Whether you’ve got many years of saving ahead of you or college is right around the corner, there are a number of education savings options designed to support your family’s goals.
How much does higher education cost? According to Sallie Mae,1 the average family spent around $28,500 for the 2023-2024 academic year. That is only slightly higher than the previous school year and remains below the pre-pandemic expense level.
How much do I need to save for college?
CALCULATOR
Below we highlight three of the main ways to fund higher education, so you can determine which ones are the most beneficial for your family. Keep in mind, these are just a few of the many strategies available. For personalized guidance and additional recommendations, be sure to consult with a financial professional.
Scholarships and Grants
Scholarships and grants are a great starting place because you don’t have to repay the money you receive. This “free money” can be used for education expenses and helps make college accessible to many families. Scholarships are typically merit-based while grants are need-based. For the average family, 27 percent of the expense of college per academic year is paid for via scholarship or grant money.1
To get started in your search, complete the Free Application for Federal Student Aid (FAFSA) form, which is maintained by the Department of Education. This form gathers your household income and asset information to help organizations assess your ability for need-based financial aid.
You should also explore your chosen university’s financial aid options, as universities often supply aid directly to their own students. Your program or degree may have their own scholarship programs, or there may be scholarships available based on academic performance, extracurriculars, or other factors.
Leave no stone unturned! Look for scholarships at the state or local level, as well as from companies, places of worship, or nonprofit organizations. Don’t miss out on free money for which you might qualify.
Savings and Income
In 2023-2024, nearly half of college costs were covered by savings and income from parents or students.1 Many families plan for education expenses as part of everyday budgeting. Starting early is key: like retirement savings, the sooner you begin, the more you benefit from compound interest, which grows your money by earning interest on both your initial investment and accumulated interest. Regular contributions combined with compound interest can significantly boost your education savings over time.
There are three main types of education savings accounts: 529 plans, Education Savings Accounts or Coverdell accounts, and Uniform Transfers to Minors Act accounts. Each provides different ways to accumulate and distribute funds for education expenses.
- Anyone can open a tax-advantaged 529 plan investment account, which is specifically used for higher education costs, including graduate school. With these accounts, neither the contributions nor withdrawals are subject to federal taxes so long as they are used for eligible education expenses.
- Like the 529 plan, Education Savings Accounts (ESA) are not federally taxed, but they do have adjusted growth income restrictions and a maximum annual contribution limit.
- The Uniform Transfers to Minor Act (UTMA) account has no contribution limit, but it is subject to federal taxes. It also provides flexibility, as it can be used for non-education expenses that benefit the beneficiary of the account.
Contact a financial professional to get more information about these plans and how they can work for your family.
Federal and Private Loans
Another option to assist with paying for college is to borrow money, in the form of federal or private student loans. The average student borrows more than $30,000 in pursuit of a bachelor’s degree, according to Education Data Initiative.2
There are three types of federal loans:
- Direct Subsidized are need-based loans for undergraduate students, and eligibility is based on the FAFSA form. There is a limit to how much you can borrow annually, but the government will pay the interest while you are still in school or in a deferment period.
- Direct Unsubsidized loans can be used for both undergraduate and graduate studies and are not determined by financial need. There are higher loan limits, and interest starts accruing immediately upon disbursement.
- Direct PLUS loans are available to parents of undergraduate and graduate students and require a credit check and application. The interest rate is typically higher than other types of federal loans and begins accruing immediately upon disbursement.
Taking out a private loan from a bank, credit union, or other organization should be your last option after you’ve exhausted savings, scholarships, and other forms of federal aid. Private loan interest rates are typically higher than federal loan interest rates, and repayment terms may not be as flexible. Regardless of which loan option you choose, you should be mindful of the amount you are borrowing, as well as the interest and potential fees you will pay on top of the original loan amount.
No matter your timeline or financial situation, taking action today can help make higher education more attainable for your family. Start exploring your options and connect with a financial professional to build a plan that works for you.
1 How America Pays for College: Sallie Mae’s national study of college students and parents. (2024). Ipsos.
2 https://educationdata.org/average-student-loan-debt
This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2025. All rights reserved. Member FINRA and SIPC.