How Much Should I Save Before College?

Bill Nelson is a planning excellence lead consultant at Northwestern Mutual.

College is an effective way to boost your earning power. According to the US Bureau of Labor Statistics, the average college graduate with a bachelor’s degree will earn $1,543 per week ($80,236 per year) compared to a high school graduate at $930 per week ($48,360 per year). It really adds up over a career. Another benefit is that college grads benefit from much lower unemployment rates.

The downside—other than time spent studying—is that earning a degree can be expensive. If you haven’t looked at college costs in a while, you might be shocked at the sticker price. This is especially true for out-of-state or private universities. Luckily, starting to save for college as early as possible can lighten the burden.

Below, you’ll learn about the average cost of college and a rule of thumb for how much to save before school. You’ll explore some ways to save and ideas to reduce the cost.

Costs can be challenging

For the 2024-2025 school year, this was the average cost of earning a four-year degree including tuition, housing, meals and fees:

• $24,920 per year at an in-state public university
• $44,090 per year at an out-of-state public university
• $58,600 per year at a private, nonprofit college

Keep in mind that you’ll have to spend about this much every year, making the in-state public university more than $99,000. And the total goes up if you have to plan on travel costs like plane tickets for Thanksgiving visits.

How much should you have saved before your child goes to school?

Every family’s financial situation is unique, but some students and their families aim to cover about one-third of their college expenses with savings. The other two-thirds could be covered by a mix of income, financial aid and scholarships.

With this rule in mind, if your child is going to school in the next year or two, you can get a quick estimate of the expenses by taking the average cost of tuition for a target school and multiplying that number by four. You can then divide that number by three to get a savings target. Your Northwestern Mutual financial advisor has planning software that can help you calculate the future cost of education (including inflation).

For example, if your child wants to attend a four-year, in-state college, you’d multiply $24,920 by four. This gives you the total cost for tuition, housing, meals and fees: $99,680. (You might want to add in travel costs for out-of-state schools.) If you plan to cover a third of the tuition with savings, divide by three. In our example you’d need around $33,226.

Don’t forget that college costs often increase from one year to another. If your child won’t be attending college for a while, make sure you adjust your tuition estimates to account for this expected increase.

How to start saving for college

How exactly you begin saving for school will depend on whether or not you’ve already been funding a college savings plan.

If you’ve already funded a 529 account or Coverdell education savings account with your child as the beneficiary, that’s a great place to be. Start with your current balance and estimate how it might realistically grow by the time you need it. Your Northwestern Mutual financial advisor can help you determine the cost, the resources you’ll have available and any gaps in coverage—so you can save more accurately. You may continue to add to it, and your investment could grow with the power of a financial concept called compounding interest.

If you don’t have a college savings plan, and you have a few years before you need the money, consider opening one and making regular contributions. You can automate the contributions to help you stay on track.

And a 529 or Coverdell account aren’t your only options. A traditional savings account gives you a place to set aside your college funds outside your checking account, where it might be easier to spend. Even better is a high-yield savings account, which can help your money grow even without access to investments.

Opportunities for college credit while in high school

Regardless of your current savings or household income, your student may be able to pursue college credits during high school. With the high cost of college, any credits earned ahead of time can help.

One of the most well-known options is Advanced Placement (AP)®. These high school courses are designed to be rigorous and challenging. Students who complete AP courses and pass the corresponding exams can potentially save on college tuition. Colleges and universities determine whether they grant credit or higher placement for the AP course—and which exam score equates to credit. Keep in mind that a fee is typically required for exams but is significantly less than tuition.

Another option offered by some high schools is an International Baccalaureate (IB), a rigorous program that offers a comprehensive and internationally recognized curriculum for students through high school. IB culminates in a series of exams that can lead to college credit and advanced placement. As with the AP exam, a fee is typically required for IB exams.

And some high schools partner with local colleges to offer college courses that provide both high school and college credit. These might be called “dual enrollment,” “concurrent enrollment” or “college in high school” because they offer simultaneous credit. The school district typically covers most of the cost. Credits earned through dual enrollment are usually transferable to other colleges and universities, though it's important to read the specific transfer policies.

Other ways to pay for college

While earning college credits in high school can significantly reduce the financial burden of higher education, there are additional ways to make college more affordable. Encourage your student to take advantage of options like these:

Scholarships

There are millions of scholarship opportunities available every year. The major difference from a loan is that you don’t have to pay the money back!

Scholarships aren’t just for the top students. Some are need-based, which means your household income is a major factor. Other scholarships are awarded for academics, athletics, identity (ethnicity, etc.), community service, extracurricular activities and more.

Grants

Grants are essentially free money to help pay for college. They’re similar to scholarships in that they don’t have to be paid back. So, grants are an incredibly valuable form of financial aid.

As a family, you’ll complete a federal form called the free application for federal student aid, or FAFSA. After that, your student will automatically be considered for grants as a part of the financial aid package. They can be at the federal or state level. Many grants, such as Pell Grants, are meant for students whose families have lower incomes.

Work study

Work study is a form of financial aid that provides your college with funds so that it can hire a student to perform a part-time job. Work study helps your student get work experience while earning their degree—plus a paycheck. The money can be used to make tuition payments or interest-only payments on the student loans so your student’s balances don’t increase while they’re still in school.

Student loans

Like any other loan, student loans require repayment with interest. Sometimes the interest accumulates while the student is still in school. Loans taken out as a freshman can be a few thousand more by graduation. So, it’s usually a good idea to try other options before turning to loans.

Federal student loans are part of a financial aid package after you complete the FAFSA. These typically come with a lower interest rate than private student loans and carry additional benefits like these:

• Possible subsidies, like not accruing interest while in school at least half-time or right after graduation, which can significantly reduce the total amount of interest over the life of the loan
• Income-driven repayment plans for which the amount paid each month is directly tied to how much the graduate earns
• Deferment and forbearance options, which are last resorts if your student absolutely cannot afford to make their student loan payments
• Forgiveness potential, which usually applies to people with a good history of paying on time who work in public service, government and nonprofit jobs

Private student loans can be used to fill a gap left by the financial aid package, but these typically have a higher interest rate than federal student loans. They also have less flexible repayment options. If you think you need private student loans, your student will need to apply with lenders separate from your FAFSA.

Get the most from college savings

While college is expensive, that doesn’t mean there aren’t ways you can make it more affordable so that your savings go further. Some ideas for your student include the following:

• Attend an in-state university instead of an out-of-state university because out-of-state schools tend to be more expensive
• Get some transferable credits through a community college, which is often close to home and less expensive
• Consider a trade school, which often costs significantly less and often gets graduates into the workforce quickly
• Live at home and commute to avoid the expense of room and board, which currently average $13,310 per year for in-state students completing a four-year degree at a public college
• Complete the FAFSA and scholarship applications as early as possible because many of these are given out on a first-come, first-served basis
• Applying to a historically black college or university, which tends to cost 26 percent less than comparable schools according to UNCF

And it might be a good time to get advice about how you can fit college savings into your budget. Consider talking with your Northwestern Mutual financial advisor. They can help you evaluate your options and set up a plan. That plan can grow with you as you reach goals like helping your student achieve a degree.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.