Strategies to cover college costs, for less

Saving for College
Saving for College

No doubt about it; college can be expensive. But parents looking to kick-start their savings may not need as much as they think.

During the 2014-15 academic year, the average annual cost to attend a four-year private college was $42,419, and a public four-year college, $18,943, according to The College Board's latest figures. That's up 1.6 percent and 1 percent, respectively, from the previous year. If costs keep on climbing at a rate of about 2 percent per year as they have on average in recent years, parents of a child born this year could expect to need $249,707 to cover four years of private college education, per's calculator. The tab for public college would be $111,511.

That's a daunting total, even broken up over as many as 18 years of contributions. Only 18 percent of Americans say they have the financial resources to send their child to college, according to the Country Financial Security Index, and Sallie Mae estimates that only 48 percent of parents are actively saving for that goal.

But don't panic just yet. "You don't need to save the full amount," said Mark Kantrowitz, senior vice president and publisher of Many advisors suggest thinking about the cost of college in thirds, he said: one-third to be covered with savings, one-third to be paid at the time of attendance through scholarships and your current income, and the final third to be covered with "future income," or loans.

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Revising the calculation to cover 33 percent, estimates parents would need to put aside as little as $179 per month for that private college education, assuming a 6 percent annual return. Eliminating your student's loan burden with a savings goal of 67 percent bumps the monthly contribution to $362. For a public college education, savers would need to put away $80 to $162 each month, respectively, to hit those percentage targets.

Of course, a big part of that advantage comes from starting early to let the invested funds grow over time. The older your child, the bigger your monthly contribution will need to be. A late college savings start is the biggest financial regret for moms of teenagers, with 44 percent in a recent survey saying they wished they had known to start saving for college immediately.

PhotoAlto | Odilon Dimier | Getty Images

That said, small contributions can add up, said Joseph Hurley, a certified public accountant and chief executive of "The most important thing is, you have to get the account opened," he said. "Even if you can only afford $25 a month." To eke out more for savings, aim to contribute some of any financial windfall, including raises and tax refunds, as well as any "found money" in the budget when, say, you're no longer paying for daycare. Let family and friends know you're saving for Junior's college education, in case they want to gift contributions, Hurley suggests.

Rewards programs such as Upromise can also play a role. Just 15 percent of college savers are using such a program, according to a recent Sallie Mae survey, but those that do earned an average $107 last year. "That's nothing to sneeze at," Kantrowitz said. In the credit card rewards realm, there are offerings including the Fidelity Investment Rewards card, which awards 1.5 percent to 2 percent back into a Fidelity-run 529 plan or other accounts.

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A 529 plan is still, hands down, the best place to stash savings. These accounts let contributions grow and be withdrawn tax-free for higher education costs. Many states also extend perks for savers including tax breaks on contributions and matching funds or scholarship bonuses.Yet two-thirds of Americans don't know what these accounts are, according to a recent Edward Jones survey, and a 2012 Government Accountability Office study estimated that just 3 percent of Americans are using them.

Yes, the amount you have saved can affect financial aid eligibility, but not by much, said Kantrowitz. "It's a very slight penalty," he said—at most, 5.64 percent of the asset value. "It's still cheaper to save than to borrow in loans later," he said.

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