How to Build a College Savings Fund for Your Kids

Did you know that college students rack up an average of $37,172 in debt by the time they graduate? According to the Federal Reserve Bank of New York, total student debt in America now sits at over $1.3 trillion. Unless significant changes are made, tomorrow’s graduates may not even have their own debt paid off before their kids start college.

There has to be another way. Fortunately, there is, and it comes in the form of building a college savings fund for your kids as soon as possible. But where should you put your money to ensure the best possible return? Read on to find out more about how you can increase the likelihood of your kids going through college debt-free.

When to Start

Ideally, you’ll want to start saving at an early stage. But of course, it’s usually more complicated than that. You may have your own financial obligations to tend to, be it a credit card bill, your car or a mortgage. Your future is just as important, as it influences the financial security of your family as a whole.

It’s generally advised that you take certain steps before you start saving for your kids’ college fund. This includes paying off your own debt and setting up an emergency fund to cover between three to six months of routine expenses and unexpected costs. You should also still be able to put around 15% of your income towards a retirement fund.

Savings Plans

Once the above aspects are covered, take the time to determine how much you’ll need to save for college. From here, you can choose between one of three tax-favored savings plans, each of which comes with its own benefits and drawbacks. Listed below are said plans and what you should know about them:

ESA or Education IRA: An ESA (Education Savings Plan) is a tax-free solution that allows you to save $2000 annually for each child. This plan typically earns interest at a much higher rate than a traditional savings account and comes with a variety of investment options. However, qualifying requires you to be within the income limit.

529 Plan: This is one of the most popular plans, as it allows for higher contribution rates and grows tax-free. You can also change beneficiaries, so if your first child doesn’t go to college, you can hand over the funds to the next kid in line. One drawback is that there may be restrictions when you choose to do so.

UTMA or UGMA: These differ from the above options as they aren’t designed specifically for education. The benefit here is that you can use the funds for other expenses and there are also tax advantages. However, you cannot change the beneficiary and they’re free to use the money however they choose once they’re the legal age.


Look for Deals: Before making your final decision, take the time to browse through the growing list of deals and discounts that you can make use of to lower the overall cost. This website offers over a hundred different education deals to check out.

Apply for Scholarships: Encourage your child to excel in what they’re best at and apply for any scholarships they subsequently become eligible for. This can go a long way in helping your kids avoid student debt.

Get Them a Job: Your kids can also work during the summer or on weekends to build their own savings. It also helps them gain valuable work experience for the future.

Don’t forget to teach your kids the importance of saving their own money from a young age. Open a savings account where they can put a part of their allowance, birthday money and earnings to help them graduate debt-free.

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