Three Things to Consider When Saving For Education

Shannon Nelson |

The cost of education is rising rapidly each year, increasing far more quickly than any other household expense in the U.S. since 1983. Education planning is very involved, as you must assess how much to save, what account to save into, and how to best allocate those funds. With the cost of tuition rising at an average annual rate of 6.1%, knowing how much to save can be confusing and overwhelming. There are many strategies that can be utilized to save for your child’s education. It is never too late to begin saving. To assess where you stand, you can ask yourself: Am I using the correct savings account, accounting for increases in the cost of education, and saving enough to cover all future education expenses?

Read the tips below to learn more about important components of an education savings plan.

1. A 529 Plan

When saving for education, a 529 plan offers more benefits than a regular savings account. A 529 plan allows you or anyone to contribute to an account to pay for future qualified higher education expenses. The assets are held outside of the student’s name, and as long as the funds are used for qualified expenses, they can be withdrawn tax free. Additionally, the beneficiary can be changed at any time if the child decides to forgo college or if there are leftover funds. Depending on the state, you may also qualify for a state income tax deduction by making contributions into a state-sponsored 529 plan (called Edvest in the state of Wisconsin). A 529 plan also allows you to save for hidden college costs such as room and board, along with food and book costs.

2. Apply For Financial Aid

In 2017, high school seniors left as much as $2.3 billion in free federal grant money for college on the table. This is due to the fact that many students did not fill out a Free Application for Federal Student Aid (FAFSA). In 2014, 747,579 students in the U.S. who could have received financial aid failed to submit a FAFSA. Many students do not believe that they will qualify, and do not know that savings actually count far less than income when calculating your Expected Family Contribution (EFC) for financial aid. It is important that students fill out a FAFSA even if they believe that they may not qualify for a federal grant. Even if this is the case, the application may help them qualify for other kinds of scholarships and grants. The FAFSA also automatically qualifies students for low-interest and potentially forgivable federal student loans, and has the potential to help students during the admissions process. The FAFSA application period opened on October 1st, 2018 with a deadline of June 30th, 2019.

3. Set Your Expectations and Save

Discussing college with your children is a good place to start. It is important that both you and your children understand expectations in regard to cost, location, and commitment to higher education. By assessing your current income, budget, and expenditures, you can create a plan to save each month for education. Setting aside a lump sum of money today may be a wise decision as long as it does not impact your retirement plans. In general, the earlier you can begin setting aside funds for future education expenses, the more likely you will be to achieve your savings goals and objectives.

Lastly, it is also important to predict the level of financial aid that you may receive so that you can set aside the proper funds. To afford college, many families choose less expensive schools or schools with in-state tuition or reciprocity, encourage their kids to apply for grants or scholarships, or change their lifestyles to accommodate for savings. Another great option is to get your child involved in their college savings plan by encouraging them to work or reduce current spending.

Saving for education requires careful planning and constant contribution. The best way to determine how much you should save, and where, can be overwhelming. Many people are not familiar with 529 plans or the importance of financial aid. With the cost of education rising rapidly, it is important to contribute to an education fund to prepare for the future. To create an individual plan that considers your unique situation and needs, consult an advisor at Heck Capital.


Authored by Michael Bogard, CFA on January 31, 2019

About the Author: Michael Bogard, CFA is a Business Development / Client Relationships Senior Associate at Heck Capital Advisors. Michael earned the right to use the Chartered Financial Analyst® (CFA®) designation after completing the program in 2018, fulfilling the work experience requirements, and gaining acceptance as a member of the CFA Institute. The Chartered Financial Analyst® (CFA®) charter gives a strong understanding of advanced investment analysis and real-world portfolio management skills. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.


Heck Capital is an independent, Registered Investment Advisory Firm providing comprehensive investment management, personalized advice, and strategic financial guidance since the 1950s. We serve goal-driven individuals, families, established institutions, non-profit organizations, and foundations/endowments; striving to help our clients achieve their investment objectives, helping to simplify their financial lives, with the goal to create lasting legacies.