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How to prioritize & plan for college costs

Illustration of woman in graduation cap

In 2020, fewer than half of parents surveyed by Statistica felt confident about paying for their teens’ college costs. And it’s not a surprise: tuition was on the rise, and most parents of teenagers are in the sandwich generation, which means they’re also juggling the needs of their aging parents and saving for their retirement. It’s hard to know what to prioritize now, and what to put on the backburner for later.

But paying for college—and planning for everything else—is doable. The answer is to create a solid plan and work with your kids to reach those college-saving goals.

Create a realistic college savings plan

Define your potential total cost, explore savings options and determine how both you and your children will contribute to your savings goal.

The first step is determining the ballpark range of what college will cost.

What can you expect to pay for college?

The total annual cost of a four-year college ranges from $26,820 (at an in-state public institution) to $54,880 (for a private college or university) in the 2020-2021 academic year.

These numbers typically include:

  • Tuition and fees
  • Room and board
  • Textbooks
  • Computer and related supplies
  • Daily living expenses

The good news? There may be a big difference between a school’s sticker price and net cost. A family may pay as much as 60% less than the stated tuition since scholarships and grants chip away at the price tag.

And while you can’t know what sort of education your child will want or need when they’re very young, the U.S. Department of Education’s net-price calculator can help you browse among the possibilities.

Decide how much you will contribute to your child’s college costs—and talk with them about it.

You may want to cover the entire cost of your child’s education. Or maybe you want them to have a vested interest in their future by making some sacrifices and taking on part of the savings responsibilities. The sooner you outline your family’s plan the better.

“Doing the pencil math will always suggest saving for your retirement first,” says Clint Jasperson, Wealth Advisor at Thrivent and a parent himself. “This is because of the power of compounding. When comparing funding college versus retirement accounts, college funding may need up to 20 years while retirement accounts may need up to 60 years.”

“This leaves you with the challenge of reconciling the conflict between your responsibility for providing education to your kids with providing for yourself when you stop working. Or balancing posterity with prosperity,” adds Jasperson. “Intuitively, this makes sense but is hard to practice. After all, what good does providing for a college education do if it jeopardizes the long-term financial security of the family?”

One way to vest your son or daughter in the savings process is to tie your contributions to your child’s academic performance. You’ll make them responsible for their own success—and they’ll feel better about your helping out, too. Consider savings techniques like contributing two or three times every dollar they deposit. (After all, you’re bringing in just a little more income, right?). Or, if they aren’t working, decide an amount to contribute after each report card tied to their grade-point average. No matter how you do it, they’ll have a more significant stake in their future.

Pick a college savings plan and get started—from day one.

There's no such thing as being too early to the table with a college savings plan. Opening an account is right there on the timeline along with buying a crib and a car seat.

It shouldn’t be painful to maintain a dedicated college savings account; four out of ten parents saving for college do so. In a best-case scenario, you’ll gain some tax advantages while saving. Here’s an overview of the more popular options:

A 529 provides your family with flexible savings options.

The most popular type of college-specific savings account, the state-administered 529 plan, is the more flexible tax-advantaged plan among its peers. You can typically contribute up to $300,000 in after-tax dollars with no income caps. (Check your state’s plan for specific limits as well as tax benefits.) Contributions are usually invested in mutual funds and exchange-traded funds. Withdrawals are tax-free provided that you use them for qualified educational expenses such as tuition, room and board, and books. An advantage of a 529 is that you can transfer unused funds from one student beneficiary in your family to another—even yourself if you’re thinking of hitting the books again.

Another 529 option is a Prepaid account. Like a traditional 529, it comes with high contribution ceilings (about $300,000 in after-tax dollars, state-dependent), no income barriers, and the ability to switch beneficiaries. However, it differs in that it’s school-specific. You choose a state college, lock in a tuition price, and work towards that savings goal.

A key benefit: It's not likely you'll have to pay for tuition increases.

A downside: If your child ends up going to a private school, you’re not guaranteed all of your money.

A Coverdell “education IRA” puts after-tax dollars to work.

A Coverdell Education Savings Plan lets you save up to $2,000 in after-tax dollars annually, tax-free until your child turns 18. Its small contribution limit caps your potential total significantly while offering better potential returns than a conventional savings account and more investment freedom than a 529 plan. Unlike a 529 plan, it comes with a household income ceiling.

Custodial accounts offer broader spending conditions.

In a Uniform Transfer Gift to Minors Act (UTMA) a parent or perhaps a grandparent acts as custodian for a trust account. You control its assets until your child reaches the age of termination, which is 18 to 21, depending on the state. Your child can use the money for any purpose, even a spontaneous Spring Break trek to Costa Rica or a Tesla, so monitoring withdrawals and their use is wholly up to you.

Talk with your financial advisor and your accountant about which savings plan(s) can work best with your particular financial profile.

Keep monitoring costs and saving for college expenses throughout your child’s college experience.

In some cases, such as with a 529 fund, you can still contribute once your child’s on campus. You should also monitor how you’re spending all that cash you’ve been saving for 18 years or more.

Keep looking for ways to reduce tuition costs even after your teen starts college. “When I was in school, I was actually able to score scholarships more easily, since there were fewer people competing for them than when you’re first going to school,” says Jasperson.

And be sure to file the FAFSA (Free Application for Federal Student Aid form) each year—that is, if you did in the first place. A 2019 government survey revealed that two-thirds of students who didn’t file an application neglected to do so because they thought they could shoulder the costs or didn’t think they were eligible. However if your family’s financial circumstances change unexpectedly due to job loss, illness or a death in the family, you may be able to get emergency assistance.

Get your kids actively involved in planning and saving for their college education

It’s their future, and the bigger stake they have in it, the more it will mean to them.

Help your children create a vision of their learning future.

Talk with your children to help them see how their interests can become a cherished vocation. Has your oldest always wanted to be a doctor, while your youngest adores the visual arts? Encourage them to start turning those dreams into tangible goals. It’ll make the sacrifices they’re about to make much more meaningful.

Assist each child in building their own savings strategy.

You’ve been guiding your children in developing their commitment to save, give, and spend with short- and long-term goals in mind since they were able to hold a dollar. Using that framework, be sure to weave college savings into their budgets as soon as they start getting an allowance—and establish its high priority.

Here’s an example framework for allocating allowance money, gifts from relatives and, eventually, those first paychecks.

  • Charitable giving: 15%
  • College savings: 40%
  • Saving for special occasions or purchases: 20%
  • “Fun” or spending money: 25%

Your percentages may vary, but the idea of prioritization is most important. Your child must understand the importance of paying for an education in the context of everything and everyone else they value.

Check out Thrivent's college savings calculator to build a plan that works for you and your family.

Have your child research scholarships and grants.

Applying for scholarships and grants is another often misunderstood part of college planning, even though these sources fund 25% of total college costs each year, and students receive an average of $9,744. Tracking down your family’s piece of this $24 billion pie can be a fantastic journey if your child is willing to dig in and do some research. What’s more, in addition to traditional academic and sports scholarships, many niche scholarships are available to tenacious applicants.

Planning how to pay for a college education takes time and effort. But when you approach the process as a family and empower your kids to take an active role in their futures, you’ll make the most of the relatively short time you have to grow your savings.

To learn more about creating a college-savings plan that works for your family, connect with a Thrivent financial advisor.

Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Offered through a brokerage arrangement with Thrivent Investment Management Inc. 529 college savings plans are not guaranteed or insured by the FDIC and may lose value.

Consider the investment objectives, risks, charges, and expenses associated before investing. Read the issuers official statement carefully for additional information before investing.

Investigate possible state tax benefits that may be available based on the state sponsor of the plan, the residency of the account owner, and the account beneficiary. Consult with a tax professional analyze all tax implications prior to investing.

Refer to the Thrivent Investment Management Inc. Form CRS Relationship Summary for more information about us; our relationships and services; fees, costs, conflicts, and standard of conduct; disciplinary history; and additional information. Refer to the Thrivent Investment Management Inc. Regulation Best Interest Disclosure document for information on fees, products, services, potential conflicts of interest, and additional information. Both are available upon request from your financial professional and on

Concepts presented are intended for educational purposes. This information should not be considered investment advice or a recommendation of any particular security, strategy, or product.