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Planning for how much to save for college

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It's no secret that college is expensive—the average cost of tuition and fees at a four-year university now tops $36,000 per year. That figure doesn't even include the cost of room and board, books and other expenses. Deciding how much to save for college is a constant debate for many students and parents.

The answer depends on a number of factors, including the type of school, the state you live in and your family's financial situation. However, there are a few general guidelines you can follow to help prioritize and plan for college costs.

The average cost of college in America

Over the last 50 years, college costs have risen steadily. This makes it critical to plan financially for what college costs might look like over the next decade as well as remain open to college alternatives.

2023-2024 college costs

The College Board regularly shares relevant data on trends in college pricing as well as financial aid. According to their data, here are the prices for college as they stand today:

  • Public four-year in-state: $11,260
  • Public four-year out-of-state: $29,150
  • Private nonprofit four-year: $41,540

What is the best way to save for college?

For most people, saving for their children's college education is a financial priority. However, there is more than one way to save for college.

529 plan*

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education expenses. 529 plans are sponsored by states, state agencies, or educational institutions and are managed by investment companies. Contributions to a 529 plan are not deductible from federal income taxes, but they may be deductible from state taxes.

Earnings in the account grow tax-deferred as long as they are used for qualified education expenses. These expenses include tuition, fees, books, supplies, equipment and certain room and board expenses. Withdrawals used for other purposes may be subject to ordinary income taxes and a 10% federal penalty tax.

There are two types of 529 plans: prepaid tuition plans and savings plans.

  • Prepaid tuition plans. With a prepaid tuition plan, you purchase credits or units at participating colleges and universities for future tuition and fees at today's prices. When your child is ready to attend college, the units or credits are applied to their account to cover a portion or all of the costs.
  • Savings plans. A college savings plan is an investment account that allows you to save money for future education expenses. The account owner—typically the parent or grandparent—chooses how the money will be invested, and the account grows tax-deferred. Withdrawals used for qualified education expenses are tax-free.

Coverdell ESA

A Coverdell Education Savings Account (ESA) is a tax-advantaged savings account that can be used to cover qualified education expenses for a designated beneficiary, including K-12 tuition and fees as well as college expenses. Contributions to a Coverdell ESA are not deductible from federal income taxes, but the earnings in the account grow tax-deferred, and withdrawals used for qualified education expenses are likewise tax-free.

There is an annual contribution limit of $2,000 per beneficiary, and contributions must cease when the beneficiary reaches age 30.

UGMA/UTMA accounts

A Uniform Gift to Minors Act/Uniform Transfer to Minors Act (UGMA/UTMA) account is a custodial account that can be used to save and invest money for a child's future. The account is owned by the child, but it is managed by a custodian such as a family member until the child reaches the age of majority, which is typically 18 or 21 depending on the state.

Contributions to an UGMA/UTMA account are considered gifts, and there is an annual gift tax exclusion of $18,000 per donor per beneficiary in 2024. This means that you can contribute up to $18,000 to an UGMA/UTMA account for each child in 2024 without incurring any gift tax liability.

The earnings in an UGMA/UTMA account are taxed at the child's tax rate unless the account exceeds certain amounts. Withdrawals from the account can be used for any purpose, but they may be subject to income taxes and a penalty if used for nonqualified expenses.

Qualified expenses include most things used for the benefit of the child. Nonqualified withdrawals may be subject to ordinary income taxes and a federal penalty tax.

Student loans

Student loans are meant specifically for students to help pay for their education. They can be either private or federal: Federal student loans are made by the government and typically have lower interest rates compared with private student loans.

There are four types of federal student loans:

  • Direct subsidized loans. These are for students with financial need.
  • Direct unsubsidized loans. Unsubsidized loans target students without financial need.
  • Direct PLUS loans. This option is meant for graduate or professional students as well as parents of dependent undergraduate students.
  • Direct consolidation loans. This allows you to combine all your eligible federal student loans into a single loan with one monthly payment.

You can apply for federal student loans at

It's possible to get private student loans via banks, credit unions and other private lenders. Private loans tend to carry higher interest rates than federal student loans. Federal student loans also typically have more favorable repayment terms. When you take out a student loan, you should always exhaust your federal student loan options before turning to private ones.

Roth IRAs

Traditionally a retirement savings account, Roth IRAs are funded with after-tax dollars, and the contributions can be withdrawn at any time for any reason. So, if your student decides not to attend college, you can use the money for retirement without penalty.


Strategies for saving for college

Whether college is years away or right around the corner for your family, it’s never too early or late to start planning and saving—you just need a game plan. Read stories from Thrivent clients about how they approached funding education.

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Financial assistance from family members

One common way to pay for college is to receive money from family members. This money can come in the form of gifts, loans, or investment income. Gifts are often used to pay for tuition or other expenses related to attending college. Loans may be taken out by the student or the family member, and the loan repayments can be used to help pay for college expenses.

It is important to remember that when using money from family members to pay for college, you should speak openly about their expectations—whether or not it's a gift or if your child needs to pay it back as well as whether they expect your child to meet certain grade requirements in order to receive financial help.

Community college

Community college is often more affordable than a traditional university. These schools offer a wide variety of programs, including two-year degree programs that can save students thousands of dollars in tuition costs whether they choose to transfer to a four-year university afterward or not. In addition, community colleges often have partnerships with local businesses and industry leaders that can provide students with internship and job opportunities.

Student work opportunities

Many colleges and universities offer student work opportunities that can help students pay for their education. These work opportunities can come in the form of on-campus jobs such as working in the library or cafeteria or off-campus jobs such as retail.

Scholarships and grants

One of the best ways to pay for college is to receive scholarships and grants—this financial aid does not need to be repaid. Scholarships are usually awarded for academic merit, while grants are often awarded based on financial need.

Some combination of the above

Again, there is no one right way to pay for college. In many cases, families will use a combination of the above options in order to pay for school.

You may be able to help your child attend college by paying for a portion of their schooling but supplementing the costs by asking them to apply for scholarships, encouraging them to work and using financial gifts from family.

How much to save for college from birth

It's never too early to start saving for your child's future education. Starting with as low as $50 per month for your child at birth can enable them to have a wide range of options, from in-state public schools to private schools. By taking advantage of time, compounding interest and tax-advantaged accounts, you can help make college more affordable for your family.

Get professional guidance for your college savings plan

To start planning for your child's college education, explore the Thrivent College Savings Calculator. This tool can help you plan your strategy for saving for your children's college education.

Many college websites offer net price calculators that can give you an idea of what college costs at various institutions. Discuss your goals with your immediate and extended family to see if they're interested in helping contribute to your children's college education. This will help you determine your goals for your child and decide whether or not paying for the entirety of the education is your priority.

Lastly, don't go through this process alone. Consult a financial advisor and discuss your plan with them. They can help you ensure you're preparing adequately to help your child reach their educational goals.

*A 529 College Savings Plan Accelerated Gifts is a lump-sum $75,000 gift viewed as an accelerated gift over five years ($15,000/year). Additional gifts to the same beneficiary by the contributor within five years may result in a federal gift-tax liability. If the contributor dies within the five year period, a prorated portion of the gift may be included in their taxable estate.

Distributions from 529 plans may be tax-free if used for eligible higher education costs.

A 529 College Savings Plan is 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 to analyze all tax implications prior to investing.

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