How to Pay for Your Kid’s College Education


Pay for Kid's College Education

College is expensive.  Right now the average cost to attend a state public university over four years is close to $40,000.  Private school is even worse.  The average cost is almost $135,000.  How do you plan to pay for your kid’s college education?


Now I’m going to sound old.  But, when I graduated from college in 2003, the amount that I paid in tuition in fees did not exceed $10,000 over four years.  In less than 15 years, tuition and fees have almost quadrupled.  That is unbelievable to me.


Rising Cost of College

Here is the worst part.  The cost for college is suppose to continue to escalate.  While experts don’t predict that college tuition fees will go up by 4x, they are projecting it to rise substantially.  


Pay for Kid's College EducationIn 18 years, it is currently projected that four years at a state public university will cost almost $95,000.  That is more than double what it is now.  Private school tuition will be even more, at a cost of $325,000, which is almost 2.5 times the current cost.  


When I read those figures, it gave me pause as I take a big gulp knowing that I need to set aside $100,000 over the next 18 years.  And we plan on having more than one child.  It makes me wonder how am I going to be able to do it.


After we finished filling our house with baby items upon the arrival of our little guy, I started to think about the future more and more.  From my research, I found that in the state of Virginia, I am able to contribute to a 529 college savings plan.  


There are two main ways that I could invest in a 529 through Virginia.  


Virginia529 inVEST

InVEST offers the ability to invest in an account where your child can use the account to pay for qualified higher education expenses.  This plan is especially appealing.  Your child has the ability to go anywhere that he or she wants for college.  Additionally, through this plan you have multiple options to invest in stocks, bonds, and even target allocation when the child graduates from high school.  


Virginia529 prePAID

This prepaid account only allows for your child to attend a public university or college in Virginia.  Through this plan, you are able to prepay for tuition for the future, which is extremely appealing given the continual rise of college tuition recently.  However, with the lack of flexibility and not wanting to limit my child’s options for college, we chose the inVEST option.  


As a quick side note, I am most familiar with Virginia 529 plan options, but many other states have similar plan options to the ones listed above.


Tax-Free Growth

One of the my favorite things about the 529 plans is that it is able to grow tax-free.  That means you pay no income tax as your contributions grow and no income tax when you use the funds for the beneficiary’s qualified higher education expenses.  Beneficiary expenses include tuition, fees, books, supplies, and equipment required for study at any accredited college, university, or vocational school.  


Tax Deductions

In addition, account owners who are Virginia taxpayers may deduct contributions up to $4,000 per account per year.  Doing quick math, if you contribute $4,000 per year for the next 18 years you will have accumulated $72,000 in the account.  Yes, that’s a huge amount for college.  But, just think, if you contribute $170 every two weeks for the next 18 years, this is the amount that will be available.


Investment Options

The Virginia 529 plan, however, allows you to not just save cash but also invest in multiple investments.  After doing some research, I decided to invest our son’s account in a stock index.  If the stock index performs historically similar to the S&P 500 of 8% a year, I anticipate the account would be worth $216,000 when he is ready for college.  Given the trajectory of rising college costs, I may still end up paying some out of pocket, but I believe this 529 plan will be worth it.



One of the things I really don’t like about the inVEST program through Virginia is that my fees for a stock allocated account is 0.37%.  While the Virginia529 inVEST account is nearly twice as much as a similar Vanguard stock account at .19%, the advantage for me is that I am able to deduct the $4,000 each year, which makes up the difference in fees for me.  Although, it would be really great if Virginia pushed harder to reduce those fees to be in line with Vanguard.


Have you set up a 529 plan, or any other sort of college-savings plan, for you child?  Please feel free to leave your comments below.

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  1. Sounds like you found a good 529 plan in the state of Virginia and that is fantastic they offer a tax deduction. North Carolina offered a tax deduction prior to it being changed effective in 2014…they year my son was born. So we were “freed” up to look across all State plans to find the best and lowest cost option since there were no incentives anymore to invest in the NC plan. It’s great how competitive State 529 plans have gotten in recent years on the admin fees and also offering good low cost index investments. We ultimately chose Utah’s plan which is considered as one of the best options among all states. Eventually, if/when we have kid #2, we’ll have to take a fresh look and analyze our options again for his/her account.

    Thanks for the post!
    The Green Swan recently posted…How I Got FIRE’d Up: My Swan SongMy Profile

    • Thanks for sharing. That’s disappointing to hear about NC.

      I would think state gov’ts would want to incentivize people saving for their child’s future education.

      Thanks for sharing!!!!

    • Stefan,
      We hear all the time of parents who are saving for their children’s college (and car and wedding and house etc). We recently addressed this with putting a set amount in the stock market each month for 18 years. At the time of college, give the child the option “Do you want this for college, or do you want to use it for X-event?” This can help the child understand the magic of compound interest and also help parents stop feeling like they have to contribute to every milestone. However, I really do respect your desire to pay for your child’s education, and I am sure it will be greatly appreciate by the child. 🙂

      • PiggyBank –

        Deciding how we would save for our child’s college fund was a difficult decision between the flexibility outside of a 529 and utilizing a 529. We plan to have more children so that we could easily transfer the 529 plans between children if they decided to go another route.

        But I agree that it would be an interesting choice if our child had to choose between X to spend the funds and college.
        Mustard Seed Money recently posted…How to Pay for Your Kid’s College EducationMy Profile

  2. I graduated from VMI in 2008 and the four years cost me $60k (tuition plus room & board). Today it would cost me $100k. These are both in-state rates. My Out-of-state paid $100k in ’08. My mouth dropped when I saw the price increase in 8 years time.

    We are going to do something such as 529 plans for our children and looking for ways to take CLEP or DSST tests to shave college costs as well.
    Josh recently posted…Insights from the First Year of Blogging!My Profile

  3. Honestly…one reason I’m putting off having kids is because I don’t want to struggle to provide for them, and that absolutely includes college. I plan to take full advantage of 529 plans but also get a bit creative. Unless I wait until I’m 50 to have kids I doubt I will be able to have enough dividend-paying stocks to fund it through fully passive income, but it’s a nice goal to work towards.
    DC @ Young Adult Money recently posted…It’s Simple: Millennials Want More Money!My Profile

  4. I agree with DC! I am also waiting to have children until later in life.

    Ideally, when I have a baby shower, I want to ask for contributions to the kids 529 instead of clothes, toys, and other things that won’t last very long.

  5. Best thing you can do is stay in state and send them to The College of William & Mary, my alma mater whoo hoo! Smaller school is great for undergraduate education. Then, if your baby wants to go to grad school, ,go to a larger school like UVA for the alumni network, but she’ll still have smaller classes!

    Public all the way!

    Financial Samurai recently posted…Income By Race: Why Is Asian Income So High?My Profile

    • My wife and I are very familiar with William and Mary 🙂 Great school. My wife ended up going to UVA for undergrad and I ended up going to Virginia Tech and later was able to go to Johns Hopkins for grad school, luckily I was able to get the tuition paid for by work, so it was free. Otherwise no chance I could have afforded it.

  6. We have 529’s for both our kids, which we opened when they were born. NY state has a pretty good plan and tax benefit. I shudder to think of what college is going to cost. My tuition was a terrible burden to pay off. And I graduated a semester early because of college credits that I earned in high school. It was kind of a bummer to finish early, but when I think of how awful the debt was.

    • I’m like you Linda. I was fortunate enough to graduate a semester early from college. While it was a bummer leaving early, not adding any debt to my life was well worth it 🙂

      Thanks for stopping by and sharing!!!

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