Saving and Planning for College
Stressed about college finances? Learn how to get ready as a parent or student and ways you can save money at any point in life.
Tools to Save
Ideally saving for college starts before or immediately after your child is born. However, we know that this isn’t always reasonable or possible; you can still save no matter how soon you or your child is continuing their education.
Why save for college? According to CollegeBoard, average tuition and fees for in-state residents attending public four-year colleges rose by $6,560 between 1986-87 and 2016-17. Public Texas college’s tuition and fees average at $9,836 per year – a pretty large increase from $5,075 in 2004-05. With these steady increases, it’s easy to see why saving and learning about financial options is important.
Youth Savings Account
Consider setting your child up with a savings account as soon as possible to help them understand finances. You can teach them the benefits of saving, store away birthday money for rainy days, and create a separate savings account specifically for college.
Younger children benefit from a savings account by learning the differences between needs and wants. Think about it – most children see their first retail shopping experience only a few weeks after being born. Why not start teaching them healthy money habits from an early age?
By the time they’re a teenager, they’ll have a savings account established to use for their first job and already have a history with their financial institution when it comes time to buy their first car or move into an apartment.
A 529 Plan is a savings account that helps parents save for future college costs. Contributions to 529 Plans are not tax deductible, but the earnings are not taxed when used for education expenses down the road. These are qualified tuition plans and there are two types depending on your needs.
|TYPE OF PLAN||COLLEGE SAVINGS INVESTMENT PLAN|
|Prepaid tuition plan||Lock the current cost of tuition in place to avoid rising rates|
|College savings investment plan||Invests contributions and helps grow savings|
The plans have designated beneficiaries and taxes are paid once distributions are made. They can be used for any qualified expenses, like tuition, fees, books, and room and board.
Keep in mind both of these options are investments and involve risk, mutual funds, and other investment pieces. Speak with a financial advisor first to decide on the best option and help you open your plan.
A Texas Uniform Transfer to Minors Account, or TUTMA, is a trust account established under the name of the minor by a donor. The donor chooses a custodian to be responsible for the account until the minor turns 21. The custodian is the only person who can make withdrawals, obtain information, and make any changes to the account prior to the minor turning 21, but anyone can make deposits. These accounts are not investments like the 529 Plan.
The minor gains full access to the account and funds once they turn 21 and the account will be closed. They also do not need to use it for education purposes once the funds are theirs.
A Coverdell ESA, similar to the 529 Plans, is a tax-free investment option. Withdrawals are also tax-free as long as they are spent on education expenses. The main difference is that purchases for K-12 education do count as qualified purchases and they have lower maximum contribution limits per child.
Costs of College
Paying for college adds up quickly. It isn’t just tuition anymore – there are room and board fees, tuition fees, books and supplies, extra-curricular activities fees, and more.
Breakdown of Tuition
Out-of-state, in-state, private schools – oh my! The different types of schools can look overwhelming, but looking at a breakdown of the most common variations will help you make a decision easier.
|TYPE OF SCHOOL||DETAILS||AVERAGE YEARLY TUITION AND FEES COST*|
|In-state public||Funded by local and state governments, offering a lower tuition rate for in-state residents. Typically a four-year school.||$9,410|
|Out-of-state public||Students from out-of-state typically pay more because state schools are funded by tax dollars of residents in that state.||$23,890|
|Private||Not funded by local or state governments. They rely mainly on tuition, fees, and private funding.||$32,410|
|In-district community college||Typically two-year colleges that offer associates degrees or certificates. They can often be used as a stepping stone to attend a four-year school.||$3,440|
Going to a college or a university isn’t the only option; are also vocational schools, for-profit schools, career colleges, and more. It’s up to you, as the student, to decide which one will best fit their budget and career goals. If your parents are helping pay, include them in the conversation so they know what to expect and can look at their budget too.
Deciding on a school shouldn’t be based off tuition alone though. Try to visit a few schools to get a feel of the atmosphere, meet people, talk to the advisors for your major, and take a guided tour. Explore the town and check out some places where you’ll potentially be living. It will be easier to narrow down the decision this way.
Breaking Down Additional Expenses
After choosing a school, it’s time to figure out where you’ll be living. If going into school as a college freshman, ask the college if it’s necessary to live on campus; many schools make that a requirement for first-year students. Next, figure out if you’re taking a car or can take a car and if you need to pay a permit fee to keep it on campus.
If you’re living in a dorm, you won’t have to pay bills, but you do need to consider supplies you’ll need:
- Appliances like coffee maker or microwave
If you won’t be living on campus, you’ll have to think of a plan for when you’re starting school. Think of questions like:
- Will you be living at home or moving away?
- Do you need a car or are you using public/university transportation?
- Do you need furniture?
You’ll have various moving expenses, like renting a van, rent for the first month and a security deposit, and utilities and internet. If you don’t want to buy or bring your own furniture, see if you can rent a furnished apartment which is common in college towns.
On top of tuition, universities charge fees that are bundled with your expenses from them. Example fees include transportation fees, printing costs, and library fees.
You can’t avoid these; if you want to attend the school, you must pay them with the tuition.
Books and Supplies
The average yearly rate for books and supplies for in-state students attending full time is $1,298 – a pretty large sum of money!
Ask the professor if it’s okay to purchase books you can read from your tablet or laptop; sometimes these are cheaper, and if they let you use your device in class, you can save money and room in your backpack.
Also consider selling your books once the semester or school year is over. You can give other students the opportunity to save money by buying them at a discounted rate and you can use the money you earned to buy next year’s round of textbooks.
Depending on the school, you may have to buy a meal plan. Meal plans typically come with a certain number of meals per week and a set amount of dollars you can spend on food or supplies from the university.
If you aren’t required to purchase one, consider if it’s worth it for you or if you can save money elsewhere by packing your own lunch and cooking your meals.
A tricky part of college is knowing what loans to accept and how to use them to your advantage. There are two categories of student loans – federal loans and private loans.
Federal loans should be presented in your financial aid package. The package will define how much money and what grants you’re receiving, as well as what loans and the amounts of your loans. You are not required to accept these as part of your financial aid if you don’t need them.
There are also private student loans through financial companies. These are separate from your financial aid packages and require a separate application. Private loans will have higher interest rates and you will pay interest throughout the whole period of having the loan.
Both of these loan options are covered more extensively on our Financial Aid page.
This financial aid tool helps you understand what your options are for paying for college. It will estimate financial aid eligibility based on school year, age, income, state of residence, etc. and take into account other types of student aid and any savings you will contribute to your or your child’s education.
The Net Price Calculator from the U.S. Department of Education allows you to calculate how much you will owe out of pocket at a specific university. The calculator will factor in your scholarships and grants and tell you how much you will owe in a single academic year.
The College Scorecard from the U.S. Department of Education lets you find schools based on programs/degrees, location, size, name, type of school, its specialized mission, and/or religious affiliation. Once you select your criteria, the program analyzes the results and gives you average costs, graduation rates, and salary after attending. If you click on a school to learn more, it gives you a more detailed breakdown of data about the school.