How much should you save for college?

After reading the earlier posts on kids & college (see below), some of you have already been thinking about the next question: “How can I save for early retirement and still save enough for my kid to go to a good college?”

An earlier post already discussed whether you want to set aside any money for them to go to college. For this post, we’ll assume that you’d like to help as much as you can. Keep in mind, though, that teens tend to do better at college if they have to shoulder some of the responsibility. You don’t want them working three part-time jobs to barely scrape by with a 2.00 GPA, but you can expect them to earn their own spending money or pay for their own transportation.

Before you start setting up your college fund, you need to have your own financial house in order: a debt payment plan (if necessary), a retirement goal date, an asset-allocation plan, and an idea of how much you’d like to save in the college fund.

Two websites have accumulated a huge archive of data on college expenses: and You may find other websites that you prefer over the next 18 years, but right now these two have the backing of both the colleges and the financial industry. You can review a survey of college expenses, use a financial calculator to see how much you’ll need in 17-18 years, and find the best funds to use.

Think about when you’re going to start spending money for college. (No, it’s not when your teen starts college.) Your college planning needs to include the junior and senior years of high school, and maybe even a family campus-visiting vacation after freshman or sophomore year. You’ll be spending hundreds of dollars on SAT/ACT test fees, study materials, prep courses, and score reports. You may also be spending hundreds of dollars on high school AP classes, additional textbooks, science fairs, travel to other cities for competitions & exhibitions, and other extracurricular activities.

In addition to campus visits, consider spending some of the college fund during high school for overnight/weekend/weeklong programs. Your primary goal of a campus visit is to teach your teen to ask the questions that will affect their college life. Then you need them to look around the campus and think “Yeah, I can do this.” It’s far better to spend $1000 on this during high school than to spend $10K during college freshman year, only to have them learn that they don’t like the college and can’t handle the pressure. The best way to help them convince themselves is to for them to attend classes with student guides, to stay overnight in the dorm, or even to attend a weeklong science program or sports camp. By the time they come home they’ll have a feeling for whether they want to go to college, what they might want to study, and perhaps even where they want to go.

Back to the investment plan. Consider your asset allocation very carefully. You have a firm ending date for your savings plan, and you won’t be able to just save for an extra year or two before your young adult matriculates. You can be aggressive with stock funds for the first 10 years or so, but by their 12th birthday you should be moving into bonds and CDs. By the time they’re 15 years old you’ll be moving everything into bonds and CDs (and spending some of it on college preparations), although you really only need to have two semesters of cash in hand for freshman year. If you decide to put your savings on autopilot with a “target fund”, make sure their asset allocation matches your expectations.

Plan to solve the problem from two different directions: how much you’d like to have (“four years at Harvard”) and how much you expect to be able to save (“three years at State U”). Instead of pushing hard on your assumptions (“I think the stock market can make 8% per year for the next 15 years”), dial back your investment expectations and assume that college costs will be rising aggressively. By the time your kids are in seventh grade, you need to be able to forecast both how much you’ll have and how much you’ll need. You don’t want to have to take out $100K in student loans because the stock market only gave you 5% APY for 15 years.

Once you’ve put upper & lower numbers on the problem, start saving. Choose an investment plan that minimizes expenses and taxes (perhaps your state 529 plan offers a tax deduction on contributions) and monitor its performance. Put as much of your plan on autopilot as you can– perhaps a target fund, and definitely with payroll deductions deposited automatically into the college fund.

The very first place you can start saving for college is in your own budget, and it can begin when you’re shopping for baby supplies. It may be convenient to have the latest in stroller/car seat technology, and you’ll look good with all the baby backpacks and fashion wear. But for every extra $20 you splurge on your little bundle of joy today, that’s at least $50-$60 you will not have when they’re graduating from high school. If you buy your baby gear from Craigslist, garage sales, and Goodwill then you can put the savings right into the college fund. Tell your parents and relatives that you’ll do the same with their baby gifts. Continue to raise your kids on Goodwill & garage sales so that they’ll be ready to “live like a college student” when the time comes.  Take advantage of any extras that come your way, too– your two-year-old won’t miss most of Grandma’s $50 birthday check if it ends up in the college fund. (I don’t think Grandma will dispute that either.) Check college costs every year at, check your fund’s performance, and see how you’re doing toward your goal.

Discuss expectations with your kids. If they pick up an incorrect assumption that you’re paying for Stanford then there will be some ugly discussions during the last couple years of high school. They don’t have to know every detail of your finances, but around ninth grade it’s reasonable to tell them what you’re willing to pay for and what they should expect to work for.

You can start the college discussion with your kids as early as seventh grade. (Their teachers are already using it to scare motivate them into studying harder.) Kids are seeing high-school and college plots in their favorite TV shows and movies, and it makes them feel grown-up to have a college discussion before they’re even in high school. They also have to think about the classes they’ll be taking for their interests– if they want to study engineering at MIT then they need to start taking advanced math in eighth grade. If math has been a chronic problem, though, maybe they want to pursue another interest like science or technology.

This is the time to suggest that one way to attend college would be a couple of years at a community college while they’re still living at home, followed by a couple of years in a dorm at a State U campus. That’s not too scary. You could also mention scholarships and military service academies, but this puts a lot of pressure and expectations on a teen who’s already contending with high school and hormones. Listen to what they talk about and encourage their interests. They have to be internally motivated by their studies and their aspirations, or you’re wasting the college fund.

Watch out for the discussion boards at and There’s a lot of good information on these forums, but your teen can also be intimidated by the stellar posters who have 2400 SAT scores and are agonizing among Harvard, Cal Tech, MIT, or Oxford. They may prefer a website like where the students review the colleges instead of talking about their applications.

The year your student starts college, you’ll need to fill out the financial aid forms. This happens in January (their senior year of high school) and the financial aid is claimed very quickly, so you may want to practice the forms during January of the year before they start college (their junior year of high school). Even if you don’t expect to qualify for financial aid, fill out the forms. Your teen’s college will review your applications for scholarships and work-study programs even if you don’t qualify for federal aid, yet the first data they’ll look for is in the forms.

The same timing applies to corporate and foundation scholarships. Many of their application deadlines are soon after senior year begins, which is the wrong time for your teen to be writing essays and filling out website applications. The college applications and the scholarship forms should be filled out as much as possible during the spring semester of junior year (or you could hold their summer hostage). Even if a program doesn’t open its application until August, your teen can set a reminder in their calendar to check back and get an early start. Remind them that many scholarships are only good for one year, so they’ll have to fill out these applications every summer until they finish college. Depending on your teen’s aspirations and your savings plan, you could motivate them by offering to “profit share” whatever scholarships they win. You’ll win by easing the pressure on the college fund, and they’ll win some extra spending cash for freshman year.

Should you encourage your kids to join a service academy or ROTC, or even enlist?  That’s their problem. You may have your own ambitions mixed into this goal, but they’re the ones who have to supply the motivation. Let them pursue their interests, but if they’re interested then make sure their campus visit includes the military options. (The ROTC websites make it particularly easy to list the college choices.  Start there and then sort by location, degree program, and price.) They’ll get a chance to hear from military recruiters in high school, so they’ll already have an opinion about which branch of service seems interesting. A couple of hours of ROTC drill or a week at a service academy’s “Summer Seminar” will go a long way toward showing a teen whether they want to pursue that particular interest. It’s better to figure it out now than to wonder “What if?” for the next decade.

We’re just one example among many, but I’ll summarize our college planning. We started our daughter’s college fund the month she was born (late 1992). It was invested very aggressively (domestic and international equities) until she was 14 years old, and then we started moving to bonds. When the markets turned down in 2008 we fled to 100% CDs.
The summer after eighth grade we visited friends who happened to live at USNA, which kicked her ambition into overdrive. To give her a balanced perspective, after her high-school freshman year we visited three NROTC colleges. We visited one more during fall break of her sophomore year. After junior year she went to USNA’s Summer Seminar and a science/engineering program at another college.  (She decided not to apply to USNA but she still wanted NROTC.)  During this time we also paid for three SAT prep courses, stacks of study materials, and a dozen SAT reports to colleges. She ended up applying to NROTC and five engineering colleges and was accepted at her first choice. She’s survived freshman year, and this week she’s seeing the “real” Navy!

Related articles:
Early retirement and the kid’s college fund
Raising a money-smart kid

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WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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