Start with the actual cost at the school your child might attend

The amount you should save depends almost entirely on which school and when. A year at a public in-state university costs between $25,000 and $35,000 total (tuition, fees, room, board). A year at a private university costs between $55,000 and $80,000. A year at a community college costs between $3,000 and $13,000. Four years at any of these will be four times the annual cost, minus any scholarships or grants your child receives.

Start by looking up the current cost at schools your child is actually considering. The College Board's Net Price Calculator on each school's website shows what your family would pay after institutional aid. That number is more useful than the sticker price because it accounts for the discounts most families receive.

Then add inflation. College costs have historically risen 4 to 5 percent per year, though this varies. If your child starts college in 10 years, multiply the current cost by 1.04 or 1.05 ten times over, or use an online college cost inflation calculator. A $30,000-per-year school today might cost $45,000 per year in 10 years.

Key Takeaways

  • The total cost depends on the specific school: public in-state runs $100,000 to $140,000 for four years today, while private universities run $220,000 to $320,000.
  • Account for inflation by assuming college costs will rise 4 to 5 percent annually between now and when your child enrolls.
  • Subtract scholarships, grants, and student loans from the total to find what you actually need to save yourself.
  • A 529 plan or Coverdell ESA lets your savings grow tax-free and is the most common vehicle for college savings.
  • Saving something is better than saving nothing, even if you cannot reach the full amount — every dollar saved reduces future borrowing.

Subtract scholarships, grants, and loans to find your target

You will not pay the full cost yourself. Most families use a mix of savings, scholarships, grants, student loans, and current income during college years. The question is how much of that mix should be savings.

Start with the total cost you calculated above. Then subtract what you reasonably expect from other sources. Merit scholarships vary wildly by school and student — some schools give none, others cover full tuition. Need-based grants depend on your income and assets; the FAFSA (Free Application for Federal Student Aid) will estimate this once your child is in high school. Federal student loans have annual limits ($5,500 to $7,500 per year depending on year in school for dependent students as of 2024, though this may change). Parent PLUS loans have no annual limit but carry higher interest rates.

The remainder is what savings should ideally cover. If a school costs $120,000 total, your child receives $20,000 in scholarships, you expect $15,000 in grants, and you plan to borrow $30,000 in loans, then you need to save $55,000. That is your target.

Divide your target by years remaining to find your annual savings goal

If you have 10 years until college and need to save $55,000, you need to save $5,500 per year. If you have 5 years, you need $11,000 per year. If you have 2 years, you need $27,500 per year.

This assumes no investment growth. In reality, money in a 529 plan or Coverdell ESA will earn returns (typically 4 to 7 percent annually in a balanced portfolio, though returns vary by year and market conditions). That means you can save less than the simple division suggests. A financial calculator that accounts for investment growth will show you the actual monthly or annual amount needed.

If the annual number feels impossible, you have three honest choices: save what you can (something beats nothing), plan to borrow more, or look at lower-cost schools. Many families do all three.

Use a 529 plan for tax-free growth if you have time

A 529 plan is a state-sponsored savings account where money grows tax-free as long as it is used for college costs. You contribute after-tax dollars, but the growth and withdrawals for college are not taxed federally. Most states also let you deduct contributions from state income tax (the amount varies by state, from $235 to $500 per year in most cases).

You can open a 529 in any state, not just your own, though your own state plan usually offers the best tax deduction. You choose how the money is invested — typically from a menu of age-based portfolios (which automatically shift from stocks to bonds as college approaches) or individual fund choices. You can change the investment choice once per year or when you change beneficiaries.

The main trade-off: if the money is not used for college, you pay income tax plus a 10 percent penalty on the earnings (not the contributions). There are some exceptions — unused money can now be rolled into a Roth IRA for the beneficiary, or transferred to a sibling. But the core rule is that 529 money is meant for college.

A Coverdell ESA is an alternative if you need flexibility

A Coverdell Education Savings Account works similarly to a 529 but with different limits and rules. You can contribute up to $2,000 per year per child (compared to 529 limits of $235,000 to $550,000 lifetime, depending on state). Money grows tax-free and can be withdrawn tax-free for college, K-12 private school tuition, or tutoring.

The flexibility is the advantage: if your child gets a full scholarship or decides not to go to college, you can withdraw the money and pay tax only on the earnings, not a penalty. But the $2,000 annual limit means a Coverdell alone will not fund a full college education for most families. Many families use both a 529 (for the bulk of savings) and a Coverdell (for flexibility on smaller amounts).

Coverdells have income limits: you cannot contribute if your modified adjusted gross income exceeds $110,000 (single) or $220,000 (married filing jointly) as of 2024, though these limits may change.

Adjust your target if your child is already in high school

If college is fewer than 4 years away, your investment options narrow. Money in stocks can drop sharply in a single year, and you do not have time to recover. Most families shift to bonds and cash equivalents as college approaches, which means lower growth but also lower risk of loss.

If you are behind on savings, be honest about it now. A student loan covers the gap; a 529 plan cannot be borrowed against. Federal student loans for dependent students max out at $5,500 to $7,500 per year. Parent PLUS loans have no annual limit but charge higher interest. Community college for the first two years, then transfer to a four-year school, cuts the total cost significantly.

Some families also use a combination: save what they can, have the student work part-time during college, and borrow the rest. There is no single right answer, only the answer that fits your situation.

Frequently Asked Questions

What if I cannot save the full amount I calculated?

Save what you can. A student who starts college with $20,000 in savings and borrows $30,000 graduates with less debt than one who saved nothing and borrowed $50,000. Every dollar saved reduces future loan payments. If your target feels unreachable, lower-cost schools (community college, in-state public universities) or scholarships may close the gap.

Should I save in my name or my child's name?

A 529 plan in your name (with your child as beneficiary) is usually better for financial aid purposes. Money in the parent's name counts less heavily against aid may be able to access than money in the child's name. If you use a custodial account (in the child's name), it will reduce aid more significantly.

Can I use a regular savings account instead of a 529?

Yes, but you lose the tax benefits. Money in a regular savings account earns interest that is taxed as ordinary income each year. A 529 grows tax-free. Over 10 to 15 years, the tax savings can be substantial, especially if you are in a higher tax bracket.

What happens to a 529 if my child gets a scholarship?

You can withdraw the scholarship amount from the 529 without penalty — you pay tax only on the earnings portion of that withdrawal, not the full amount. The rest of the money stays in the account for other college costs (room, board, books) or can be transferred to a sibling.

Is there a minimum age to open a 529?

No. You can open a 529 for a newborn or even before birth (using a Social Security number or tax ID). The earlier you start, the more time the money has to grow tax-free.