How To Save For Your Kid's College Education Don't let the sticker price of college paralyze you. This episode gives you smart saving strategies — including how to prioritize your own retirement savings, choosing a 529 plan and what financial aid offices really look at — so you can start saving for your child's college tuition.
NPR logo

How To Save For Your Kid's College Education

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
How To Save For Your Kid's College Education

How To Save For Your Kid's College Education

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


If you ever want to give yourself anxiety - I mean, serious anxiety - try one of these online calculators for how much money you need to be saving for college.

VALERIE FINNEMEYER: I've done some of the online calculators to tell me how much I should be saving per month. At this point, for our daughter, they were suggesting that we save, like, a thousand dollars, and it's just not doable.

ARNOLD: That's a listener, Valerie Finnemeyer (ph), and she's right. I mean, saving money for your kids' college - for many of us, it can seem like an impossible task. I mean, the sticker price for a four-year private school is, like, $200,000 per kid. It's like, how is this even remotely possible? And if you start late, it's even harder. Take it from me.

But don't panic. Back away from the ledge. Saving for college is not easy, but you can probably save a lot more than you think, especially once you decide, all right, look; this is on. We are going to do this. And, you know, parts of it might even be kind of fun. You can get creative.

MICHELLE SINGLETARY: I'll be honest. I used it as a hammer for my kids. Like, you don't pick up that shoe, no college fund for you.


SINGLETARY: And if they were fighting with each other, it's like, I'm going to give your brother your college fund.


ARNOLD: This is your NPR LIFE KIT for paying for college. This episode - how to save money in advance so your kids don't have too much student loan debt. I'm Chris Arnold. I cover personal finance and consumer protection. And we're going to give you seven important things that you need to know to start squirreling away and investing money in a smart way. So we're going to get into 529 plans or the best saving strategies. And will you even have to pay anything close to that sticker price anyway? We're going to learn how to do this right, and I promise you that your kids are going to love you for it, right after this.


ARNOLD: OK. So the first thing we're going to do is blow up a myth because blowing up myths is kind of fun, right? And this myth gets in the way of a lot of people saving money for college. And I have to admit that I fell victim to this, too, when my kids were little.

There's this idea out there that if you save a pile of money for your kid's college, the college is going to think, hey, great. I mean, this person can pay a lot for college and you don't need any financial aid. So I figured, hey, I'll be much better off, probably - right? - if I put all my savings into my retirement account - colleges don't look at that - and then I'll get a lot more financial aid because I don't have any money saved up, and we'll take out student loans or something on the back end. I'll help my kids pay them later - great plan.

SINGLETARY: Nope. Nope, nope, nope. There's - you're going to - oh, your heart's going to hurt.


ARNOLD: That's Michelle Singletary. She's a personal finance author and columnist for The Washington Post.

SINGLETARY: Now, a lot of parents do think that, like, the more I save, then that's going to be the less that my kid's going to get from financial aid. But guess what. They're going to look at your income.

ARNOLD: This is the thing that you need to understand. When it comes to getting financial aid, your income counts against you, like, 20 times more powerfully than any money you've saved up for your kids' college. And this is our first takeaway. Tip No. 1 - save as much as you can for college, and that's 'cause it's not going to hurt you very much at all when it comes time to get financial aid.

So here's how this works. Schools want you to save money, right? I mean, the system works because people save money that they can pay for their kids to go to school. And that means that they don't want to punish you for saving by giving you no financial aid. So when they calculate how much aid you're eligible for, it's like they put on magic glasses, OK? And they look at you, and they say, how much money do these parents make, and how much can they actually afford to pay? And your income, like, glows bright orange with these glasses. It's, like, blinking. And they're like, OK, whoa, if you make $200,000 a year, you're going to be paying a lot for college. But the money that you've saved, the magic glasses can barely even see that money. It's mostly hidden. Your college savings just doesn't get considered that much.

SINGLETARY: So, yeah, that savings is not going to be the difference between you getting a huge need-based package for your child. Absolutely right.


ARNOLD: To get some actual numbers on this, we talked to Sandy Baum. She's an economist with the Urban Institute, and she's spent her entire professional life studying this higher-ed finance stuff.

SANDY BAUM: So if you saved a thousand dollars, your expected contribution would go up by $56. So thinking that you would be better off if you just didn't have that thousand dollars doesn't make any sense at all. It's a lot better to have the thousand dollars than it is to have the $56 that the financial aid system would say you could get.

ARNOLD: Or if you saved, say, $20,000, your expected contribution, she says, might go up by about 1,100 bucks.

BAUM: You'd be so much better off than having to come up from nowhere with the $20,000.

ARNOLD: Yeah. And I think that once people understand that, it's like, I get it. OK. You're so much better off having saved the money.

BAUM: You're much better off having saved the money.

ARNOLD: Sandy also says, depending on the school, you might not get all of the financial aid that you are technically eligible for anyway. They just don't have the money to meet everybody's needs. So...

BAUM: So it is true that saving has a tiny impact on the amount you're expected to pay, but it has a very small impact, and it might not even have an effect on how much grant aid you end up with.


ARNOLD: All right. So we want to save money, but what's the best way to do that? Sandy recommends using what's called a 529 plan, where you put money into an investment account specially made to save for college.

BAUM: The 529 college savings accounts are a good idea. The advantage of these plans is that they are tax-free - that your money grows tax-free and you withdraw it tax-free to pay for college.

ARNOLD: That is really powerful, right? Because if you start early, the money you put in the account could easily double by the time your kid goes to college. And you get that entire gain. You don't have to pay any taxes on that. That just goes right to paying for college. And another thing that's really cool about these 529 accounts is they're set up in a really simple way a lot of them, where you just say, OK, my kid is 2 years old or 10 years old or whatever it is, and then you're put into the right account where everything's adjusted and calibrated for the number of years you have left till your kid goes to college.

Now, you probably know that you need to save, right? But balancing saving for college with other things that you need to save for - your own retirement or paying back your own student loans - that can be tricky. And we heard from a lot of you who do struggle with trying to figure out, OK, what's the right way to do this?

FINNEMEYER: So I am Valerie Finnemeyer. I live in Chelmsford, Mass., and I work as a physicist at MIT.

ARNOLD: So Valerie works in academia. She's a researcher. Her husband works in public health. They are highly educated, but they don't make massive amounts of money. And meanwhile, they're paying $2,000 a month on their own student loans that they took out to get those advanced degrees. And on top of that, Boston is this incredibly expensive place to live. And so saving for college and retirement both has been really hard.

FINNEMEYER: We've got a 10-year-old daughter - just turns 10 tomorrow - and a 7-year-old son. So I actually was trying to save for college and then got a lot of advice from a friend, financial adviser and some others that I should be focusing more on my retirement because you can always borrow for college; you can't borrow for retirement. And so we switched our focus over to just making sure we got, you know, the best bang for our buck with the employer matching.

ARNOLD: Now this is our next takeaway. Tip No. 2 - you do want to prioritize saving for your own retirement ahead of saving for your kids' college. That's true. A lot of financial advisers say this. You need to have money to live on when you retire, right? But Michelle says people still make a really big mistake here. What's the right, smartest, best way to try to balance all this?


SINGLETARY: So listen to what someone told her. And I - it just drives me mad when financial advisers tell people, well, you can't borrow for retirement, but you can borrow for college. And this - and look what the result was. Instead of saying, OK, I'm going to try to do both, they abandon one. So that's why you got to stop saying that. And, people, stop listening to that. That is bad advice. Now, it's true on its surface, but psychology of why we handle our money - we can't kind of process these two things, and so we go, OK, we're going to just do one. But look at them. So now they're in debt, and now they can't save for their kids.

And so what I tell parents is, yeah, it's tough to do both, but it's not an either-or situation. You have to try to do both. So you would - do at least put in enough to get your company match. And you also save as much as you can for your kid's college fund. It's not an either-or. Both are necessary.

ARNOLD: And that brings us to our next takeaway. Tip No. 3 - don't get overwhelmed and defeated if it seems impossible to save the full cost of your kid's college. Saving something is a lot better than saving nothing.

And to find some motivation here, because we are going to need motivation - just go with me - we're going to take a note from an ancient Chinese philosopher. And he says the giant pine tree grows from a tiny sprout. The journey of a thousand miles starts from beneath your feet. And is it kind of like that - it's like, well, OK, look; you think, oh, I can't possibly save enough. Why bother? Throw up your hands. But you start with a little bit. You start just making that first automatic payment, and it will grow. I mean, is it kind of like that?

SINGLETARY: It is kind of like that. You know, we've talked about this, Chris, all the time. The financial challenges you have starts with not how much money you have, but it's a mental thing. Now, maybe you can save enough that they don't have to borrow for books or they don't have to borrow for this.

ARNOLD: Michelle says, maybe, starting with something small, you'll end up with a lot more money than you thought you'd be able to save.


ARNOLD: The key here, the way you get this tree to grow out of the ground, talking to Michelle there, I said you make your first automatic payment. And this is our next takeaway, tip No. 4. To be successful at saving for college or retirement or anything else, you have to make it automatic, as in every single paycheck. When it hits your checking account, you are autotransferring (ph) a set amount of money into your college savings and investing account. We talk about why this is so powerful in our LIFE KIT episode called Get Started Saving, but basically, behavioral economists will tell you that, look; I mean, us humans, we are just not wired for saving for the future unless we do it this way.

SINGLETARY: So my husband and I set it up so that once a month, a certain day, money comes right out of our paycheck, goes right to the college fund. And that - I call it set it and forget it. That is the best way to save for your college fund, for retirement, anything that you're trying to save for because we're human. We - our days get busy.

And then the other thing is that life happens, and then you start to cheat yourself. Like, this month, maybe you over - you blew past your eating-out budget. So instead of putting money in a college savings account, you've got a larger credit card bill than you expected. So you take that money to pay down the college - you know, the credit card, and then there goes the college fund for that month. But if you do it automatic, it's coming out, you forget it, and then you adjust your spending to what's left.

PHILIP GIBSON: So the research shows that when we make payments automatic, then we're more likely to be successful.

ARNOLD: That's Philip Gibson. He's an associate professor at Winthrop University, where he teaches personal finance classes. He also works as a financial adviser, and he helps people save for college and set up their 529 plans and pick the right one. He also says making things automatic - that's just super important because it makes saving a lot easier.

GIBSON: And after a time, you might not even notice that the payments are going out of the account because you have now become accustomed to a particular budget or you're spending what you have, so you're not going to miss that money as much.

ARNOLD: And Philip says there's a few more things you need to know to do this right. He says the thing about 529 plans is that each state has its own way of setting up these plans - they hire different financial firms to manage them - and you can choose any state's plan that you want. And it's definitely worth shopping around. It doesn't take long. It's easy. And it's worth it because some of these plans charge much higher fees than others.

GIBSON: So it's important that we understand how fees impact your returns.

ARNOLD: Philip says, think about it this way - saving and investing is like taking a snowball...


ARNOLD: ...And then rolling it down a hill that's covered in snow.

GIBSON: So if you start early and that ball starts rolling, then, over time, it's going to get bigger and bigger because you're adding money to that account and you're receiving a return on your investment. But if the fees are high in the account, then our snowball isn't going to grow as big and as fast as we would like it to be.

ARNOLD: But now here's the tricky thing - and this is our next big takeaway, tip No. 5 - even fees that sound small, like 1% or 2%, those are not small. Those are really big fees, and you want to pay the lowest fees possible. So Philip says what happens is this - when we hear, oh, a 1% or 2% fee, our brains kind of anchor that to the wrong number. We think, oh, 1% or 2% out of a hundred - that sounds pretty small. But that is the wrong way to think about it.

GIBSON: Yeah, so if your 529 plan is invested, and if it's invested somewhat conservatively and you're - let's say that you're getting a 4% return and there is a 1% fee, then that's roughly 25% off that return that is gone to the fund that you're invested in.

ARNOLD: OK. So let's get our head around this. There's a lot of numbers. But 1% is a full quarter, 25%, of your investment return, right? And it's that investment return year after year that piles up and piles up. And that is why that 1% fee is not small; it's a big fee.

GIBSON: Right. So what this is going to do - it's really going to slow down the amount of growth that you're getting in the portfolio.

ARNOLD: And over time, you end up with a much smaller snowball if you're giving 20% or 25% of your investment return away again and again, year after year, by paying fees that are too high.

GIBSON: Yeah. It's really worth shopping around so that you can find a plan that is going to give you very low fees.

ARNOLD: Philip says one other thing you want to consider is that some states will give you extra incentives. If you invest in your state's plan, you might get a tax break or some other perk. And there's a very easy way to comparison shop all these different things out. There's a website - It's run by an author who's also, like, the super expert on 529 plans, and it's a really well-respected resource - - where you can compare all the 529 plans out there - what fees they charge, everything about them. So definitely check that out.


ARNOLD: OK. This next thing is a lot more fun than thinking about fees, I promise. Because what you're going to find out when you set up a 529 plan and you start saving, you'd be surprised by how much friends, and especially family members, actually want to help you out with this.

We heard from one listener who did something very cool. He set up the plan before his child was even born. And then for the baby shower, the couple told everybody - they said, look; we don't need onesies. We have a highchair. Please, just don't buy us a lot of plastic stuff. What we really, really would appreciate is if you could just put anything - 10, 20, 50 bucks, whatever you can do - into our 529 account to help pay for our kid's college.

And I was telling Michelle about this. They got well over a thousand dollars...


ARNOLD: ...Before the kid's even born.

SINGLETARY: I love it. I love it.

ARNOLD: And it's like, oh, I mean, if you start explaining it that way, it's like, honey, let's do this 529 thing (laughter).

SINGLETARY: That's right.

ARNOLD: It's like, I wish I had thought of that. Yeah.

SINGLETARY: I love that idea. When you're having a shower or the kid's birthday party, people will always ask, what does the kid need? Because I do that when I'm invited. When my kids were little, they'd write it out. They'd call the parent. It's like, well, what does the kid need? And then when you're asked that question, you go, listen; my kid really doesn't need anything, but if your heart is inclined and you were going to spend any money, here's their 529 plan.

And most of the 529 plans - I know Maryland does. Maryland has a great page that you can set up with a picture of your kid, and then you can even send them a link. And the link takes them to a page, and it makes it so easy to contribute. Like, in less than five minutes, you can contribute. So you can make it easy for people to help you grow the college money for your children.

ARNOLD: And that's our next tip. No. 6 - setting up a 529 plan creates an easy way for friends and family to help kick in some money to help you save for college. And it doesn't have to be a baby shower, of course. If you're starting later than that, you can do it for the holidays or the next birthday party. But the sooner you do it, the sooner that college snowball starts rolling down the hill, and maybe even with a little help from your friends.


ARNOLD: OK. Friends chipping in at birthday parties and stuff - it's fun. It's going to help a bit. But most of us are going to have to dig pretty deep to save enough money for our kids' college. And Michelle, who we've been talking to, she is a success story here. I mean, Michelle talks the talk, but she definitely also walked the walk. And what she did when her first kid was born, she started by putting $250 a month into a 529 plan. And then as she and her husband's incomes grew, they started having more kids.

SINGLETARY: For each kid, it was $250 a month - that's what it took, times three, which is still a lot of money for a lot of families, but that's - it was affordable for us - for 20-some years. And that's all we did. We set it up automatically so every single month, no matter what, money came out of our bank account, went right into the state 529 plan.

ARNOLD: Now, Michelle says this was affordable for her, but this was not easy. Michelle and her husband do not come from any kind of money. And they had to watch their spending and their budget really closely and even to the point, like, where the kids wanted new shoes that their friends had - like, nice shoes, or a video game or they wanted to go out to eat more.

SINGLETARY: When my kids ask for stuff, all I hear is Charlie Brown's teacher - wah, wah, wah, wah, wah (ph). I tune it out. Well, can I have it? I said, nope, two words for you - college fund. Mom, my friends have it. Mommy, please. Mommy, Mommy, please. I said, two words for you - college fund.

ARNOLD: Michelle's kids did not always like this, but Michelle had decided that she did not want her children to have to deal with student loans. And with that $250 a month, you know, that seed planted in the ground, growing, growing, growing, invested over time, she saved up enough money to send all three of her kids to state schools. But, you know, the best laid plans and all that. Michelle's oldest daughter Olivia, turns out, really wanted to go out of state to the University of North Carolina.

SINGLETARY: Beautiful school, beautiful campus, just loved that she painted her room in the colors and she - we went to visit, and it was just like out of the movies. And she was like, I have to go here. I'm just going to die if I don't go. And then we looked at the cost. I said, well, you just going to have to die 'cause you not going to this school, you know? I mean, we didn't have UNC money. We had University of Maryland, College Park money, and that's where that child went. And did she like it initially? Nope, sure didn't. And I locked my bedroom door 'cause I didn't want her to smother me in my sleep.

ARNOLD: (Laughter) Oh, no.

SINGLETARY: But she went and she had a great college experience. She has now finished her master's degree program in social work, so that's six years of a college education and no debt for her or us.

ARNOLD: Now, Michelle teaches a personal finance class at her church for couples. And she was telling this to the people there, and they weren't really buying that Michelle's daughter was OK with this whole thing. I mean, she painted her room the colors of the school, you know? I mean, this must have really sucked.

SINGLETARY: They were like, we don't believe you. Your kids hate you. (Laughter) They, you know...


SINGLETARY: They're like, they hate all the stuff that you did, and then you made them go to a state school.

ARNOLD: So Michelle did this thing. She asked her daughter Olivia to come in and talk to the class. And we actually got a video of this. And this was right when Olivia was graduating from college. And she started talking about how her friends were really stressed out about paying back these student loans that they'd taken out.


OLIVIA: And, like, even, like - even, you know, the friends that I have that are frugal, like, even they have debt. So I'm just, like, sitting in on those conversations of, like, I got six months before they start calling, you know? And I just don't have those feelings.

ARNOLD: And Olivia got really emotional about this, which Michelle didn't really expect.


OLIVIA: I didn't need the milkshake. Like, I didn't need the shoes. Like, I'm going to graduate without debt. When I think about that, like, now I can set my kids up because I don't have - like, the money that I would be spending for my student loans - I could put that away for my kids, and then just generationally. So what you have done for me is so amazing. I just really thank you both for that.


ARNOLD: And people start clapping, so it's hard to hear, but Olivia says, my 8-year-old self thanks you for that.

SINGLETARY: Yeah, now you got me crying...


SINGLETARY: ...Because, you know, your kids never say that to you.


ARNOLD: Now, of course, not everybody's going to be able to send their kids to college totally debt-free or make the kind of decisions that Michelle did for her kids. And there is no one right way to do this. But one takeaway here is that if you do save money, you're really giving your whole family a gift. I mean, if your kids have to borrow a lot less, they're going to really appreciate that.

And you're doing yourself a favor, too, because, you know, you won't be scrambling around when your kids for a start school like, how am I even going to make this tuition bill? And Sandy Baum says, look; even if you can't save all of the money, most people can't, right? I mean, so don't feel bad about that.

BAUM: There used to be a movement to get people to think that you were going to save one-third, pay one-third while the student was in college and borrow one-third. And that's not an unreasonable way to think about it. If you can save any part of it, that does a couple of things. One - it gives you the confidence and it gives your child the confidence that there is money there, that you are dedicated to this, that it's a priority and that you'll be able to pay for it.

ARNOLD: Also, Sandy says to get a handle on a rough estimate even about how much you'll need to save. She also says you can go to that website, It's got really good calculators. And you might find that you're likely to qualify for a substantial amount of aid. That doesn't mean don't save money. Do save money. But, for example, full-time students at private, four-year colleges receive an average of more than $20,000 a year in grant aid.

And so that is a lot of money. There's a lot of grant aid out there. So that might be encouraging. And you start looking at that, you know, save a third now, pay a third in college, and, you know, all this can start to seem a lot more doable than you might've thought.


ARNOLD: And it can also be scary. I mean, when I did this, actually, for my kids, I plugged in my numbers and I'm expecting to see, like, oh, yeah, we'll get some grant aid. And it doesn't look like I'm going to get much. And I did kind of freak out. But within two weeks, I had totally overhauled our approach with our 529 savings plan, with automatic payments now going in every month, with a lot more money. I'm, like, really stretching. And so sometimes, you know, staring reality in the face can be, like, a shock, but it can also be a good motivator.


ARNOLD: OK. So we covered a lot of ground here. So we can remember the most important stuff, here come the takeaways. Tip No. 1 - this is our myth buster - save as much as you can for college. That's 'cause it's not going to hurt you very much at all when it comes to getting financial aid if you've saved up a nice pile of money.

BAUM: You will not lose out much in financial aid, if at all. You will be better off. You will have an easier time paying for college if you have saved.

ARNOLD: No. 2 - you do want to prioritize saving for your own retirement ahead of saving for your kid's college, but you still want to save for both.

SINGLETARY: It's not an either-or situation. You've got to do both.

ARNOLD: No. 3 - a giant tree grows from a tiny sprout. So don't give up. Don't throw up your hands. You can do this.

SINGLETARY: Don't be discouraged. Save what you can as often as you can, even as little as you can.

ARNOLD: No. 4 - to be successful at this savings thing, you have to make it automatic.

SINGLETARY: And you don't even realize that the money's gone.

ARNOLD: All right. No. 5 - even fees that sounds small, like 1% or 2%, oh, that's so small. No. You want to pay the lowest fees possible.

GIBSON: It's really worth shopping around so that you can find a plan that is going to give you the lowest possible fees.

ARNOLD: OK. Finally, No. 6 - party time - setting up a 529 plan creates an easy way for friends and family to help kick in some money to help you save for college.


ARNOLD: For more NPR LIFE KIT - and we all want more - go to And while you're there, subscribe to our newsletter so you don't miss anything. We've got more guides coming out every month on all sorts of topics. And here, as always, is a completely random tip, this time from actor and rapper Utkarsh Ambudkar.

UTKARSH AMBUDKAR: You know your garbage disposal thing in your sink? That thing gets funky, right? So what you do is you cut up a lemon, and if you throw a lemon in there and grind that up, it keeps your disposal fresh.

ARNOLD: If you've got a good tip or want to suggest a topic, email us at LIFE KIT is produced by our own, very fabulous Slyvie Douglas, Alissa Escarce, Katie Monteleone and Chloee Weiner. Meghan Keane is our fabulous managing producer. Beth Donovan is the senior editor. Our digital editor is Carol Ritchie. And our project coordinator is Clare Schneider. Music by Nick Deprey and Brian Gerhart (ph). Our project manager is Mathilde Piard. Neal Carruth is our fearless general manager of podcasts. And the senior vice president of programming is Anya Grundmann. I'm Chris Arnold. Thanks for listening.

Copyright © 2019 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.