A Parents’ Guide To Saving For Education

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Thanks largely to COVID-19, the cost of higher education actually went down a little going into 2021 — but it’s still not exactly cheap. The average cost of tuition and related fees for a ranked private college or university in 2020-21 is $35,087. That’s 72% more than an in-state public college, which averages $9,687. In between are out-of-state public colleges, which charge an average of $21,184 — that’s per year, by the way, not in total. Those are scary numbers for the average family, but saving for education doesn’t have to be an impossible climb. Here’s a primer to get you started.

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Related: 21 Budgeting Tips for College Students

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Because of the miracle of compound interest, time is an investor’s greatest ally — and saving for college is no different. The more time you spend contributing to your education fund, the more time your investments will have to appreciate in value and the bigger your returns will be in the end. No matter your circumstance, the best time to start saving is as soon as humanly possible.

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Don’t Go Broke While You’re Doing It

Saving for college is important, but not so much that you should do it at the expense of everything else. Don’t neglect your own retirement savings, your emergency fund, your household budget or any other critical pieces of your financial puzzle. Make college savings a priority, but not the only one.

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Save in an Account Tailored For Education

The government encourages education saving by granting tax advantages to certain kinds of accounts, most notably 529 plans. There are several types of accounts, however, that you can use to save for college, most of which you can open just like any investment account with any brokerage firm. Some are exclusively for education saving. Others can serve that purpose, too, but are more versatile and can also double as retirement funds or regular investment vehicles. Each has benefits and drawbacks that are too complex to expand on here in detail, and each is designed for different kinds of savers with different goals, priorities and strategies. Research all of them before you decide. The most common options are:

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Looking Back: What Parents Spent and Saved in 2020

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Last updated: July 22, 2021