Students: Get a chance to win up to $20,000 toward your education with the U.S. Bank Student Scholarship!

Get started »

U.S. Bank Wealth Management - U.S. Bancorp Investments logo

5 steps for creating a college costs savings plan

Higher education is expensive — and the costs are only going up. These strategies can help build an effective savings plan for you and your family.

Tags: Student, Planning, Goals, Education, Be prepared, Savings, Loans
Published: September 27, 2019

Paying for higher education can be a challenge, but time is one of your most valuable assets — the sooner your saving begins, the more time your money has to potentially grow.


Also, because of the accrued interest that accompanies loans, it costs more to borrow to fund college than it does to save. Sticking to a solid savings plan can reduce or maybe even eliminate the need to borrow.


Here are five steps that may help you identify and reach your college savings goals.

1. Estimate the total cost of college.

The cost of college will vary by institution, the rate of tuition hikes, the financial aid, grants and scholarships you receive, the length of enrollment and the amount borrowed.


The average annual cost for a four-year public, in-state college for the 2018–2019 academic year school year is $21,370.1 Private colleges have higher costs with an average of $48,510 annually.1


The actual cost of college is more than just tuition. It can also include room and board, books, supplies and other living expenses. But the cost may be less than the sticker price, depending on the amount of scholarship and aid you receive. To determine net college costs, factor in all expenses and subtract grants, scholarships and other aid and tax benefits, such as an education credit.


2. Identify savings goals.

A good savings plan starts with goal-setting. Setting goals as a family is a great way to get everyone involved from the outset. Begin with potential costs for college, focusing on desired schools (in-state, out-of-state or private) and expected living expenses. This will give you an estimate of what to aim for.


Sticking to a solid savings plan can reduce or maybe even eliminate the need to borrow.


3. Evaluate your priorities.

Take inventory of your family expenses. How can you cut monthly costs and divert the funds you would have spent into your college savings fund?


4. Determine your monthly contribution goal.

The best method for saving is often thought to be starting early and contributing on a monthly basis. Financial experts suggest striving for at least 70 percent of future college costs. Figure out how much you can contribute to the fund monthly and re-evaluate the contribution regularly.


5. Establish a savings plan.

Understanding the features and tax benefits of college saving vehicles can help you develop an appropriate plan for your family’s situation. Savings plans can include one or more of the following:


  • 529 Savings Plan: A state sponsored, tax-advantaged savings or pre-paid tuition plan for K-12 and higher education expenses. When owned by a parent, funds cannot be weighted more than 5.64 percent in the federal student aid calculation, meaning that is the most that would be expected of the fund for federal student aid. Talk with a financial professional to determine the right state plan for you.
  • Coverdell Education Savings Account (ESA): A tax-advantaged savings plan for K-12 and higher-education expenses. You must meet income requirements to qualify for contributions to ESA.
  • Custodial account (UGMA/UTMA): The Uniform Gift/Transfer to Minors Act accounts are managed for the benefit of a minor. The account is in a child’s name, can be used for anything and transfers to the minor at age 18 or 21. This means that your child may choose to spend the funds on something other than education. Also, UGMA/UTMAs count as student assets, which, in the Free Application for Federal Student Aid (FAFSA) calculations, mean that the students will be expected to draw down 20 percent of the balance to finance their education each year.
  • Qualifying U.S. Savings Bonds: Series EE (issued after 1989) and Series I Savings Bonds can be used to fund higher-education expenses.
  • Traditional & Roth IRA: These tax-advantaged retirement savings plans may also be used for higher education expenses.


In addition to traditional savings or loan options, the rising cost of education encourages thinking outside the box. Here are a few less traditional means of funding college.

  • Enlist support from family and friends: Consider an “all in” saving strategy that incorporates contributions from grandparents, relatives and friends. When relatives and friends ask about gifts for the kids, suggest making a contribution to a child’s college saving plan rather than giving toys or clothes.
  • Grandparent strategy: When grandparents pay tuition directly to the institution, it is not considered a gift and does not count against the annual gift exclusion of $15,000 per year, per student, per grandparent. This means that two grandparents could give $30,00 to each grandchild. However, a monetary gift to a student counts as untaxed income to the student, which can reduce aid eligibility on FAFSA.
  • Tax return: Earmark a percentage of tax return refunds to go to the college fund.
  • Rewards credit cards: Some credit cards offer cash back rewards and others are directly connected to a 529 plan. Put those rewards in the college fund.
  • Grants and scholarships: Apply early and for all that fit the student’s criteria. This is “free” money and doesn’t need to be repaid. Start your scholarship exploration before your child starts high school and keep accurate records.  Many scholarships require documentation of specific classes, volunteer activities, clubs, honors, and elected positions for the entire high school period.  Keep similar records and continue to apply for scholarships during college years.
  • 401(k) loans: If the plan has loan provisions, you may borrow without penalties or income taxes. The loan must be paid back with interest.
  • Permanent life insurance: Withdraw a certain amount of the paid premiums without paying taxes or a penalty. Some policies allow holders to take out a loan using the cash value of the policy as collateral.
  • Home equity line of credit: HELOC interest may be deductible at the state income tax level and have a low impact on financial aid eligibility. Check with a financial professional for details.


Learn more about saving for education.


1 College Board, Trends in College Pricing, 2018.