Saving for College

Make saving the cornerstone of your child’s college plan.

There are several reasons why saving is a smart way to pay for college:

  • Over time, the interest earned on a college savings account could grow your college fund considerably when market conditions are favorable.
  • The more you save, the less you have to borrow in student loans, helping to avoid loan interest.
  • For parents and grandparents, a college savings plan is a great way to help your kids go to the college of their choice when the time comes.

Common college savings plans include:

Before you choose a savings plan.

Here are five key things to know before you choose a savings plan:

1. College costs have been steadily increasing
Due to inflation and other factors, the costs of college will likely continue to rise.

Projected Increases in the Cost of College1

Including increases while in college

Today's 4-Year Cost of Attendance
Cost of Attendance The total cost to attend a school for a specified period of enrollment. This figure is determined by the school's financial aid office, and includes tuition, room and board, books, transportation, and other related expenses.

All costs - tuition, room & board, books, etc.
Cost in 5 years Cost in 10 years Cost in 17 years
$50,000 $68,762 $87,759 $123,486
$100,000 $137,523 $175,518 $246,972
$250,000 $343,808 $438,796 $617,430

2. The Cost of Attendance is not the actual amount you will likely pay.
The Cost of Attendance is the total price of college, not just the tuition and fees. It includes room and board, books and other expenses, and it can be steep. In fact, the four-year Cost of Attendance at many schools today is in excess of $100,000 – and even $300,000 at the “most competitive” schools. With prices like that, raising the money for college may seem like a nearly impossible task.

Fortunately in some cases, the Cost of Attendance isn’t the actual cost you’ll likely pay. That’s because some students receive “free” money like grants and scholarships, which greatly reduce the final college price tag, so you ultimately pay much less. The College Board recommends the families of college-bound students look at the actual price, or “net” price, when choosing a school.

3. One-third of college funding should come from savings.
When planning how to pay for college, the rule of thumb is that one-third of college funding should come from savings. So, if the Cost of Attendance for college is $240,000, you should try to save $80,000, if you can.

4. The interest earned on college savings plans may increase over time.
Make sure you pay attention to market conditions and consult with an advisor to understand how these types of plans work.

5. Investment and savings plans for college may have tax benefits.
Common college savings options like a 529 plan or a Coverdell Educational Savings Account have tax-benefits.

 

Common college savings options

529 Plan
One of the most popular college savings options is the 529 plan. A 529 plan is an investment plan administered by state governments that is designed to help people save for higher education. One of the main benefits of a 529 plan is that earnings are not taxed by the federal government and withdrawals are tax-free when used for qualified higher education expenses. Many states also provide tax advantages for 529 plans. A 529 plan may be purchased through an investment broker, or in some cases, residents of a state may open up an account directly with the state, potentially saving on broker fees.

Although a 529 plan has a savings function, it is not a savings account, but rather an investment. As such, it may have more risk than a standard savings account. Here's some information about the two main types of 529 plans – the 529 college savings plan and the 529 prepaid tuition plan:

Frequently Asked Questions

What are 529 College Savings Plans?

  • 529 college savings plans are investment plans offered by most states and Washington, D.C.
  • These savings plans generally offer a variety of investment options, mostly mutual funds, in which the investments become more conservative as the student approaches college.
  • Unlike the 529 prepaid plans, the savings plans are generally not designed for in-state use and generally can be used for all qualified educational expenses, not just tuition.

What is a 529 Prepaid Tuition Plan?

  • A 529 prepaid tuition plan generally allows parents to pre-purchase one to four years of future tuition for a child; when the child is ready to go to college, the plan pays out based on tuition rates at that time. The benefit comes from the likelihood that tuition costs will increase by the time the child is ready to go to college due to inflation, and a prepaid plan “locks in” the rate, potentially saving the student thousands of dollars.
  • Not all states offer prepaid plans – check with your state to determine if it participates.
  • The programs have a few requirements that are important to note; in some cases, the prepaid tuition prices may only be locked in at an eligible college or university in the state where it was purchased; if a student wanted to use the funds at an out-of-state or private college, the tuition might not be prepaid but at current costs.
  • Before getting a 529 plan, you may wish to consult with a financial advisor. If you don’t have a financial advisor, please contact a SunTrust Investment Services, Inc. Financial Advisor.

Coverdell Educational Savings Account (ESA)
An educational trust account, a Coverdell ESA is set up to pay the expenses of a designated student beneficiary, including college, elementary and secondary students.

Key features of the Coverdell ESA:

  • There’s an annual maximum for contributions.
  • A Coverdell ESA may have tax benefits: generally the contributions grow tax-free until distributed; at the time of distribution, if the account doesn’t have more than the student’s qualified education expenses, generally the beneficiary won't owe taxes on the money.
  • A Coverdell ESA can be opened at many banks or financial institutions.
  • The Coverdell ESA has some restrictions such as the amount of the contributor’s individual (or joint) modified adjusted.

For more information on 529 plans, please contact a SunTrust Investment Services, Inc. Financial Advisor.

See the 2017-18 Winners. The 2018-19 SunTrust Off to College Sweepstakes will begin again in mid-September 2018.

 

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How much do you need for school? Enter your tuition, expenses and financial aid and find out.

 

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Important Information

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. View and compare the available features of SunTrust private student loans.

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1  Source: calculated using The College Board’s College Cost Calculator on 11/16/17; assumptions: annual college costs, in today’s dollars, 5% college cost inflation rate, 4 expected years of attendance 1% of costs to cover from savings and 5, 10 or 17 years until college starts.

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