College Costs are Coming. Most Families aren’t Ready.
by Douglas Riegger
Most parents intend to help with college. Few have a plan.
Intention is passive. A plan has numbers, a timeline, and a conversation with your kids before the acceptance letters arrive.
Many parents think they’ll figure it out when the time comes. Then the time comes. And the options available to a family that started early look nothing like the options available to a family that didn’t.
The gap between those two situations is rarely income. It’s preparation.
The Assumption Nobody Examines
Parents tend to anchor on what college costs today. That’s the wrong number.
Tuition inflation has historically run around 6% annually. A degree that costs $40,000 per year today will cost significantly more by the time a child born this year enrolls. The sticker price your teenager will face is not the sticker price you’re picturing.
That gap is where most families get caught.
The other assumption worth examining is the path itself. Not every child is headed toward a four-year university, and planning as though they are is its own kind of risk. Vocational training, trade certifications, and apprenticeships produce skilled, well-compensated careers. Community colleges, especially those with bridge programs into state universities, can deliver an undergraduate education at a fraction of the cost.
A plan that only accounts for one path is a bet, not a plan.
The Conversation Most Families Avoid
Before the savings strategy, there’s a level of clarity that needs to exist at the kitchen table.
How much are you willing to cover? What can you realistically afford to save?
Eventually, that clarity turns into a conversation with your kids.
Many parents avoid it because it feels like putting a ceiling on ambition. It isn’t. It’s giving your kids the information they need to make good decisions. A teenager who knows their family is prepared to help cover $10,000 per year — and no more — will approach the next few years differently than one who assumes the full bill is covered.
That conversation also opens the door to one of the most underutilized tools in college funding: scholarships.
Too many families leave this on the table. Not because scholarships aren’t available, but because teenagers don’t apply. They underestimate the return on the effort. A few hours filling out an application and writing a personal essay can translate to tens of thousands of dollars over the course of a college career. That’s not a metaphor. A single $5,000 annual scholarship, renewed over four years, is $20,000 that never comes from savings, loans, or income. Already planning to buy your teen a car? Perhaps for every scholarship dollar earned, you add a dollar to their car budget. You might spend $5,000 more on a car but save you and your kid $15,000.
The parents who make this real for their kids don’t just encourage applications. They reframe the math. Two hours of work. Twenty thousand dollars. No employer pays that hourly rate.
What Preparation Actually Requires
Here’s where the numbers get clear.
Take a family with a four-year-old and a two-year-old. They haven’t started saving yet. Their goal is modest: help cover $10,000 per year of college costs (in today’s dollars) for each child. Not the full bill. A meaningful contribution.
Assuming long-term market returns consistent with historical equity averages and tuition inflation running at 6% annually, that family needs to invest $537 every month, starting now, for the next 20 years.
The total amount required to meet that goal is roughly $210,000.
Read that again. Two hundred thousand dollars. And depending on the schools they choose, loans may still be a part of the picture.
The families who reach that number late don’t have more options. They have harder ones.
Account Structures to Consider
Each of these structures solves a different problem. The mistake is assuming one of them should solve all of them.
529 plans are built for education. Growth is tax-deferred, withdrawals for qualified expenses are tax-free, and many states offer deductions on contributions. They work across four-year universities, community colleges, and most vocational programs. Under current law, a portion can even be used for K-12 tuition, and unused funds can be transferred to family members or partially rolled into a Roth IRA. The tradeoff is constraint. The tax advantages are meaningful, but the money is designed to be used for education.
Coverdell Education Savings Accounts fill a different gap. Where 529s focus on tuition, Coverdells extend to the broader cost of education, especially at the K-12 level. Tutoring, uniforms, and other expenses that fall outside a 529 can be covered here. The tradeoff is scale. Contribution limits are lower and income restrictions apply, but for families who want more flexibility earlier in the timeline, a Coverdell can complement a 529.
Then there’s the option many families overlook: a standard investment account. No restrictions on contributions. No rules on how the money gets used. That flexibility matters. Not every dollar you set aside will end up paying tuition. Some will go toward a car, a security deposit, or a different path entirely. The tradeoff is tax treatment. Growth is fully taxable. But for families who want optionality, that’s often a price worth paying.
The right structure depends on your timeline and overall financial picture. It’s about matching the tool to the job. Most families end up using a combination. Getting that mix right often requires input from licensed professionals. What can’t be delegated is the decision to start early enough for any of this to work.
The Work Only You Can Do
A college savings plan is not a set-it-and-forget-it decision. It’s a living part of your financial life that evolves as your kids get older, as their interests clarify, and as your capacity to save changes.
Have the conversation with your kids. Do the math on what you can set aside. Encourage the scholarship applications with real numbers behind the ask. And build the plan before the timeline forces your hand.
The families who navigate this well didn’t have more money. They just started the conversation earlier.
Important Information
The college savings illustration assumes a starting balance of zero, two children ages two and four, tuition inflation of 6% annually, a pre-tax investment return consistent with historical equity averages, and a 22% marginal federal income tax bracket. Results are hypothetical and for illustrative purposes only. Actual results will vary based on individual circumstances, market conditions, and the specific costs of the institutions attended.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
