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Financial planning for college: What to know before you start saving

Find out what to consider as you set a savings goal for your child’s education, and begin this long-term financial journey.

Even if your child’s college years are far off, the prospect of planning for education expenses can feel overwhelming.

College costs are significant, and they continue to rise at a pace faster than inflation. But those who start financial planning for their child’s education early are more prepared when the time comes.

An Ameriprise financial advisor will help you develop a personalized financial plan to help you reach this goal, while also balancing it with other financial priorities.

As you begin the financial planning process for your child’s college education, here are a few things to think about.

In this article:

  1. Understand the value and cost of a college education
  2. Consider your goals and priorities, especially retirement
  3. Keep in mind: The earlier you start, the better
  4. Estimate your savings goal
  5. Incorporate your savings goal into your financial strategy
  6. Questions to ask an Ameriprise financial advisor

1. Understand the value and cost of a college education

Though the cost of higher education keeps rising, it continues to offer a significant return on investment. College graduates today earn nearly a third more on average than those without a college degree, according to the U.S. Bureau of Labor Statistics.1
 

Note: Data are for persons age 25 and older. Earnings are for full-time wage and salary workers. Source: U.S. Bureau of Labor Statistics, Current Population Survey

The “real” cost of college

The average cost of college has increased significantly over the past several decades, with expenses generally growing faster than the rate of inflation.2

  Public, four-year university, in-state Public, four-year university, out-of-state Private nonprofit, four-year college or university
Published charges for tuition. fees, room & board, 2022-2023 $23,250 $40,550 $53,430

Source: College Board, Trends in College Pricing 2022, Table CP-1; costs based on full-time enrollment

 

There are also expenses beyond tuition and room and board to consider when financial planning for your child’s education. This includes books, technology and transportation. Even counting all that, the actual cost of attendance isn't always obvious because many families don't pay the advertised price. Luckily, schools are now required to have a net price calculator on their websites where you can get a breakdown of the real cost of attendance.

2. Consider your other goals and priorities, especially retirement

What’s the most common way to pay for college? The largest single source of college funding for most American families still comes from parents’ income and savings, followed by scholarships and grants and borrowing, according to a 2021 survey conducted by student loan provider Sallie Mae.3

Consider your expectations for your child when it comes to helping cover the cost of college. How might you expect them to contribute? After all, there will be other financial goals, like your retirement, that take precedent over saving for education

Advice spotlight

Save for retirement first
Even if you’ve decided to help pay for your child’s college expenses, prioritize saving for retirement first. Remember: You can’t borrow to fund your retirement years.

3. Keep in mind: The earlier you start, the better

Education savings accounts, such as a 529 plan, can go a long way toward helping to reach your financial planning goals, but the money you contribute needs time to grow.

By starting to financially plan for college early, you’ll not only give yourself and your child more options when it comes to financing their education, you’ll also give yourself options when it comes to your other financial priorities.

 4. Estimate your savings goal

No parent can know for sure if their child will attend a private or public school, what they’ll study, or if they’ll earn a scholarship. At this point, you can make an educated guess about a savings goal — then prepare to adjust as a child’s goals may change down the road.

  • Use our college savings calculator to get a sense of what your child’s higher education expenses may be and how much you may need to start saving to get there.

Potential gifts from families

As you think about your expected contribution to your child’s education, it’s also smart to think about other familial contributions. For example, have your child’s grandparents expressed interest in helping to finance a part of their education? If so, you’ll need to consider different strategies to use this contribution most effectively.

5. Incorporate your savings goal into your financial strategy

Once you arrive at an amount to save for your education goal, you can determine the investment and savings vehicles you’ll use as part of your financial strategy.

Additionally, it’s not premature to think about what role, if any, financial aid and student loans will have in funding your child’s higher education. You won’t need to decide on this until the year before your child goes to school but having a general understanding of how the process works can help inform your journey.

How much should my family save for education? Can you help me conduct a cost-benefit analysis that considers my family’s unique situation? What cohesive planning strategies can I use to prioritize my family’s education goal, along with my other financial goals? Which education savings accounts can best help me reach my family’s education goal?

When you’re ready to reach out to an Ameriprise financial advisor for a complimentary initial consultation, consider bringing these questions to your meeting.

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Let’s create a financial strategy for your student’s education 

With time, planning and the help of your Ameriprise financial advisor, you’ll understand how much you’ll need for future education costs and create a financial strategy to help reach those goals. 

Get started on saving for your child’s education with the help of an Ameriprise financial advisor.

Or, request an appointment online to speak with an advisor.

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At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's. 

If you know someone who could benefit from a conversation, please refer me.

Background and qualification information is available at FINRA's BrokerCheck website.

1 US. Bureau of Labor Statistics, Current Population Survey, May 2023
 

2 Education Data Initiative, “Average Cost of College & Tuition,” April 2023
 

3 Sallie Mae, “How America Pays for College 2021”

 

This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts or strategies mentioned.  The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor.  Please seek the advice of a financial advisor regarding your particular financial situation.

 

By clicking the link to the Net Price Calculator Center, you will leave ameriprise.com. The included hyperlink is provided for informational purposes only and is not an indication or endorsement of the content therein or affiliation with respect to the linked site. Be aware that the linked site will be subject to rules, regulation, and privacy and security provisions that are separate, and may differ, from Ameriprise Financial.

 

Clients contributing to a 529 Plan offered by a state in which they are not a resident, should consider, before investing, whether their, or their designated beneficiary(s) home state offers any state tax or other state benefits such as financial aid, scholarship funds or protection from creditors that are only available for investments in such state’s qualified tuition program.

 

The earnings portion of money withdrawn from a 529 plan that is not spent on eligible expenses will be subject to income tax, an additional 10% federal tax penalty, and the possibility of a recapture of any state tax deductions or credits taken.

 

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

 

Ameriprise Financial cannot guarantee future financial results.

 

The initial consultation provides an overview of financial planning concepts.  You will not receive written analysis and/or recommendations.

 

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

 

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.   

 

Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SIPC.


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