How to Save Money for College with Other People’s Money

How to Save Money for College with Other People's Money

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My Bachelor’s degree took me forever to complete. I’m embarrassed to even write about it, but at least I never had to borrow money to pay for it. I never had to figure out how to save money for college. My former employer, Uncle Sam, paid for a portion of it while I was still serving on active duty. I paid for the rest out of pocket.

The Importance of a College Degree

Unless your children are going into the trades or have that entrepreneurial fire, college is still the route they should take to be successful.

How to Save Money for College
Statistics don’t lie:  your children will need to get educated if they want to earn a better living.

How Much Will a 4-Year Degree Cost?

How to Save Money for College
Wages have stayed relatively the same, inflation adjusted, but college tuition has more than doubled.

College tuition has increased at a far greater rate than wages or inflation. Average tuition at a 4-year public college or university is approximately $10,000 annually. The average tuition at a 4-year private college or university is over $30,000 per year. My children are attending public universities. 🙂

If your children are young, it’ll be difficult to pinpoint the exact amount you’ll need in order to cover college tuition and other expenses. Include room and board, and you might need to sell your home and car. Send your children to a private school, and you might as well include your arm and leg with your home and car.

A Great Resource to Learn How to Save Money for College

I recommend getting very familiar with savingforcollege.comIt’s simple and there are many tools like this simple college cost calculator below.

Using the World’s Simplest College Calculator, enter the age of your child. You’ll be able to change the default settings for a more accurate picture of your future pain in the @$$et$!

I entered 8 for Age of Child, pressed enter, and made the following changes:

  • Clicked pick a different school and entered the University of WA Seattle.
  • Entered 11 for how many years until college.
  • Entered $18,000 for how much I currently have in savings for college.

If I want to pay 100% of my daughter’s tuition at the University of Washington in Seattle, I will have to invest $178 per month from now until she graduates.

That’s $178 per month for one of my two daughters to graduate from a state university, and we already have $18,000 saved up!

I’ll have to invest an additional $281 per month for my younger daughter who is only 4 years old.

If you’re simply saving money rather than investing in a 529 plan, you’ll have to save even more because savings rates are abysmal compared to the markets’ rates.

How Will Your Children Pay for College?

Some people argue that parents should not fund their children’s college education. Instead, they should focus on saving for their retirement.

I agree. However, I know that I’m personally going to do everything I can (because I’m a parent) to support my children through college … to an extent.

If you know anything about basic investing, you know you’ll lose money by simply saving it. This is where the 529 plan comes in.

If you’re new to investing, learn how to invest in stocks for beginners.

We hear about the stock market being at all-time highs. The real estate market has recovered nicely and is also overpriced at all-time highs in some areas.

Have you heard about the student loan crisis?

In the USA, student loan debt totals over $1.4 trillion and is second only to mortgage debt! People owe more in student loans than auto loans or credit card debt. This is hard to believe.

But if we want our children to be successful in life, most of us will do whatever it takes to get them through college, right? I don’t want my children to finish college with so much debt that they feel overburdened by it, especially since there are many other ways to help pay for college.

How to Save Money for College with a 529 Plan

First, let’s start with the basics…

A 529 plan is an investment account, similar to a Roth IRA, but geared towards saving for college expenses.

You invest in it with after-tax dollars, so you’ll never have to pay taxes on qualified withdrawals.

3 Myths About 529 Plans

Watch the video below to see the 3 biggest 529 plan myths debunked.

  1. You’ll lose all of your 529 savings if your children don’t go to college.
  2. I can only use my state’s 529 plans.
  3. I’m too rich or too poor to set up a 529 plan for my children.

Does Having a 529 Plan Affect Financial Aid?

When your children attend college, they’ll most likely apply for financial aid using the Free Application for Federal Student Aid (FAFSA).

It’s best for parents to save for their children’s education, because parents’ assets are treated more favorably (5.6% vs 20%) than children’s assets in determining financial aid eligibility.

Why is this good? The 529 plans are considered parental assets, not student assets. Withdrawals to pay for college tuition and expenses are not treated as income for the next year’s financial aid eligibility, which is an added benefit.

Selecting a 529 Plan

Choose the Right 529 Plan to Minimize Expenses

Hopefully, you’re convinced that a 529 plan is important. The next step is finding the right plan for your children. Remember that a 529 plan is simply a college saving investment account and similar to a Roth IRA. You must select an investment type.

The 529 College Savings Planner from is a great resource to help you find the right 529 plan and investment. Some plans require minimum investments of a few thousand dollars while others only require $25 monthly withdrawals. You do not have to be a resident of a state to use its 529 plan. Just make sure the expense ratio on the investment type you choose isn’t too high.

My daughter’s plan is the USAA 529 College Savings Plan above. Expenses range between 0.52% and 1.14% which is on the high side, but so far the investment has done well.

Invest Regularly Especially When the Markets Fall

Now that you’ve established a 529 plan for your children, you must invest regularly in order to maximize your returns whether the markets rise or fall. You can’t time the market, so set your accounts up for automatic investing. Some 529 plans allow you to invest as little as $25 per month. Even a little bit of money invested will help.

When the markets fall and the economy heads south, don’t panic. This is when you absolutely must invest in the 529 plan. The value of each share will fall. What does that mean? It means they’re cheap, so stay on course! Would you sell your house just because the real estate market crashed? If you could afford to, you’d pick up another house or two. Think of the stock market in the same way. As long as you’re diversified and investing in market index funds like the S&P 500, you’re about as safe as you can be.

How to Save Money for College with Other People’s Money

I hate to admit this, but I haven’t saved one penny for my children’s college expenses.

I know, I’m a terrible parent.

Actually, what I’ve done is set up a 529 plan so that other people may help pay for my daughters’ college expenses. When my children both attend college, I’ll be in my 60’s and be able to withdraw money from my Roth IRAs to help pay for their education. However, I’m hoping that I won’t have to.

So far, my daughters’ 529 plan has been 100% funded using other people’s money. People I know have contributed to her plan. Relatives and friends (anyone for that matter) can contribute to her plan, because she has a 529 plan they can invest in.

The key to funding your children’s education using other people’s money is to make sure the 529 plans for your children accepts “third party” contributions.

What is the likelihood that someone else is going to simply give you cash and ask that you use it to pay for your children’s tuition? Not very likely. Why not ask friends and relatives to forego the birthday presents and help contribute to your children’s 529 plans instead?

I know that Uncle Darren would gladly do this. 😉

Obviously, you shouldn’t have any expectations, but simply making this an available and known option is all that’s required. I’d much rather write a $10 check to fund a child’s 529 plan than buy a $10 birthday present. A birthday present may only last several months, but a college education will provide a lifetime of value. Every dollar counts.

Can Grandparents or Other People Open Up a 529 Plan Instead?

Anyone can open up a 529 plan for your children. Grandparents, aunts, uncles, and even your friends can establish 529 plans for your children.

If they are fully funding your children’s education, and they want to maintain control of the 592 plan, this can be a great option. However, if they simply want to help out, encourage them to contribute to your 529 plan instead.

Distributions from a 529 plan they establish on behalf of your children are treated as income and affect your children’s future financial aid eligibility. Distributions from your 529 plan for your children’s college expenses have no impact on future financial aid eligibility.


We want our children to obtain a quality college education. We can help them by establishing a 529 plan and consistently contributing to it.

  1. Set up a 529 plan as soon as possible. Don’t wait, because compounding is more effective over time.
  2. Ensure your 529 plan allows third party contributions. Let everyone who cares know how they can contribute to your 529 plan.
  3. Invest in the markets in order to beat inflation. High risk actually means high volatility (more market swings). You don’t lose money unless you sell at a low.
  4. Invest in your own retirement accounts like a 401K and Roth IRA first.
  5. After investing in your own retirement accounts, if you have money left over, make consistent, monthly contributions to the 529 plan. You can’t time the market, so investing consistently is how you’ll minimize risk and volatility (see #3 above).

There are more pros than cons to having a 529, but we are ultimately responsible for doing our own homework.

Seek professional financial advice if doing your own homework isn’t enough.

I do not currently contribute to my children’s 529 plan. I’m focused on maximizing my retirement savings in my employer sponsored 401K and my Roth IRAs. It’s more important to save for our retirement than to save for our children’s college education. However, it’s equally important to have a 529 plan, because other people can contribute to it while we contribute to our own retirements.

Did I mention that other people have contributed $15,000 to my daughters’ 529 plan which has grown to $18,000 in value?

What Will You Do to Help Your Children Pay for College?

Please share this article with others and comment below. I’d love to hear your thoughts.

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  1. Hey Darren:

    Thanks for the explanation about the 529 plans. I’m contributing monthly to both of my grandkids’ plans — mostly because I thought it was a better idea than just sending them a little bit of extra money each month

    I tell them I like helping to fund their dreams…and that I hope they will keep dreaming big.

    1. That is so great to hear! I assume their parents set up the 529 plans? I wish more people would do it for their kids. Just trying to do my part and spread the word.

      Thank you for commenting. I appreciate it.

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