Strategies for saving for college: Tips & more

When Martine Amisial started thinking about college for her three children—Dominique, 17, Matthew, 16, and Jeffrey, 13—she wanted their experience to differ from her own. The daughter of immigrants from Haiti, Amisial was a first-generation college student when she took out loans to enroll in Montclair State University in Montclair, New Jersey, a school her parents chose, to study biology and chemistry.

“My parents’ outlook on college was not the same as mine is today,” says Amisial, a clinical data manager for a global pharmaceutical company, who now lives in Plainfield, New Jersey, with her husband Clark, a help desk analyst. “We want our children to have the best experience in college, and money not to be a barrier for the things they want to do.”

While Amisial already had started saving for her children’s undergraduate education, she realized she needed some extra support through the planning phases. She attended a presentation at her kids’ Timothy Christian School, hosted by Thrivent financial advisor William Leach. Since that first meeting two years ago, she and daughter Dominique have been working with Leach to prepare for college—from narrowing down potential majors and writing scholarship essays to exploring funding options.

“The biggest worry I hear from parents is, ‘I don’t know if I can afford this,’” says Greg Carlo, a Thrivent internal financial planning consultant. “They see the dollar amounts out there and they immediately think college is too expensive, and that’s not the case.”

According to the 2021 edition of Sallie Mae’s annual study of college students and parents, “How America Pays for College,” 85% of families used parent income and savings, the largest funding source, to pay for college. In total, parents covered nearly half—45%—of college costs, through college savings plans like 529s (37%) and parent borrowing (9%).¹

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.

As with any savings account, the earlier you start funding you college savings, the more time it has to grow. “The next best time to start saving, if you can’t when your child is an infant, is now. Even if the time frame is super short, even if the kids are in high school, it’s still better to do a little bit now than to just ignore it and not do anything at all,” says Alison LeCloux, a Thrivent financial advisor in Ann Arbor, Michigan.

There are several college savings options parents could consider to pay for college:

An educational savings plan where money grows tax-deferred and is distributed tax-free, as long as the 529 plan is used for qualified education expenses, such as tuition, room and board, and books—otherwise most likely there’s a penalty.

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.

A tax-deferred trust account to help parents save for their minor child’s K–12 and college expenses. Currently, contributions are subject to a $2,000-per-year limit and there are income restrictions to be able to contribute.

A permanent life insurance policy with the potential to grow cash value can be borrowed against to pay for college expenses. If you don’t pay it back, the debt balance, including any unpaid interest, will be deducted from the death proceeds paid to beneficiaries.

UGMAs and UTMAs are custodial accounts that allow parents to hold and protect financial assets for their child (the beneficiary) until they reach the age of majority in their state. There are no contribution limits (although they are considered gifts, subject to the annual gift exclusion) nor withdrawal penalties, but since these assets are technically owned by the minor, they can decrease federal financial aid eligibility.

There is no hard-and-fast rule for how much parents should have saved by the time their child goes to college, but LeCloux recommends having “a goal in mind of how much they’d like to have saved by the end of this college savings journey. Then we can work backward from there to figure out, based on an assumed rate of return and how much is put away each month, how long it will take for them to reach that goal.”

After 18 years of parents paying for everything, some students are under the impression that mom and dad will take care of all college expenses, too. But that’s not realistic for every family. By the time students reach high school, it’s important to have shared with them what you’ve saved for their education. While the timing is up to the parents, it’s important to give students enough time to plan.

“Money is sometimes a taboo issue,” says LeCloux. “Parents are hesitant to tell their kids how much money they make or how much they’re willing to help pay for college, but that needs to be transparent, because it’s a huge factor kids need to take into account as they’re narrowing down that list of schools.”

Covering the cost of college shouldn’t just fall on the parents, of course. This is also the time to discuss cost-cutting measures students can control, such as applying for Reserve Officers Training Corps (ROTC) in exchange for 100% covered tuition, becoming a resident advisor on campus for free or discounted room and board, or graduating quicker by enrolling in summer classes or taking a College-Level Examination Program (CLEP) or the AP Program to earn college credit.

“This is likely the first time your child is impacting a six-figure decision in your family,” says Leach. “They often don’t understand the gravity of the investment, so it’s really important for the parent to engage the student and have that conversation: ‘I love you. I want what’s best for you and your future. Mom and dad have done their best to provide a good lifestyle for you and help with your college education. Now there’s a variety of things you can do.’”

For years, Brandon and Danielle Johnson of Saline, Michigan, didn’t believe they were going to need educational financing. As Brandon was a professor at a private Christian liberal arts college in New York, tuition was free for the children of faculty. But when he took his current role eight years ago, professor of music and director of choral activities for Eastern Michigan University, where that same benefit didn’t exist, the Johnsons had to rethink their college savings strategy.

Still, they never wanted Brandon’s job or money to influence where Marit, 18, and twins Luke and Quin, 16, chose to go to school. “I’d rather they found the institution that fit them best and that they were most comfortable with,” he says. “We just want them to have the same kind of great college experience we had.”

That included private schools, often thought to be more expensive than their public counterparts. Brandon and Danielle, who is currently completing her education to become a certified chaplain in a hospital or nursing home setting, both graduated from private liberal arts school Concordia College in Moorhead, Minnesota, and Marit is a rising sophomore at the private Capital University in Ohio.

“We didn’t just look for the lowest-priced university,” says LeCloux, who worked closely with the Johnsons to set up college-savings vehicles like a 529 plan and Roth IRA. “Private schools work really hard to make sure that the sticker price gets chopped down for families who are eligible for aid to make it an affordable option.”

Cost is important in the decision-making process, but families shouldn’t let that be the only determinant. Job placement rates, the variety of programs offered and graduation rates are also important. There’s no point in choosing the cheapest school if it takes seven years to graduate—or if the majority of students walk out with no degree in hand at all.

Also consider the fact that one-third of students change their major at least once, according to a study by higher education technology company Ellucian, which can extend the time it takes to get a degree, in turn costing more money.²

“Students don’t have to know exactly what their major and career is going to be, but what I do is help them identify a plan A, B and C based on their research and how they feel,” says Leach. From there, they should only consider schools that offer multiple areas of interest to them so they have the freedom to pivot without potentially needing to transfer and losing credits.

No matter how much money you’ve accumulated in your college savings account by the time your child leaves for school, it’s a smart move to spread that money out over the course of their college career, supplementing each semester with any aid received by submitting the Free Application for Federal Student Aid (FAFSA).

“You may think, ‘Oh, I’ll use my cash first and financial aid later,’ but you should not do that. Funds derived from completing the FAFSA get paid out per semester, and you may not have enough financial aid to cover the cost of tuition later, so your cash can then supplement what you’re offered,” says Thrivent marketing strategist and former college bursar Kimberly Helm, noting that every student should submit the FAFSA, regardless of a parent’s income. According to the Sallie Mae survey, only 68% of families completed the application for academic year 2020–2021, a steady decline over the past two years.

Most families who didn’t apply said they didn’t think they’d qualify for any aid—but that’s a mistake. Even if a student isn’t offered federal loans, schools use FAFSA data to award grants, scholarships and work-study.

Beyond what’s offered in a student’s award letter, they should “apply for scholarships like it’s their part-time job,” says Leach, who encourages the students he works with to apply for 30 to 35 scholarships every school year. That’s how Amisial’s daughter Dominique ended up with $1.1 million in awarded money toward college.

“In my opinion, a student is the reputation of the school, and a scholarship is a financial incentive. The school is investing in you, they believe in you, and they want to associate your future success with their institution,” says Leach. “So that’s a great neutralizer. ‘I may not qualify for need-based aid, but if I do well academically, great colleges are going to pay me to attend, no matter how much income or assets my parents have.’”

“Loans” shouldn’t be a dirty word—look at them as an investment. The reality is, 64% of families in Sallie Mae’s survey said student loans had always been a part of their college-funding plan, with students borrowing an average of $8,775 in student loans, and parents borrowing an average of $11,394 in 2020–2021.

The key is to avoid over-borrowing by shopping around for the best interest rates and only accepting the amount you need to cover necessary college costs. For example, federal loans are usually the cheapest, and subsidized loans do not charge interest while in school. One rule of thumb: Total borrowing should be less than the student expects to make their first year out of college. Or, to look at it another way, loan payments should not be more than 10% of their usual income, and they should be able to pay it off in 10 years or fewer.

“Whatever choice you make, at least you’re going in with eyes wide open versus not having a clue,” says Carlo. “Even if you need to borrow, you know that going into it, you know what the outcome is going to be, what your monthly payments are going to look like.”

Contact your Thrivent financial advisor or visit College planning to learn more. Thrivent has tools and resources to help you and your child explore their interests, choose a college and determine the best funding options for your family.

1. Start small—even if that means you can only deposit $50 a month into a college savings account.

2. Evaluate your budget to see where you can cut back on spending.

3. Every time you get a raise or bonus, put that money directly into the college savings account.

4. Set up automatic withdrawals from your checking account so saving for college is put on autopilot.

5. Never sacrifice retirement savings to fund college. You can take out a loan for college, but you can’t take out a loan for retirement.

6. When relatives ask for birthday and holiday gift ideas, ask for a contribution to the child’s college savings account.

7. Remember, you don’t have to empty the entire college savings account when your child is a freshman. Let the money continue to accumulate until graduation.