aid and scholarships, higher education has become much more accessible for students with financial concerns. 

In addition to saving and investing, you should look into financial aid packages and scholarship opportunities for your student toward the end of their high school career. 

FAFSA, or the Free Application for Federal Student Aid, should be square one — regardless of your income. If your child qualifies for anything at all, FAFSA will be able to tell you. Filling out the application is easy and available to all US citizens and permanent residents. 

As the name suggests, you shouldn’t ever pay for the application! As your child is deciding on schools, you’ll want to explore any student aid packages the university might offer, as well. 

You can also look into scholarships for your child — this is especially true if your kid carries a strong grade point average, but that isn’t a prerequisite. 

Many merit-based scholarships are offered by universities themselves, especially for strong academic or athletic performance, but can also be offered by local non-profit organizations and agencies or even your state government for students with promise. Check out the government’s scholarship finder tool for more information. 

4. Choose the right student loans

When it comes to paying the tuition bill, you may also consider applying for student loans. There are tons of options when it comes to borrowing money for higher education, so it’s important to remember that not all loans are created equal. 

The US government operates a student loan program that offers four types of educational loans. Some are based on eligibility, but not all are income-driven:

  • Direct subsidized loans — loans based on financial need for eligible undergraduate students
  • Direct unsubsidized loans — loans for undergraduate or graduate students not based on financial need
  • Direct PLUS loans — loans made to graduate students, professional students, or parents of dependent undergrads (with some additional requirements depending on the results of your credit check)
  • Direct consolidation loans — letting you combine all your federal student loans into one singular payment and interest rate

Private lenders and credit unions also offer student loan programs, but these interest rates are generally higher than federal student loans — make sure you fully understand the terms before accepting the loan, and don’t borrow more than you need! 

Specifically, be sure you understand the payback terms, including when interest starts accruing, the monthly payments you’ll need to make, how long it will take to pay it back, and the total interest you can expect to pay even if you make all your payments on time. You don’t want to start your career with a mountain of student loan debt if you can help it.

5. Continue good financial habits

This last tip is one you can implement every day to help you prepare for tomorrow. Maintaining good financial habits can help you save for your kid’s education (or your own), get out of debt, raise your credit score, and much, much more.

Start by creating a budget, finding new places to save, and learning the ins and outs of your own personal finances. This can help you bring any overspending into check and give you an increased sense of financial security. 

If that sounds tough — not to mention time-consuming — Quicken Simplifi makes it easy to take control of your finances so you can save more money. Get a flexible spending plan that’s custom-built just for you, and include your savings goals so you can track your progress along the way and celebrate your success!