The short answer is… parents should start saving for college as soon as possible.
Nonetheless, figuring out how much to save for college and when to start can be confusing. The answers aren’t always crystal clear. However, saving for college is a massive undertaking that requires a strategic savings plan to reach your goals. If you’re working on your savings plan, you’re in the right place.
Here’s what parents should know about when to start saving for college, including the most important factor: beginning early.
Start Saving Early
The cost of college is rising every year. In fact, education expenses in the US have risen by over 180% since 1980. This makes an early savings plan not only useful but necessary.
Saving early gives you more time to contribute money and take advantage of compound interest — provided you invest the money. If you wait until the last minute to start saving for college, you’ll need to contribute a lot more. Likewise, the earlier you start investing college savings, the more time your money has to grow with interest.
>> MORE: Best parent loans for college
Make Sure You’re Supported First
As enticing as it is to set aside money to grow, it’s vital that you are already financially secure.
Get an Emergency Fund in Place
Before looking into the future, you should always have an emergency fund, if possible. An emergency fund is intended for dire situations such as a natural disaster, unexpected job loss, or medical bills. In general, your emergency fund should equate to three to six months’ worth of your salary.
Lower High-Interest Debt
In addition to that, you should prioritize lowering any existing high-interest debts. While saving for college is important, the interest you’ll have to pay on debts might be more than what you can save.
That said, there are a few exceptions. For example, if you only have low-interest debt, it may be better to invest the money for college expenses. However, this takes serious time, planning and requires higher risk tolerances so it may not be suitable for all.
Best Savings Plans for College
The current financial system provides a number of ways to start save for college. There are many instruments that are unique in their own regard, so understanding which to choose can be confusing.
>> MORE: Best student loans for parents
529 Plan
A 529 Plan offers federal and state tax benefits when used for educational expenses. A 529 Plan has restricted investment options. However, it’s a great choice because it can be used as a tax shelter while your money grows. In addition, these plans are considered parent assets, which means you don’t need to report them on the FAFSA.
Mutual Funds
Mutual funds create a diversified portfolio of individual investments —think bonds, stocks, or other securities. Unlike a 529 Plan, investing college savings in a mutual fund provides you with a bit more flexibility in terms of what you can invest in. That said, they are run by portfolio managers, who will usually charge a fee for their service. In addition, mutual funds are subject to annual income tax, and any money transferred to your child is viewed as income on the FAFSA.
Custodial Account
Custodial accounts are brokerage accounts that you open on behalf of your child and then subsequently transfer to them once they reach 18, 21, or 25 years of age. Like mutual funds, the FAFSA considers custodial accounts as student assets, which can reduce your child’s financial aid eligibility.
Savings Bonds
Saving bonds are securities that are backed by the U.S. Government. They are one of the most risk-averse investments and safest options as you are guaranteed to get money back. Due to this guarantee, the rate of return for saving bonds is usually quite low, meaning that in periods of high inflation and higher costs, you may still end up losing money as the value of your dollar diminishes.
Some benefits of these vehicles include being federally tax-deferred and state-tax free. That said, the maximum amount you can invest is $10,000 on your own and $20,000 as a married couple per year.
Roth IRA
With only 37% of the nation’s population using this type of account, Roth IRAs are underutilized but can provide a great investment strategy.
A Roth IRA is an investment account where you can earn tax-free interest on your contributions. While earnings are intended to be withdrawn once you are 59 years old, you can withdraw contributions prior to then with no taxes or penalties. There are no obligations or restrictions to when you withdraw and the FAFSA does not consider them assets. However, there are some downsides like the inability to invest more than $6,000 per year.
Regardless, all these options are great ways to start saving for college and growing your money to help with future college expenses. But what if you’re getting a late start on saving? Perhaps you weren’t able to invest right away? There are still many options available and the same principle applies, start as soon as you can.
>> MORE: Compare student loan rates for parents
What to Do If You’re Getting a Late Start on Saving
If you are starting late on saving for college, it may be smarter to take on less risk as market fluctuations can be a detrimental player to your college savings goal. Perhaps it would be wiser to look into more safe, secure investments or age-based plans.
If you don’t reach sufficient savings, you should look into the different types of financial aid for college. Additionally, you can use Sparrow to find the best parent student loan rates and compare across multiple lenders in minutes.
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ASLA
Minimum credit score
Fixed APR
PARENT -> Loans are made available by the Arkansas Student Loan Authority (ASLA), a division of the Arkansas Development Finance Authority, which is an Arkansas state government agency.
Loan terms are subject to change. All loans are subject to approval based upon underwriting guidelines determined by ASLA and its advisors. Interest rates for approved loans will be based upon the borrower’s credit history as reported under the FICO credit scoring system.
Non-Arkansas residents must attend an eligible institution of higher education within the state of Arkansas to be eligible for an ASLA loan. Arkansas residents may attend an eligible institution of higher education within or outside of the state of Arkansas to be eligible for an ASLA loan.
For more information related to the Arkansas Student Loan Authority and its loan products, visit www.asla.info.
Variable APR
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Brazos
Minimum credit score
Fixed APR
It is recommended that you utilize scholarships, grants and other federal student loans, such as the Federal Direct Student Loans, available to you before you use a Brazos Student Loan.
By providing your email, you are consenting to receive periodic emails from Brazos regarding the Brazos Student Loan, as well as general student loan information, information on other Brazos loan products or services, and other information we believe you will find informative and helpful.
Rates and terms provided as a result of a soft credit check do not mean you have been approved for the Brazos Student Loan but will give you an indicator of if, and on what terms, you may qualify. In order to qualify and be approved for the loan, you must apply, have a hard credit pull performed, and provide all necessary documents and information. A hard credit inquiry may impact your credit score.
Credit Review and Approval. If you choose to apply for a Brazos Student Loan, Brazos Parent Loan, or Brazos Refinance Loan and continue your application past the pre-credit eligibility stage, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for Brazos to be able to issue you a Brazos loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. The initial credit review is based on review of all the information you and your cosigner (if applicable) provide during the application process and the information obtained from your credit report(s). If you pass the initial credit review, you will need to provide acceptable documentation such as your income verification before the final loan approval.
Brazos Education Lending Corporation (Brazos) is a part of a group of several non-affiliated nonprofit companies that are all managed by The Brazos Higher Education Service Corporation, Inc. and are commonly referred to as the Brazos Managed Companies. The first of the Brazos Managed Companies was organized in 1975 in Waco, Texas, as a secondary market for student loans. Since that time, the Brazos Managed Companies have, on a combined basis, served an estimated 2 million student borrowers and have helped fund an estimated $30 billion in student loans.
Variable APR
It is recommended that you utilize scholarships, grants and other federal student loans, such as the Federal Direct Student Loans, available to you before you use a Brazos Student Loan.
By providing your email, you are consenting to receive periodic emails from Brazos regarding the Brazos Student Loan, as well as general student loan information, information on other Brazos loan products or services, and other information we believe you will find informative and helpful.
Rates and terms provided as a result of a soft credit check do not mean you have been approved for the Brazos Student Loan but will give you an indicator of if, and on what terms, you may qualify. In order to qualify and be approved for the loan, you must apply, have a hard credit pull performed, and provide all necessary documents and information. A hard credit inquiry may impact your credit score.
Credit Review and Approval. If you choose to apply for a Brazos Student Loan, Brazos Parent Loan, or Brazos Refinance Loan and continue your application past the pre-credit eligibility stage, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for Brazos to be able to issue you a Brazos loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. The initial credit review is based on review of all the information you and your cosigner (if applicable) provide during the application process and the information obtained from your credit report(s). If you pass the initial credit review, you will need to provide acceptable documentation such as your income verification before the final loan approval.
Brazos Education Lending Corporation (Brazos) is a part of a group of several non-affiliated nonprofit companies that are all managed by The Brazos Higher Education Service Corporation, Inc. and are commonly referred to as the Brazos Managed Companies. The first of the Brazos Managed Companies was organized in 1975 in Waco, Texas, as a secondary market for student loans. Since that time, the Brazos Managed Companies have, on a combined basis, served an estimated 2 million student borrowers and have helped fund an estimated $30 billion in student loans.
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College Ave
Minimum credit score
Fixed APR
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.
This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 09/13/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
Variable APR
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.
This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 09/13/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
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Earnest
Minimum credit score
Fixed APR
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Origination Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.70% APR to 15.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% APR to 15.55% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred. Sparrow receives compensation from Earnest on a per-funded loan basis.
Student Loan Origination Loan Cost Examples
These examples provide estimates based on the Deferred Repayment option, meaning you make no payments while enrolled in school and during the separation period of 9 billing periods thereafter. Variable APR: A $10,000 loan with a 15-year term (180 monthly payments of $157.12) and an 11.69% APR would result in a total estimated payment amount of $21,290.40. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 15-year term (180 monthly payments of $173.51) and an 13.03% APR would result in a total estimated payment amount of $22,827.79. Your actual repayment terms may vary.
Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit Lending Licenses – Earnest for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License.
One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America.
© 2023 Earnest LLC. All rights reserved.
Variable APR
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Origination Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.70% APR to 15.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% APR to 15.55% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred. Sparrow receives compensation from Earnest on a per-funded loan basis.
Student Loan Origination Loan Cost Examples
These examples provide estimates based on the Deferred Repayment option, meaning you make no payments while enrolled in school and during the separation period of 9 billing periods thereafter. Variable APR: A $10,000 loan with a 15-year term (180 monthly payments of $157.12) and an 11.69% APR would result in a total estimated payment amount of $21,290.40. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 15-year term (180 monthly payments of $173.51) and an 13.03% APR would result in a total estimated payment amount of $22,827.79. Your actual repayment terms may vary.
Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit Lending Licenses – Earnest for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License.
One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America.
© 2023 Earnest LLC. All rights reserved.
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ISL
Minimum credit score
Fixed APR
Subject to credit approval. Loans are made by Iowa Student Loan Liquidity Corporation or Bank of Lake Mills. Bank of Lake Mills does not have an ownership interest in Iowa Student Loan Liquidity Corporation. Bank of Lake Mills is Member FDIC. Annual percentage rate (APR) shown is dependent on if you are viewing this page with or without the auto-debit discount applied. If viewing with auto-debit discount applied, the APR rate will range from 3.85% APR to 7.91% APR and assumes you are enrolled in and maintain auto-debit payments from the date of origination. Enrolling in auto-debit results in a 0.25% interest rate reduction. Without enrolling in auto-debit, the rate will range from 3.60% APR to 7.66% APR. Not all borrowers receive the lowest rate. If you are approved for a loan, the rate offered will depend on your credit profile, the term you select, your state of residence or your current lender and will be within the ranges shown above.
Variable APR
Subject to credit approval. Loans are made by Iowa Student Loan Liquidity Corporation or Bank of Lake Mills. Bank of Lake Mills does not have an ownership interest in Iowa Student Loan Liquidity Corporation. Bank of Lake Mills is Member FDIC. Annual percentage rate (APR) shown is dependent on if you are viewing this page with or without the auto-debit discount applied. If viewing with auto-debit discount applied, the APR rate will range from 3.85% APR to 7.91% APR and assumes you are enrolled in and maintain auto-debit payments from the date of origination. Enrolling in auto-debit results in a 0.25% interest rate reduction. Without enrolling in auto-debit, the rate will range from 3.60% APR to 7.66% APR. Not all borrowers receive the lowest rate. If you are approved for a loan, the rate offered will depend on your credit profile, the term you select, your state of residence or your current lender and will be within the ranges shown above.
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Final Words
At the end of the day, saving for college should not put you in financial stress currently or in the future. Preparing a strategy to best manage your money and meet your goals is the best way to enjoy your financial future. Look at all the options available to you, and talk your strategy out with a qualified financial advisor and your loved ones, as these financial decisions have great impact. Once you settle on a plan, don’t stress too much about the short-term and try to focus on the long-term advantages.
The content of this article is not, nor should it be, taken as financial advice. The content of this article is for educational purposes only. For personalized financial advice, please consult a financial or investment advisor.