You don't need a Ph.D. to know that paying for college is a heavy lift. Building college savings is a major goal.
For parents with kids, saving for a four-year degree at a state school or pricier private college is a study in perseverance. A child's education is one of life's biggest savings goals, like saving for a house down payment and, of course, retirement.
The average one-year cost of college in 2024-2025, including tuition, fees, housing and food, for an in-state four year public college was $24,920, according to the College Board. And the sticker shock gets worse for a four-year private college, which runs $58,600.
Parents need to save to be able to get close to those numbers.
Get College Savings In A Good Place
The $64,000 question that needs to be answered along the way is: Are your college savings on track?
A good way to guesstimate if your college savings plan is on track from year to year is to use savings benchmarks as a guide. One rule of thumb is to estimate a dollar amount you should have saved based on your child's age, according to a new study by fund giant T. Rowe Price.
This approach to college savings is like retirement savings benchmarks that tell workers how much they should have saved in a 401(k) by a certain age based on their salary. For example, by T. Rowe Price's math, you'll need 3.5 to 5.5-times your salary saved by age 50 to be on track for retirement.
"What it does is give you a sense of whether you're roughly on track," said Roger Young, thought leadership director at T. Rowe Price and author of the report, "How much should you have saved for your child's education by now?"
What savings benchmarks also do is provide a road map of what you need to do to get back on track if you're behind in your college savings plan, adds Young.
Follow The Right Steps With College Savings
Saving for college is a multistep process. Parents must set reasonable goals, develop a savings strategy, invest the funds, track progress and tweak the plan if needed.
Here's the way T. Rowe Price says you can estimate if your college savings plan is on track or not. First off, given the high cost of college, T. Rowe Price recommends that parents shoot to save 50% of the final estimated price as a starting point. Thanks to grants and scholarships and student loans that offset college costs and the use of current income during college years, parents may not need to pay for all their kid's college bills.
T. Rowe Price's age-based savings milestones assume you start saving the year your child is born and continue to sock money away through the age of 18 and the four years they're in college. The amount you need to save, of course, will depend on the type of college you are saving for. You'll need higher savings, for example, to fund half the cost of a private four-year education than if you send your child to an in-state college.
Use The College Savings Math
The math used by T. Rowe Price is simple. Take the current cost of one year of college and multiply that by a savings benchmark. (T. Rowe Price assumes you'll save an equal amount each month ($260), earn 6% per year, and a 5% inflation increase for college costs)
The benchmark savings amount (multiples of the current cost of one year of college) increases in each year of the child's life. For example, by age 10, parents planning to cover half the cost of college should aim to have saved 1.1 times the current annual sticker price of the their child's target college.
At age 1, the savings benchmark is 0.15 of the cost of one-year of college. ($24,920 x 0.15 = $3,700, or the amount you should have saved by now.) At age five, the savings benchmark rises to 0.60. ($24,920 x 0.60 = $15,000). At age 10, the savings multiple increases to 1.10. ($24,920 x 1.10 = $27,400). By age 18, the savings multiple tops out at 1.75. ($24,920 x 1.75 = $43,600, which is enough savings to pay for roughly two years of college, or half the bill).
Where Are You With College Savings?
The goal of age-based benchmarks is to track progress. It's a gauge of where you are. Are you ahead or behind on your college savings goals?
These age-based benchmarks can act as a catalyst for parents to save more if necessary. And, in some cases, opt for a less expensive college to better meet their college savings goals.
"Maybe it's a reality check for those people who say, 'OK, I need to get going on this,'" said Young. "One lever (you can pull) is to rethink the goal. You might have to say, 'well, maybe the expensive private school isn't in the cards anymore.'"
Even though the cost of a college education continues to rise, Young cautions parents with medium to high income levels who think they'll get financial aid to rethink that. You'll have to fund the bulk of your child's college education with savings.
"You really don't want to get to college and have under-saved because there's not a lot of sympathy in the financial aid offices for high-income people who are under-savers," said Young.
Ramp Up Your College Savings
Since not every household can start to save for college in the early years of a child's life due to child care costs, T. Rowe Price advises a "ramp-up" savings strategy. This strategy enables parents to start saving at a lower monthly contribution and then increase their savings rate once the child reaches age 6 and starts elementary school.
"We're going to cut you some slack in your child's early years, but you need to start saving something," said Young.
Start Saving Soon
One key is to start saving early, says Young. Ideally, in the year your child is born. The reason: the earlier you put money to work in the market, the more time the money has to grow and benefit from compounding.
It also makes financial sense to use cash gifts around birthdays and holidays to help fund the college account. A $100 check deposited into a college account will be worth more in the future than another pair of pajamas or another toy.
"Taking advantage of gifts is not something parents should shy away from," said Young. "We hear a lot of grandparents want to help out with college costs. And it has become easier for family and friends to contribute to 529 college savings plans.
Steady College Savings
Making steady monthly payments to your child's college savings account is also key. Consider saving in a 529 plan, as the dollars invested will grow tax free and withdrawals for educational expenses are also tax free.
For parents playing catch-up, while retirement savings is the main priority, it can make sense to cut back on 401(k) contributions and funnel those dollars into college savings in the run-up years to your child's first year at college, says Young.
"We certainly don't look askance at people who say, 'I'm going to dial back on the 401(k) for a few years and catch-up later," said Young.
