How Are Americans Grappling with College Costs?

By Lindsay Frankel
Inside Subprime: Oct. 6, 2020

Americans’ collective outstanding student debt stood at $1.54 trillion in the second quarter of 2020, and recent college graduates owe more than $30,000 on average. As many adults struggle to make ends meet with the burden of student loans, 36 percent of those surveyed said college wasn’t worth the investment, according to a study from APM Research Lab

In terms of earnings, college is still worth the cost. College graduates earn a median of $91,947 annually, compared to $40,505 for adults who never attended or didn’t finish college. College graduates are also less likely to face unemployment, more likely to become homeowners, and more likely to get married or cohabitate. 

To help their children reap these benefits while avoiding student debt, more families are making a plan to pay for all four years of a bachelor’s degree. In this past academic year, 52 percent of families had a plan to pay for college, up from 44 percent the previous year, according to a report from Sallie Mae. Here’s how the average family financed their child’s education in the 2019-2020 academic year:

  • Parent income and savings: 44 percent
  • Scholarships and grants: 25 percent
  • Student borrowing: 13 percent
  • Student income and savings: 8 percent
  • Parent borrowing: 8 percent
  • Contributions from relatives: 1 percent

When Should I Start Saving?

To prepare for your child’s college education, you should start saving as early as possible. The only exception to that guidance is that families swamped with debt should focus on repayment before saving. In addition, you should have a stocked emergency fund to weather unexpected expenses and be contributing to a retirement account. 

While you may be tempted to forego saving for retirement to prepare for your child’s college education, you should also keep in mind that retiring broke could put a burden on your child later on. On the other hand, if you achieve financial security, you may be able to help your children repay some of their student debt. 

Still, you should be aware that saving early, even if it’s just a small amount, will increase your child’s chances of success. Research shows that children from low-income families with $500 or less in a savings account are three times more likely to enroll in a college program and four times more likely to earn their degrees. Therefore, it’s wise to strike a balance between your personal savings and your child’s college fund. You should put some amount of money in a savings account for your child, even if you can only afford a few dollars each month. 

How Much Should I Save?

The exact dollar amount you should aim for will vary depending on your values and your child’s goals. Some parents may want to save enough for their child to attend the school of their choice, while others may only feel the need to save enough for in-state tuition at a public university. 

The average charge for a four-year, in-state public degree in 2019-2020 was $10,440, while room and board ran an average of $11,510, according to data from the College Board. Private nonprofit four-year institutions charged an average of $36,880 in tuition and $12,990 in room and board. Eighteen years from now, you can expect to pay more than $16,000 annually for an in-state public college. 

However, keep in mind these figures are published sticker prices. In 2015-2016, about three quarters of students received grants that lowered the total cost of their education. And grant aid tends to come in higher amounts from higher-priced schools. 

College finance expert Mark Kantrowitz recommends the following savings strategy:

  • Aim to save one third the cost of a four-year public degree in your state during your child’s first 18 years
  • Aim to pay one third of your child’s education costs from your income while they are enrolled
  • Borrow the difference through federal loans

Where Should I Save?

For most families, a 529 plan or Education Savings Account (ESA) will be the best savings vehicle. These accounts are tax-advantaged, so as long as you use the money for educational purposes, you can withdraw without paying taxes. These accounts will also allow your money to grow, and you won’t even pay taxes on your gains. In addition, the amount you save will have little impact on the amount of financial aid your child qualifies for. 


Also known as Coverdell accounts, ESAs can be used for educational expenses throughout a child’s elementary, secondary, and college years. To be eligible to contribute, however, you must earn less than $110,000 annually ($220,000 for married couples). Contributions aren’t tax deductible, but you can receive tax-free contributions later on. 

Each beneficiary can only receive up to $2,000 per year in ESA accounts in their name, and the account needs to be liquidated or rolled over to another family member by age 30. 

529 Plan

Anyone can open a 529 account, regardless of income, and friends and family members are welcome to contribute to the account as well. These accounts are legally known as Qualified Tuition Programs (QTPs), and since they are state-sponsored, features and investment options vary. Over the course of the life of the account, you can contribute $400,000 or more per beneficiary (limits vary by state). 

Contributions aren’t deductible, but you can withdraw the money tax-free as long as it is used towards postsecondary education or an apprenticeship. You can also withdraw up to $10,000 for K-12 expenses and up to $10,000 for student loan repayment. However, if the distribution amount exceeds the beneficiary’s educational costs, the difference will be taxable. 

How to Maximize Your Contributions

There are a few ways you can maximize your contributions to set your child up for success:

  • Trim your budget and set a savings goal
  • Start saving early
  • Automate your savings
  • Request help from friends and relatives
  • Ask your child to contribute some of their income

Saving to cover all college expenses can seem impossible, even over the course of 18 years. But if you select a savings strategy and hold yourself accountable, your child will be better prepared to tackle a bachelor’s degree. 

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.