Best College Savings Tips for When You're Starting Late

Jump Start Your College Savings Account With These Tips

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If you or a family member have always dreamed of going to college, the time to pay for it may come sooner than expected. But don't worry, when you get a late start to saving for college, there are still ways you can build a sizeable college nest egg.

Before giving into any pressure to solely rely on financial aid or student loans to cover the costs of college, look at all of the other ways you can pay for college. Even if the fall semester of freshman year is just months away, consider these college savings tips.

Key Takeaways

  • Even if college is just a few months or years away, there are ways you can start to build up a savings account to help pay for that education.
  • After filling out the FAFSA, and applying for scholarships and grants, consider 529 plans, prepaid tuition plans, retirement accounts, and more.
  • A smart saving strategy before, during, and after a college education may help you avoid a large amount of debt.

Use a 529 Prepaid Tuition Plan

Prepaid college tuition plans are a type of 529 savings plan and they offer a great alternative to standard fixed interest rate investments or accounts. These plans essentially grow at the rate that tuition rises. For example, between the 2018-19 school year and the 2019-20 school year, the cost of college tuition rose between 2.3% and 3.4%, depending on the type of institution. A prepaid college tuition plan helps you prepare for those rising costs. It offers a somewhat attractive alternative to fixed interest rates that may pay less than the rising cost of college.

The main downside to a prepaid tuition plan, however, is the fact that you might be limited as to where you can redeem the prepaid credits. Additionally, not all states guarantee their plans, so you could lose a portion of the money—even if the plan is supposed to be "safe."


Some states even give a tax deduction or tax credit for contributing to a 529 savings plan, such as Indiana and New York. Check with your state to see what tax benefits you may be eligible for.

Open a 529 Education Savings Plan

If you have a higher risk tolerance, it might make sense to use a 529 education savings plan rather than a prepaid tuition plan. You will have more flexibility with colleges and universities, and you might also get a state tax break for contributing.

With this type of 529, you're able to invest money in stocks, bonds, mutual funds, or ETFs and take advantage of the potential growth. And if the stock market is looking good leading up to the start of college, your money may grow faster than you think. The money is tax-free as long as it's used for qualified education expenses.

Of course, there is always the chance of market volatility, which could mean little returns. You can reduce some of your risks by shifting assets to bond funds and other less-risky investments as the time to attend college nears.

Other people can also contribute to a 529 education savings plan. So rather than the money going directly to the future student, it can be saved and invested for their future. Many of the states that permit tax deductions for funding a college account allow a person to take the deduction even if it is not their student going to college. Further, the IRS allows individuals to gift certain amounts each year, which allows those with a higher net worth to slowly reduce a potential estate tax burden.

Sign Up for Upromise

Upromise rewards people for shopping at participating retailers by depositing a portion of what is spent at a retailer into a college account designated for a particular person. To sweeten the deal, a Upromise account allows you to send invitations to friends and family who may want to register their credit and debit cards with the service as well. The college fund will receive additional contributions every time they shop.

You can also boost your ability to save with the help of the Upromise Mastercard. Cash back earned on purchases goes into the Upromise account. You also can connect the Upromise account with a 529 savings plan to get a bonus and put that money to work earning compound returns.


Don't forget to look for scholarships and grants. Websites like Scholarship America, CareerOneStop, and may help you find award money that can be used toward a college education.

Try Not To Use Your Life Insurance

If you have a life insurance policy with a cash value component, there is the option of withdrawing some money and using it for education expenses. However, that could lower your death benefit, which could have a bigger impact if you were to die. Before turning to your life insurance policy as a means of paying for college, talk to a trusted financial expert or advisor.

Consider Community College, Gap Years, and More

There are many other options for continuing education beyond attending a four-year college. Community or county colleges may be more affordable or offer scholarships and grants that can make them less expensive. Some colleges offer a two-year program, too, where students can transfer directly to a state school after they receive their two-year degree.

Gap years may also help you save more money for a college education because they mean more time to work and saving money in an interest-bearing account. Gap years may also allow students to gain valuable experience that could help them qualify for scholarships or grants.

Another option may be to attend a local college and live with family or friends to save on room and board at the campus.

And there are work-study programs, too, which give students the chance to work and study at the same time, helping them save money on college tuition and expenses.

Your Retirement Account Is Also an Option

If you have a retirement account, such as an IRA, you may be tempted to tap into it to help pay for college. While it is possible to withdraw money penalty-free from an IRA to cover college costs, it might not be the best idea since it will lower your retirement savings. You may not have to pay the 10% early withdrawal penalty, but you may still have to pay income tax on some of that money.

Once you withdraw money from a retirement account, it's no longer working on your behalf. It may not be worth it to put your own future at risk to pay for college. Before you take money out of a retirement account, talk to a financial expert who you trust.

Frequently Asked Questions (FAQs)

How much should you save for college?

There is no one set amount of money that you should save for college because it will depend on your financial situation and college of choice. Research colleges to understand what the annual tuition and room and board will cost. Work with a financial advisor you trust to come up with a goal number. Then work toward saving that amount in a variety of ways.

When should you start saving for college?

As soon as you know that you or someone you know wants to go to college, you should start saving. Even if you become a parent and are unsure whether your child will want to attend college, you can start saving for their future. Consider the right type of savings and investing vehicle for your situation, and then put a plan in place to grow that balance.

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  1. CollegeBoard. "Average Published Charges, 2018-19 and 2019-20," Page 3.

  2. U.S. Securities and Exchange Commission. "An Introduction to 529 Plans."

  3. Indiana Treasurer of State. "Tax Credit FAQ."

  4. NYC Office of Payroll. "NY's 529 College Savings Program."

  5. IRS. "Tax Benefits for Education: Information Center."

  6. IRS. "Frequently Asked Questions on Gift Taxes."

  7. Upromise. "What Is a Upromise Account?"

  8. Upromise. "Can Family and Friends Help Me Save for College Expenses?"

  9. Upromise. "Saving Isn’t Easy."

  10. IRS. "Publication 970, Tax Benefits for Education."

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