Smart Strategies to Save for College: 5 Effective Ways to Plan Ahead
SaveExplore practical college funding options, from 529 plans to Tuition Rewards-, to help your family prepare for future educational expenses.
By SAGE Scholars — June 24, 2025
Paying for college can be one of the biggest financial decisions a family makes. By exploring your options early, you'll be better prepared to make informed, confident choices. Here are five smart ways to get started with saving for college.
1. Specific College-Savings Vehicles
Sponsored by states, 529 plans are the most popular method of college savings. More than 12 million 529 accounts have been opened. Any investment growth is tax-free if the money is used for qualified higher-education expenses. Your investment contribution may also be deductible from income on your state tax return. There are two types of 529 investments:
Prepaid 529 Plans
These plans allow you to lock in today's tuition rates for future use. For example, if you're a resident of Pennsylvania, you can purchase one year's undergraduate tuition at Penn State. Even if your student won't attend college for another 14 years, your investment will cover one year of tuition at that future cost.
Prepaid plans are considered a safe, conservative way to save. Nineteen states offer prepaid options, but only 11 are open to new investors, usually limited to residents of that state. Although stock market returns have historically outpaced tuition inflation, between 2000 and 2010, prepaid 529 returns significantly exceeded the benchmark S&P 500.
Mutual Fund 529 Plans
Nearly every state offers mutual fund-style 529 plans. These are subject to market risk and don't guarantee future tuition coverage. Families may invest:
- Directly in investments managed by a company chosen by the state
- Through a financial advisor affiliated with the plan
- Or through a combination of both
Common investment options include:
- Age-based portfolios - Automatically adjust asset mix based on the child's age
- Static portfolios - You select a fixed investment strategy based on your risk tolerance
Coverdell Education Savings Accounts
If your income is below $110,000 (single) or $220,000 (married couple), you can contribute up to $2,000 per year per beneficiary into a Coverdell ESA. Withdrawals are tax-free if used for qualified education expenses, from kindergarten through graduate school.
Unlike 529s, Coverdell accounts offer broader investment choices, though the contribution limits are lower.
2. Other Investments
Some families prefer not to use college-specific accounts. Instead, they may:
- Sell underperforming mutual funds to free up funds
- Refinance a home and apply tax-deductible interest savings to tuition costs
While these strategies may lack tax advantages, they offer flexibility and may align better with your overall financial goals.
3. Don't Save (Yet)
As strange as it may sound, not saving can be a financial strategy-if you plan to borrow. Borrowing, after all, is just deferred saving. That said, borrowing often includes interest, so the long-term cost may be higher.
This strategy is not for everyone, but may apply in cases where short-term cash flow challenges make saving difficult.
4. Cash-Value Life Insurance
Some families and financial advisors consider permanent life insurance policies (like whole life or indexed universal life) as part of a college funding strategy. Here's why:
- Certain types of policies have guaranteed returns, providing steady cash value growth not tied to the stock market.
- You can borrow against the policy's cash value at favorable rates-often tax-free-when it's time to pay for college.
- These assets are not counted in financial aid calculations using FAFSA, which may improve your aid eligibility.
- There's a built-in death benefit, adding a layer of protection for families.
Cash-value life insurance is often recommended for grandparents who want to support intergenerational college funding while protecting their estate.
5. SAGE Scholars Tuition Rewards
The SAGE Scholars Tuition Rewards program offers families a unique way to earn guaranteed scholarships, without needing to contribute money directly into a savings account.
Participating employers, financial institutions, health insurers, and nonprofits provide Tuition Rewards Points to eligible families. Each point is worth $1 in guaranteed minimum tuition discounts at participating private colleges and universities.
- One Tuition Rewards Point = $1 in guaranteed tuition discounts
- Maximum discount = up to one full year's tuition, spread evenly over four years
- Points are earned automatically through participating organizations
Which Ways Are Best for You?
Every family's situation is different. Your savings approach should reflect your financial picture, academic goals, and risk tolerance. It's always wise to consult a trusted advisor or college funding specialist before making long-term investment decisions.
Be wary of "one-size-fits-all" solutions. Look for professionals who offer a variety of tools and who take the time to understand your family's unique needs and aspirations.
Want to learn more about how SAGE Scholars can help your family plan and save for college? Explore your Tuition Rewards dashboard or read more expert advice in the SAGE Scholars Newsroom.
SAGE Scholars
At SAGE Scholars, we deeply believe in the value and quality of private higher education. Our mission is to provide access to affordable college opportunities while bringing together families, colleges & universities, and benefit providers to create college funding solutions. Since 1995, SAGE Scholars has bridged the gap between students who want a quality private college education and colleges that will work closely with member families to ensure affordability - all at no cost to the families.Articles & Advice
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