Most of my friends, coaching clients, or anyone that e-mails me on a financially related topic has questions about how and how much to save to pay for their kid’s college tuition.

There are a ton of different ways to do it. And the important thing really is that you have a plan to do it. And that you come up with that plan early in your kid’s life. Less important is how you do it.

To prove that point and to help those struggling with the “how” of paying for college, I’m going to go through 5 legit ways to pay for college. I’m also gonna share me and Selenid’s strategy for paying for our 3 kids’ tuitions.

But first, a not legit way to pay for college…

I’m being a bit facetious here but not really. The not legit way to pay for your kid’s college tuition is with loans. That’s what I did. I took out loans to pay for all of my college and medical school costs. I had a few small scholarships but minimal financial aid because my parent’s made above financial aid limits but had no college savings for me.

The result is me having to pay off over $400k+ of student loans. It is what it is. But if it can be avoided, that’s ideal.

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As a side note, however, I am so glad that my parents did not prioritize paying for my college over saving for their retirement and taking care of their financial future. In the end, I was able to finance my education with loans. They can not finance their retirement with loans.

That’s one of the top 6 Reasons Doctors Should Save and Invest for Yourself Before Your Kids…

So they did the tough but right thing. However, I honestly wish they had done both…at least a little bit. But I digress.

5 ways to pay for your kid’s college

Ok, on to the more palatable options for parents looking to pay for their kids’ education.

1. The save and invest method

This is the most traditional option.

You can obviously save and invest for your kids’ college in a taxable brokerage account. But each state offers a 529 college savings account for family members to save for a future education. These have huge tax advantages because the money goes in tax free and comes out tax free as long as it is used for qualified education expenses, like tuition, etc.

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But the question then becomes, how much do you save and invest in this account. The reason this is important is because if you overfund the account, you have to take a penalty and pay taxes to use the money on anything other than educational expenses. You could also transfer to account to another child or relative if desired. But speaking strictly by numbers, it’s a pretty big hit to overfund these accounts.

So how much?

The average cost of a private college tuition (including fees, room and board) for 2023-2024 was ~$55,000. This is the highest price tag obviously so let’s stick with this for the purpose of our examples. Over 4 years, the total cost then comes to $220,000. So this is how much you need to save up per kid per college education.

For the purpose of these examples, we will also say that you start saving when your kid is 5 years old and the average age upon entering college is 18 years. So a 13 year investing window.

Using the future value function on Excel (see here for instructions on how to use this function), if you save $12,500/year with an expected rate of return (including inflation) of 5% for 13 years, you will have $212,412. This will cover the average tuition cost of one college education at a private college.

So, the answer is to save $12,500/year/kid if you plan to pay for their college using this strategy. This comes out to saving $1042/month for each kid. Certainly feasible…

2. The primary job cash flow method

As I mentioned above, the average yearly tuition including all fees, room and board for a private college in 2023-2024 dollars was $55,000. This comes to $4,583/month for 4 years.

You could pay for the college expenses purely from your monthly income once your kid(s) reaches college. This obviously becomes more difficult as you have more kids in college at the same time.

But this is a real option. Especially for high income earner.

The question is, would you like to save $1042/month for 13 years ($162,552 total) or $4583/month for 4 years ($219,984 total).

I know where my preference lies…

3. The investment cash flow method

Ah, but here is the rub.

Let’s say that you don’t save and invest any money for college in 529 or taxable accounts. And you don’t make enough or want to use your primary income to pay for college.

You could use the money that you would have put into a 529 account to buy cash-flowing assets. Like rental real estate properties.

If these properties make at least a net income of income $4583/month, you can use this income to pay for one child’s college education.

How feasible is this?

Selenid and I started investing in cash flowing rental real estate properties 4 years ago. Our 8 properties net us $10-11k/month. So we are already above this goal. In fact we reached this amount of cash flow in about 2 years of investing in real estate.

So this is very doable…

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4. The mortgage method

How many of your have a mortgage on your primary home? Most of you I would bet. I do too. And, because you are my audience, I bet it is not a small mortgage. Chance are good that it is near or greater than $4000/month.

So, this means that if you pay off your mortgage before your kid gets to be college age, you can just use that payment that would normally go to mortgage to pay for college.

As an added bonus, after those 4 years of college, that money just becomes extra cash flow for you!

Again, it is very feasible to pay off even a 30 year mortgage early over 13 years with extra payments.

How? Create a budget and spend intentionally.

5. The odds & ends method

Admittedly, this may not always be a manner to pay for all of one or many kids’ educations. But it can help dramatically.

What are these odds and ends?

• Financial aid
  • Unlikely for someone at a physician’s income level.
• Work study
  • I worked at our college gym swiping cards)
• Education scholarships
  • There are tons of private scholarships out there beyond those offered by the college themselves, look for them! In fact, Selenid had all of her education paid for by education scholarships.
• Sports scholarships
  • Less common but out there.
• Going to a state college
  • Ok. I know this is a touchy subject. And maybe it’s not even an “odd” or an “end.” But, there are probably just a. handful of colleges out there worth such a high price tag. And unless you are paying for one of them, a consideration may be to just guide your kid to opting for a state university with a lower price tag.

How Selenid and I plan to pay for our kids’ college education

This will come as little surprise to readers of this blog, but we plan to use a hybrid method to pay for our kids’ college. (For reference, we, so far, have 2 young boys.)

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And by hybrid method, I mean that we plan to use a bit of methods #1, 2, 3, 4, & 5 above

We opened 529 accounts for each kid when they were born. Right away, we automated our accounts so we contribute $150/month to each kid. We also put birthday checks, etc in there. But for now, we will just consider to $150.

This amount invested each month for 18 years until they reach college at an inflation-adjusted expected return of 5% will yield about $51,000 for each of them (#1. Save and invest method).

Thus, we still have to cover about $169,000 for each kid over their 4 years education. And remember, 2 of our kids will be in college at the same time. So, each kid will have a monthly college cost of ~$4,500 for a total of $9,000 for the 2 of them at any one time.

We expect to be more than able to cover this based on our rental real estate income (#3. Investment cash flow method). We also plan to pay off our mortgage aggressively after my student loans are paid off (#4. Mortgage method).

And who knows if we will still be working then or in what capacity, but if we are, we certainly will have some day job money to contribute to their education if we decide to (#2. Primary cash flow method).

Lastly, we don’t expect to qualify for financial aid. However, we do expect our children to work in college via work study. Both Selenid and I did this and felt it taught us important lessons. They will also be encouraged to apply for any and all scholarships they can find to help fund their own education (#5. Odds & ends method).

As always, you can view our actual written financial plan including plans for paying for college right here: Our Complete, Updated 2024 Written Financial Plan

What about graduate school?

They are on their own for graduate school.

Seriously.

That’s what I think at least. Selenid disagrees with me. But I think that having some responsibility towards your educational costs if desired after college is important. It keeps you motivated and keeps your eye on the prize. It certainly did for me.

What do you think? How are you saving for your kids’ college education? Are you savings, investing, cash-flowing? Some or all of them? Let us know in the comments below!

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