Four-year college education expenses can run you thousands of dollars into the ground, if you’re not careful. Parents, take note: saving for college earlier is a sure way of ensuring your kids graduate debt-free.

While it is difficult to avoid student loans completely, you can make it easier for your kids by saving for their college education using a number of financial plans on the market. Taking action to plan for your child’s future is an effective way to take control of a family’s future finances and avoid unnecessary student debt. 

Starting to save for college using various college savings plans is one of the ways that parents can help secure their kid’s financial wellbeing. Careful planning and focused dedication can make it easy for parents to save and to see their children go through college debt free.

How much do you need to save? How do you start to save? Where should you invest? These are questions we will answer in our quick guide to investing in your kid’s education.

Saving for College: Tips for Parents

It’s absolutely essential for parents to start saving for college tuition and other necessary related expenses as soon as possible. Let’s be real: you’re better off coming up with a clear savings plan from the moment your child is born.

Sure, if your kid works hard, they might be eligible for rare scholarships that completely eliminate tuition fees. But don’t bank on the possibility of parenting the next Einstein – you need to have a solid backup plan.

  1. Step 1: Pay off (and plan for) your own debt. Got bad credit? Sitting on thousands of dollars of your own student loans? Work out a way to take care of this debt before you start taking on more. Consider also setting up an emergency fund capable of covering 3-6 months of expenses and put aside a portion of your own income toward retirement savings.
  2. Step 2: Decide on the best college savings plan. From trust funds to government bonds, there are a handful of savings plans that parents can take advantage of before their kids reach college age, and that also offer some tax relief.

Below is a list of possible savings options when starting to think about your child’s future education.

Education Savings Accounts

An Education Savings Account (ESA) is a college savings plan that allows parents to save up to $2,000 per year, per child, after tax. The savings plan grows tax-free, which means after 18 years of savings, this account could contain as much as $36,000. That’s a pretty great contribution toward the first year of college expenses. The rate of growth in this type of account varies depending on the investments made in the account.  A huge plus of the ESA is that it can generate much more than regular savings accounts.

On the downside, one of the biggest limitations of the ESA is that it limits account contributions to $2,000 per year. In addition, the beneficiary must use the savings in the account before the age of 30.

Savings Bonds

Purchasing US government bonds is one of the easiest ways to save for a college education. Interest earned from these bonds is tax-free when the intent is to pay for college expenses. Interest earned on bonds is also exempt from state and local taxes.

529 Savings Plans

A 529 Savings Plan is a post-secondary education plan for parents who want to save more on their kid’s education but do not meet the requirements for an ESA plan. This savings plan comes with both tax and financial aid benefits. You can use this type of plan to pay for tuition at any qualified United States college. You can also use it to save and invest in K-12 tuition, as well as pay for any college costs.

College Savings Plan is a type of 529 education savings plans that allows people to invest their income after tax contributions to a college account. It is common for managers to invest part of the funds in mutual funds or other investments as a way of growing the saved amount.

Prepaid Tuition Plans

Prepaid tuition plans are college savings plans that allow students to prepay all or part of their educational expenses at an in-state public college. You can also use tuition programs for a private or out-of-state college. Private college 529, on the other hand, is a separate prepaid plan sponsored by more than 250 private colleges.

With this strategy, you would be pre-paying for college.  To be eligible for this option, one must reside in the state that sponsors the plan. Amounts saved will not cover room and board expenses.

All the 529 plans come with provisions that allow parents to change the beneficiary to another family member. If the firstborn decides against pursuing college education, then the investments made can still go towards the next in line.

529 saving plans stand out in part because they allow higher contribution rates of up to $300,000. The plan does not come with income limits or restrictions based on age. Investments in the savings plan also grow tax-free.

ABLE Accounts

ABLE Accounts are a type of savings account that makes it easy for Americans with disabilities to save up to $15,000 a year in a tax differed account. Operating like a 529 college savings plan, the account allows individuals with disabilities and their families to make good use of a tax-advantaged way of saving money. Money in the account can cover all qualified expenses, specified at the start, which can be college education.

Uniform Transfer/Gift to Minors Act (UTMA or UGMA)

UTMA and UGMA savings plans differ from the actual design of the education savings. The savings plans are usually in a child’s name. However, the account holder must be a parent or a grandparent, tasked with the responsibility of managing the account until the beneficiary reaches age 21.

UTMA and UGMA custodial accounts have provisions for stocks, mutual funds, and bond investments as a way of growing the overall investment. Part of the amount in the account is tax-free while an equal amount incurs taxation equal to a child’s tax rate.

Every child under 19 years can access a certain amount in the account at a reduced tax rate. A custodian can also initiate withdrawals to cover a child’s education. However, such expenses are not limited to college expenses or higher education.

Instead, a custodian can withdraw an amount to cover expenses related to the child or beneficiary. The fact that custodial accounts are assets belonging to a child sees them counted against financial aid.

The major downside of the two custodial accounts is that one cannot change the beneficiary once selected.

Savings Accounts

Savings accounts offered by various financial institutions act as ideal avenues for saving for a college education. More than two-thirds of Americans use savings plans to save for their children’s education. Although they do offer little interest in any investment made, such accounts do provide safe custody for education expenses.

The investment flexibility of the accounts also makes them ideal for saving for the future. However, unlike 529 plans, they do not offer many tax benefits, and their low returns may fall below the inflation levels.


The Roth IRA does come with tax advantages and is an education savings method that offers numerous savings benefits as well as flexibility. The after-tax contributions made with the plan grow tax-free, thus allowing parents to gain optimum returns on their investments.

A ROTH IRA also comes with the benefit of investing in an unlimited amount of stock bonds, as well as, mutual funds to help grow a college fund further. Withdrawals from such accounts are penalty-free as long as they go towards qualified college expenses. However, financial aid organizations do consider such withdrawals to be considered a type of income when determining a student’s eligibility.

ROTH IRAs give way for a hefty boost in your retirement savings should your kid score a bunch of scholarships. The only downside here is that ROTH IRAs do come with significant income restrictions. Tapping accounts for education expenses can also significantly affect your ability to achieve your retirement savings goals.

Coverdell Education Savings Account

Coverdell Education savings plans combine all the positive attributes of ESAs and 529 plans. These college saving plans come with tax-free withdrawals, as is the case with 529 plans, and offer an array of investment opportunities.

Coverdell accounts cover education expenses throughout a child’s life without any restrictions, from K-12 through high school.

Trust Funds

Trusts were the initial saving plans for college education before 529 plans and ESAs came into the picture. Structured as UTMA accounts, trusts are assets transferred to a child by their parents or other guardians that become available to them once they reach a certain age.

Beneficiaries of trust funds can decide to do whatever they wish with their money. Some choose to use it for college, while others go a different direction and spend it on luxury items. This flexibility when it comes to trust funds can be both a positive and negative. Trust funds also come with tax benefits.

Saving for College: Tips for Students

Often, parents aren’t the only source of money for their child’s college education. Once old enough, kids can also play a role in helping build a fund for themselves to offset high expenses and tuition fees. First, parents should generally educate their children about saving for the future.

Below are a few ways that students can step up and chip in for college expenses, without relying directly on their parents.

Apply for Scholarships

Scholarships offer “free” money to students who qualify. Unlike student loans, this is money that doesn’t have to be paid back – essentially, a gift for achieving a certain academic standing, volunteering or giving back, exhibiting outstanding leadership and beyond. Stand-out success in athletics, academics and extracurricular activities can go a long way in increasing students’ chances of getting a scholarship. Parents should encourage their kids to apply for scholarships, even if they believe they are not eligible.

Enroll for AP Classes

Enrolling for Advanced Placement (AP) classes in high school is a good way to help slash college tuition fees – these classes count for college credits (if you get a certain grade on the AP exams). So, every AP class that a student passes is one less course they need to pay for in college, provided their chosen school or program accepts the particular AP class. To know more about AP classes, high school students should seek further advice from their academic counselors.

Get a Part-Time Job

If they’re able, prospective college students should consider taking up a part-time job. College students can even take on such jobs or, if qualified, a Federal Work-Study, during the duration of their university studies. A Federal Work-Study is a part-time job that’s offered to both undergraduate and graduate students as part of a financial aid package.

Open a Savings Account

Related to their part-time jobs, students should consider opening a savings account in which they can save that extra cash that comes in. Financial institutions offer customized savings accounts for students. These do incur monthly fees as do other accounts, but these student-specific savings accounts do not have minimum balance requirements. If a child is below 18 years of age, a parent would have to be a joint account holder.

Saving Money While in College: Steps for Success

Once they get to college, there are a number of ways that students can continue to save money. Below are just a few of the ways in which students can stay money-savvy while racking up large tuition bills.

  • Save money on new textbooks. Textbooks tend to make up a considerable chunk of college expenses. Before they pay top dollar for new books, students should try to borrow them from the library, buy from used bookstores or loan them from other students.

    In addition to brick-and-mortar used bookstores, there are a number of websites including Amazon and AbeBooks where students can purchase second-hand textbooks a lower price. They can also order digital textbooks online.
  • Look for discounts on laptops. Another money-saving technique is to check for discounts or tax-free days before buying a computer. Major computer brands often offer reduced prices for college students.
  • Take it easy with credit card spending. Students: don’t go crazy without a reliable stream of income. Credit cards seem like they’re sources of free, easy cash – but that’s far from the truth, and paying them off can be a challenge. If credit cards are a must (and you’re a responsible user), choose one with a low interest rate. Charge to it only what you can actually pay for.
  • Limit eating out. While tempting for students when they’re studying or on a campus filled with restaurants, these costs add up fast and make it difficult to save money for other vital expenses. Stock a fridge with healthy snacks and groceries before you consider heading to the local campus pizza place.
  • Choose your housing carefully. Housing prices can vary for students – particularly those who choose to live off-campus. Living in dorms (while perhaps less cool) can be less expensive than renting an apartment elsewhere, and if you take a roommate, you’ll split costs even further.

What Not to Do When Saving for College

When attempting to save for the huge expense that is a university tuition, a number of things could go wrong. Don’t fret – we’ve got a few helpful “don’ts” to keep you from making some common mistakes. 

Tip #1: Don’t wait until the last minute.

This seems pretty straightforward, right? If you’re saving a week or even a year before your child heads off to campus, you’re setting yourself up for a major fail. Starting early is the way to dodge the pressure (and immense debt). It also allows you to gain interest on several investment plans available on the market.

Tip #2: Don’t assume you’ll get scholarships, grants and financial aid.

Maybe your kid really is a genius, but don’t just assume you’ll get the scholarships you’re expecting. Securing scholarships and grants is not an easy feat – there’s a lot of competition among prospective students. You might also rely on financial aid and avoid saving, only to be turned down by decision-makers. Scholarships and financial aid come down to merit and need, and qualifying is never guaranteed when universities get thousands of applications a year.

Tip #3: Don’t use your retirement savings to pay for college.

That’s a big no-no. While it may be every parent’s dream to see their kids successfully graduate from college, using your savings for your own future will just dig you deeper into a financial mess. This will significantly negatively affect your quality of life, especially if you’re nearing retirement and your kid can’t immediately pay you back.

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Chad Pedro

I am a 42 year old male that has been blind for the last four and a half years within the last year God has granted me one of my eyes back I’ve tried to turn in my disability and I am planning on completely turning it back in because I have gone back to work I have opening a small business which I had for 19 years prior to this and I’m fixing cars again and I am struggling to menace Lee I have not at work or the finances to move forward well I have to work but… Read more »



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I’m a business man my self trying to get some capital. So I get things running and making money for my brand. And to help me live God bless. U don’t work I’m disabled was shot six times. Some year’s ago. See after my 82 year’s old mom. That has dimentia. And I’m ty to now pay the bills get business going. And really back by on tray Gift bless me too!!!


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Patti brennecke

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Kirk Maier

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How do I start this savings for students college fee?

Nora Borosak

Hi Ekpo,

Please refer to the article for the steps you should take! Additionally, you can check out some more articles in our “Personal Finance” section for more tips. Thanks for reading!