College graduates taking self-portrait together outdoors

Ways to save for college and the average costs

Learn the average cost of college and ways you can start saving for college now such as 529, Coverdell and Uniform Gift to Minors.

A college degree can provide greater lifetime earnings and career opportunities. However, no matter what phase of life you're in, finding and understanding ways to pay for college can feel overwhelming. Here's a snapshot of what's in store and ways to pay for higher education costs.

What is the cost of college?

Costs at a four-year college include tuition, fees and room and board, but be aware there are also extra costs for books — and some majors in the arts or sciences have added costs for supplies. The average costs provided below are from

Tuition and fees: Tuition is what colleges charge for instruction. Fees can differ vastly at each college, and are used to support things like libraries, athletic facilities or other campus clubs and organizations. The average 2021-2022 costs for college tuition and fees are:

  • Public colleges (in-state): $10,740
  • Out-of-state public colleges: $27,560
  • Private colleges: $38,070

Room and board: The cost for room and board varies depending on the school and the type of food plan you choose. The average 2021-2022 costs for room and board are:

  • Public colleges: $11,950
  • Private colleges: $13,620

Books and supplies: The average 2021-2022 costs for college books and supplies at both public and private colleges is $1,240.

What is the average student loan debt?

The percentages surrounding student loans in 2021 vary somewhat by the type of college attended, but the averages are shown below.

  • Students who graduated with student loan debt: 65%
  • Amount of average student loan debt: $37,113
  • Average monthly student loan payment: $460

Income based on education

A college degree could increase one's earning power significantly over a lifetime. On average, college graduates earn about 1.2 million more than high school graduates over the course of their career. And the unemployment rate decreases for those with a higher education.

Average annual earnings for those 25 and older with full-time, year-round jobs:

  • Bachelor's degree: $67,860
  • High school completion: $40,612
  • High school not completed: $32,188

Not all professions have the same earning potential and not all college degrees are created equal. Beginning in a community college and transitioning to a four-year university can provide the same end result as an elite college, and yet you've saved along the way. A trade school may be the option for your child. Together with your student, research the expected earning potential for graduates with similar degrees from similar types of institutions to those your child is considering.

How to pay for college

Traditionally, grants, scholarships and savings opened the doors to a college education. Stafford loans, Perkins loans and PLUS loans may give families additional flexibility. But while grants and scholarships do not have to be repaid, student loans do. One way to avoid taking out loans and remain debt-free is to start to save for college as early as possible. Those savings can be from the parent, family or what the child has set aside for college. The sooner you start, the more time your money will have to grow. There are several options for paying for college, and most students use a combination of two or more.

529 plan: The 529 college savings plans are designed to encourage families to save for college. Section 529 of the Internal Revenue Code allows for "qualified tuition programs" to help offset future college costs. These plans allow more significant contribution amounts than most other options and you maintain control of the assets. Contributions may qualify for an income tax deduction or credit. As long as you remove funds for qualified education expenses, contributions and earnings can be withdrawn tax free. The average amount saved in a 529 plan: $30,287. Even if the child who has a 529 plan doesn’t go to college, the 529 plan can still be put to good use.

Coverdell Education Savings Account (ESA): A Coverdell ESA is a trust or custodial account that allows you to set aside up to $2,000 per year (from birth to the child's 18th birthday) for qualified educational expenses. Assets in the account must be used by the time the beneficiary turns 30 (with a few exceptions), but you maintain control of the account.

Financial aid: 85% of first-time, full-time undergraduate students at four-year institutions receive financial aid. Fill out the Free Application for Federal Student Aid (FAFSA) and discuss options with your institution's financial aid office. Depending on your need, one aspect could be a campus Federal Work Study job.

Scholarships: There are many types of scholarships available, and a student could benefit from doing some simple research. Scholarships are either merit, financial-need or category based. You can find out more by talking to a high school counselor, the financial aid office at your chosen college or consulting the U.S. Department of Labor's free scholarship search tool.

Private loans: These loans typically offer both fixed and variable interest rates, but repayment options are less flexible. Read the fine print, including whether repayment levels are tied to income.

Federal loans: These may be cheaper and have more repayment flexibility than private loans. Interest rates are fixed, meaning they won't change over the life of the loan. There are also options for parents, such as Parent Loan for Undergraduate Students — PLUS loans.

Jobs and direct payments: 40% of full-time students and 74% of part-time students work at least part of the year while attending college. You can also ask your tax planning professional about eligibility for credits or deductions.

Military: There are several financial aid offers available to people who are National Guard, veteran or active service members. Not only are the benefits extended to the person who enlisted, some of the benefits can carryover to their children.

  • Tuition Assitance
  • Tuition Assistance "Top-Up" Program
  • Post 9/11 GI Bill
  • Montgomery GI Bill - Active Duty & Veteran
  • Montgomery GI Bill - Selected Reserves
  • Loan Repayment (LRP)
  • Survivors' and Dependents' Educational Assistance Program (DEA)
  • Work-Study Program

Some of the education benefits offered by the military can cover tuition in it’s entirety.

Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA): These accounts are designed to hold and protect assets for the benefit of a minor. Although federal gift tax will apply to contributions over a certain amount, there are essentially no contribution limits. Assets can be used for any reason at any time for the benefit of the named beneficiary and the beneficiary gains control of the assets at the age of maturity (18 to 21 years old, depending on the state). Assets can be used for education expenses, but because assets are considered the income of the beneficiary, there may be a high impact on financial aid.

Lower your current debt and save more for college

Between childcare expenses, food, clothing that's constantly being outgrown, lessons and the occasional vacation, many parents find saving for college challenging. Incorporating some easy debt payoff strategies can go a long way towards lowering household debt and putting family finances on a more solid foundation. Here are some ways to find funds for college:

Pay off high-interest credit cards first. If you only pay the minimum monthly amount on your credit cards, you are being charged high-interest rates, plus additional fees if your payments are late. Interest and penalties can add up to hundreds of dollars each year per card.

Renegotiate with credit card companies for lower rates. Some credit card companies charge cardholders excessive interest rates. And if you have a history of bad credit, rates can shoot up dramatically. Only keep cards that have a low APR (annual percentage rate) and refrain from using your higher-rate cards. Sometimes you can renegotiate with the credit card companies to reduce your current interest rate.

Pay with cash or debit card. The less you carry on your credit cards, the better. Avoid adding more debt to your existing cards. If you don't have the cash or a debit card, think twice about purchasing something you don't absolutely need.

Scale back discretionary spending. Make a list of your monthly expenses. Review everything from your cable package to your cell phone plan. Don't renew subscriptions you hardly use. Consider eating out less frequently, and pack a lunch to take to work.

Keep a log of monthly expenses. Input all your bills on a spreadsheet or list them in a ledger. It's a great way to keep track of your spending habits and maintain a family budget. Our Calculate spending and see the effects of spending less calculator can help you figure out how incremental changes can add up. There are also many websites (Forbes provides some examples.) that can help you save money or assist with personal finances.

Use train, bus or rideshare instead of driving. Gas can get expensive. Websites such as GasBuddy can find you the lowest gas prices in your area. Or consider taking the train or bus to work instead.

Ride a bicycle or ebike on the weekend. Bike riding is great exercise and saves wear and tear on your vehicle.

How to pay back student loans

While it can be difficult to start making payments on student loans, there are ways to pay back your student loans quickly. Besides covering the debt all on your own, you can look at government or employer backed student loan repayment options.

Public Service Loan Forgiveness (PSLF): The United States government created the PSLF program to encourage individuals to work in the public sector and then, if qualified, have the remaining balance of certain college loans forgiven.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Before investing in a 529 plan, consider the plans investment objectives, risks, charges, and expenses. Contact the plan issuer for an official statement containing this and other information. Read it carefully.

Investors should consider before investing whether their or their 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 and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation.

Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

Securities distributed by State Farm VP Management Corp.

Neither State Farm nor its agents provide tax or legal advice.


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