As a parent, you want to help set your child up for success, and education plays a large role in that. You may have thought about how to guide them from their first day of kindergarten to their first day of college since they were born. Whether that time is here now or still years away, there are several ways you could prepare.
Whether your child attends a public or private university, higher education can be expensive, even if you have been saving for 18 years. Tuition and fees at a four-year college range from $11,950 to over $45,000 per year.1
From college savings 529 plans to savings bonds, scholarships, and grants, there are several ways you could help cover some of the costs of college and pay for your child’s education.
College Savings 529 Plans
A college savings 529 plan is a savings account designed to help families set aside money for college. These plans include state-sponsored college savings plans and prepaid tuition plans.
When you invest in a 529 plan, earnings and withdrawals are not subject to federal tax and are generally not subject to state tax when used for qualified education expenses, including:
- Tuition
- Room and board
- Books
- Computer equipment
- Required fees
Types of 529 Plans
There are two main types of 529 plans, each with different features and uses:
| Plan Type | How It Works | Key Notes |
|---|---|---|
| Prepaid Tuition Plans | Allows you to prepay future tuition at current rates | Sponsored by states. Some offer tax deductions or credits. Rules vary by state. |
| College Savings Plans | Lets you invest money in an individual account for future education costs | Sponsored by states or state agencies and typically managed by a financial institution. |
Consider visiting your state's website to get more details about available 529 plans and how to sign up.
Remember: Investments in a 529 college savings plan are subject to market risk including the potential to lose some or all of the principal amount invested.
Coverdell Education Savings Account
For families with limited room in their budget, a Coverdell Education Savings Account (ESA) may be an option. A Coverdell ESA helps families save for education costs, including qualified elementary, high school, college, and graduate school expenses. You can open an ESA through banks, mutual fund companies, and other financial institutions. With these accounts, earnings grow tax-deferred, and qualified withdrawals are tax-free if taken before the beneficiary turns 30.
Families earning under $220,000 can contribute up to $2,000 per year per child.2 This limit applies across all accounts, even if multiple people contribute. Contributions are not tax-deductible, but earnings and qualified withdrawals are tax-free as long as withdrawals do not exceed education expenses.
UGMA & UTMA Accounts
You could also use custodial accounts to hold assets such as stocks, bonds, cash, or real estate for your child. The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts serve this purpose.
These accounts allow parents to transfer assets to their children without setting up a formal trust through the courts. However, these funds are not limited to education. Once your child reaches adulthood, they can use the money for any purpose.
A custodian manages the account until the child reaches the age set by the state. Keep in mind that these accounts may affect financial aid eligibility since the assets are considered the child’s property.
Scholarships, Loans & Grants
In addition to family savings, you can look at scholarships, grants, and student loans to help cover college costs.
Scholarships and Grants
If your child has participated in sports, extracurricular activities, or volunteer work, they may qualify for scholarships or grants from various organizations. Awards can range from a few hundred to several thousand dollars, and even smaller amounts can help reduce overall costs.
Student Loans
Student loans are another option to consider. Federal loans often offer lower interest rates than private loans, so it may help to review all available options before making a decision. Student loans can help cover education expenses and support your child's future.
Savings Bonds
Series EE and Series I savings bonds are government-backed investments that can help build education savings. Their returns are often lower than other investments, but you may not owe taxes on the interest if the funds are used for qualified education expenses.
The IRS counts tuition and fees as qualified expenses, but not room and board. Because of this, bonds may offer less flexibility compared to other savings options.2
Final Thoughts
Saving for college may feel overwhelming, but starting early and understanding your options can make it easier to manage. Each option has different benefits, limits, and trade-offs, so the right choice depends on your goals, timeline, and how much you can save. In some cases, using a mix of strategies can help cover more expenses and reduce the need for borrowing.
All investments involve risk, including the potential loss of principal. Before investing, consider your objectives, risk tolerance, and time horizon.
Sources
- Trends in College Pricing: Highlights. https://research.collegeboard.org/trends/college-pricing/highlights.
- Publication 970 (2025), Tax Benefits for Education. https://www.irs.gov/publications/p970.
