The days when students could go to college and graduate with a degree having 0 debt have been long gone. It’s not impossible, but it’s a very difficult process and takes hard work and dedication.


According to the Wall Street Journal, the average college graduate’s student loan debt is  $37,172.

In today’s economy, it’s vital to build good money saving habits. At the current rate of growth with student loans, most parents won’t even have their student loans paid off before their child goes to college! It’s a bad cycle that you can break by being conscious of your savings habits. We’ll be covering when you should start saving for college, how you should be saving for college, best ways to save for college, and cover college savings tips for students. It is still possible to get through college debt free.

When to Start Saving for College?

Generally, you should start saving for college as soon as you can. It’s not in every student’s or parent’s budget to save thousands for college. If college is in the cards you’ll want to take a few steps before saving all your money for college.


Starting a college fund, college savings account or even taking advantage of some of the college savings plans out there is a great goal but shouldn’t be your only goal. Part of being focused on your finances is prioritizing your money to go where it makes sense.


You should start actively saving for college when you’ve followed these steps:

  • You have created a budget and are sticking to it.
  • You are nearly debt free or have at least 80% of your debt paid off, excluding your home mortgage.
  • You have set up an emergency fund with at least 4-6 months of expenses to cover any unexpected costs.
  • You have already allocated 10-15% of your income towards retirement.

You don’t want to neglect your own money goals, especially when it comes to retirement. There are several other ways to pay for college without you spending all of your retirement or savings to go.

Best Ways to Start a College Fund

The first step in building a college fund is to know how much you need to save for college. This amount is different for everyone. There are several tax-favored plans that parents can take advantage of.

Education Savings Account (ESA) or Education IRA

An ESA allows you to save $2,000 (after taxes are paid) per year, per child. The money you save grows tax-free and if the child or student uses it for education expenses it will stay tax-free.


If you start when your child is born and save $2,000 a year for 18 years you would only have around $36,000.


In an ESA, that $36,000 will be higher depending on the investments in the account. If you were to put $2,000/year away for 18 years that balance would be gaining interest each year and you could end up having around $50,000 to $75,000 (or more) depending on how the investments play out. Keep in mind, if you don’t use it for qualified expenses you will have to pay taxes on it.


ESA Pros

  • It’s tax-free.
  • Variety of investing options so you control quite a bit.

ESA Cons

  • There are income limits.
  • You can only contribute a max of $2,000 per year.
  • The money needs to be used by the time the child or student hits 30.

529 Plan

If you don’t meet the income level for an ESA, you’ll most likely reach for a 529 Plan. A 529 Plan may allow you to choose the funds you invest through but not all do, you’ll want to select one that does. A 529 Plan has a much higher contribution limit around $300,000 and some can even allow you to change who the beneficiary is. This can come in handy if you set up a 529 Plan and your first born doesn’t go to college.


529 Plan Pros

  • Higher contribution rate ($300,000).
  • Few, if any, income limits or age limits.
  • It’s tax-free.

529 Plan Cons

  • May be charged if you transfer to another child.

UTMA or UGMA (Uniform Transfer/Gift to Minors Act)

An UTMA/UGMA differs from a 529 Plan or ESA in that they are not designed only for education. The account is in the child’s name but is controlled by a custodian (typically the parent). The custodian will manage the account until the child or student is 21. At 21, the child or student can do whatever they want with the money.



  • Funds can be used for more than just college.
  • Tax advantages for the contributor.


  • No restrictions on where/how to use the money and it may not be used for college.
  • Beneficiaries cannot be changed after selection.

College Savings Tips for Students

As a teenager or student, there are ways you can help save for college that don’t involve your parents. Many of these tips can be done before or after you’re attending college, however, we suggest trying to do these before you take the leap.


A few college saving tips:

  1. Apply for Scholarships – the best way to look at scholarships is that they are free money. If you excel in athletics, academics or even extracurricular activities you can be rewarded for it. You should look through a scholarship search tool to find thousands of scholarships and grants available.
  2. Take AP Classes – Advanced Placement (AP) classes are taken in high school and they give highschoolers the opportunity to earn college credits while they’re still in high school. Every AP class taken in high school is one less you have to pay for later, that could be around $2,000 in savings depending on where you go.
  3. Get a Job – you’d be surprised at how much having a job can change your college savings plan. If you work while you go to school and you budget appropriately and take advantage of other methods outlined in this list, you can go to college almost for free.
  4. Open a Savings Account – you should have a savings account as soon as you have money. It should be gaining interest and you should be adding onto it periodically.

Budget – you should be trying to save money more than spend if you’re leaning towards a “big purchase”. Make sure you create a budget and you’re putting away more than you’re spending.

Saving for College vs Saving in College

There is a key difference between saving for college and learning to save in college but they have a lot of the same fundamentals. While you’re in college you want to make sure you’re still creating a good budget and managing your finances to avoid going further in debt.


A few areas you’ll want to find ways to save money is on housing, food, tuition, supplies, transportation, entertainment. Not only can you save but you can also make money too. By avoiding debt, finding a part-time job or even selling off your stuff as you don’t need it can help you spend less while at college and potentially even have you leaving college with minimal debt.