How to Save for Your Kids' College?

Should you pay for your kids' college education? How much will it cost?

Which type of college fund is best?

What is the best way to save for college?

Oh, college! If only I had known how expensive you were while I was there, I may have appreciated you a little more. Or maybe not, after all I was ages 18-22 while I attended and lacked much-needed budgeting and money management skills. If you're not familiar with our story of how we made it through college, you can read or watch our video post about the college years.

After spending nearly two years working second jobs to pay off my student loans, we're hoping to provide some sort of college funding when our children get there. But to be honest, the future looks dismal when you calculate the amount needed to pay for even one child's college education.

It's a bit overwhelming to say the least. Not to mention there is a question you should ask before you even calculate that number...

As parents, do we even want to pay for our children's college education?

This is totally a personal choice, of course, and we've lived on both sides of it. Kelsey's parents paid for all of her college. My parents didn't. However, my parents did help as they could throughout college and even helped pay off some of the loans after college. I still had nearly $30,000 in student loans.

As new parents and even before, we decided we wanted to do what we could to pay for our children's college educations. This was decided before calculating how much it would cost. Rooney is on top of the height charts and we're hoping she's into basketball or volleyball like her parents and can catch a ride on the full scholarship train. Otherwise, Hogwarts is going to be a close second, and I can't imagine how expensive that is going to be!

Regardless, we're doing what we can now to pay for as much as we can when she gets to college. I think the biggest point to make if you have a young child you want to help through college is that you need to start now. Now is always better than later when it comes to saving and investing.

It took us a year after Rooney was born to get started saving. And we started by simply putting money aside on our budget and left it in our checking account, because we couldn't figure out what type of account to open.

ESA or 529?

I'm not going to try to distill all of the differences between these two types of accounts, because there is more than enough technical information on the Internet about these kinds of things. I'll try to keep it high level with some links to the nitty gritty if you are so inclined.

Here are the factors that helped us make the decision to go with an Education Savings Account (ESA) for now.

  • ESAs have a $2,000 maximum contribution per year. Since we are only putting $100 per month at this point, it wasn't an issue for us.
  • More investment options: We get to choose how its invested, much like our IRAs.
  • The 529 seemed too restricting on its investment options, but more flexible when it came to contributions and distributions. We may set one up later down the road.
  • Word of caution: I believe 529 plans are state specific, so you should check with your financial planner on the details for your state.

A couple helpful charts:

I'd love to know: Did your parents pay for your college? Will you pay for your children's college?