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How to Build Your Child’s College Fund Without Loans


Erika Phyall currently works in community relations for University of Southern California Rossier School of Education’s online master’s programs. USC Rossier Online provides current teachers the opportunity to be a part of a MAT Program and help aspiring C.A. teachers earn a California teaching credential. Outside of work Erika enjoys networking, DIY projects, and spending time with her two dogs.

You can never start too early when it comes to building a college fund for your child. College may seem like a long way off, but the rising cost of higher education means parents have to save more than ever before. The College Board reports that, after adjusting for inflation, the cost for college tuition and fees increased by more than 50 percent during the past decade. You should expect these costs to continue to rise.

Despite its expense, there is no question that a college education is an investment in your child’s future. Data gathered by the U.S. Census Bureau shows that earning a college diploma means an average of $1 million more in lifetime earnings compared to a high school diploma or less.

To ensure your child is able to reap the rewards of a college education, here are a few tips to help you start saving for your child’s future and to get the maximum benefit from your investments:

Start Early and Save Often

The sooner you begin to invest for your child’s college fund, the more time your money has to grow. According to Bank of America, if you save $100 a month from the day that your child is born with 4.5 percent interest, you’ll have $33,500 when your child turns 18. With 8 percent interest, you’ll have $48,000!

Invest Instead of Saving

Consider opening a 529 savings plan, which has the potential for a higher rate of return than a savings account. A 529 plan also offers federal income tax benefits in the form of tax-free earnings, and many states provide an additional tax break. Be aware, however, that some financial experts think these plans are overly dependent on stock investments, which caused many families to lose up to a quarter of their earnings during the financial crisis of 2008. As your college nest egg grows, look into other investment vehicles that will allow you to reduce your risk by diversifying into bonds.

Save Automatically

Instead of waiting until the end of the month to see if there’s anything left for your college fund, use automatic monthly transfers to sock some money away before you have a chance to spend it. This way you won’t even have to think about saving, but you’ll have the gratification of seeing your college fund grow each time you receive a quarterly statement.

Use Some Creativity

If you think your budget is so tight that there’s nothing extra for college savings, put your creativity to use. Take a close look at your spending and see if there are extras that can be eliminated. For example, making your own coffee in the morning instead of stopping by the neighborhood coffee shop could free up a couple of hundred dollars per year. You can also solicit help from others: On birthdays and holidays, ask family and friends to donate to your college fund instead of showering your child with toys. These are just two of the ways that you can find money for saving.

Don’t Short Change Your Retirement

It’s important that you also invest in your own retirement, especially if you’re a more mature parent who will be thinking about retirement around the same time your child is in college. There are many additional resources for college tuition, including scholarships and grants, but your retirement savings will determine the quality of your retirement years. Luckily, money that is invested in a 401(k) cannot be used to determine your child’s eligibility for financial aid.

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