Ready to Start Saving for College? Here’s a Rundown on the Basics

For parents looking to give their children a leg up in life, a college education is widely regarded as a gateway to a more fulfilling career, along with a happier and more prosperous future. But unfortunately, it comes with an average price tag of over $10,000 per year — and that’s for in-state tuition at a public four-year college, without accounting for additional expenses such as room and board, books and other supplies, etc. And as such, it’s one of the largest expenses parents will face when raising their kids.

By starting early and having a plan, though, parents can take a lot of stress out of the college-savings process. Read on for answers to some of the most common questions parents have about starting and maintaining college-savings funds for their sons and daughters.

When should I start saving?

This may seem obvious, but the sooner parents can start saving for their child’s college expenses, the better. Even if a parent can only set aside small sums of money toward college savings each month, the seemingly slight contributions can add up to become substantial over time. And via the power of compound interest, the savings can start building up even more if put in the right kind of account (more on that below). Further, if handled in the proper way, putting money away toward college savings can even come with tax benefits, and the savings can be set aside tax-free.

How much do I need to save each month?

The ideal amount of money to put into a college-savings account each month will vary depending on each consumer’s financial situation and savings goals. Many financial experts recommend paying for college using a three-tiered approach — with one-third of the funds coming from savings, one-third from current income and one-third secured via student loans. That said, many parents may want to set a goal of putting more than one-third of the anticipated expenses aside before a child ever enrolls in college. Whatever you decide, make sure that the money you put toward college savings each month is an amount you can comfortably afford.

On that note, a few words of caution: Financial experts recommend that parents always prioritize their own retirement savings and interest-bearing debts when deciding how much to save toward their children’s college fund each month. After all, students can take out loans for school, but parents can’t take out loans for the funds they’ll need to cover expenses during retirement. And when it comes to financial wellness, paying off credit cards and other debts on which interest is accumulating should always be a top priority.

What are the most common types of college-savings vehicles?

When it comes to an account/vehicle type for college savings, consumers have several options to choose from, with each having its own advantages and disadvantages. To help you decide on the ideal option for your situation and goals, here are quick rundowns on some of the most popular current options:

  • 529 college savings plans — Designed specifically to facilitate saving for educational expenses, 529 plans allow consumers to contribute after-tax money to their account, where it can be invested and grown on a tax-deferred basis. Money can be withdrawn from a 529 account tax-free, as long as it’s used for qualifying, education-related expenses such as tuition, room, board, books and fees. Further, some states even offer tax deductions for contributions to 529 accounts. Note that withdrawals from 529 accounts may affect eligibility for need-based financial aid.
  • Coverdell Education Savings Accounts — Similar to a 529 account but with more flexible investment options, a Coverdell Education Savings Account (ESA) allows eligible households (those earning less than $220,000 a year) to contribute up to $2,000 per year to each beneficiary’s account. Any money put in an ESA can be invested in stocks, mutual funds or bonds, and the account is free from taxes on investment income or capital gains. But with this account type, the funds must be used by the time the child is 30 years old, or they will be subject to taxes. Further, money withdrawn from the account can be used for any educational expenses during the child’s lifetime, including those for needs such as tuition, tutors, uniforms and other fees during the K-12 years.
  • Roth IRAs — While Roth IRAs are designed primarily for retirement-savings purposes, those who deposit and invest after-tax money in them can withdraw their funds tax-free at any time if the funds are used to pay for educational expenses. Otherwise, contributions (but not any earnings) can be withdrawn tax-free at any time — and for any purpose. But withdrawals of earnings are charged penalties and taxes if the account holder makes them before reaching age 59 and a half. As with 529 plans, withdrawals from Roth IRAs may affect eligibility for need-based financial aid.
  • Custodial accounts — A custodial account is essentially a savings account, but it gives the account creator (typically a parent or other relative) full control of the account until the minor for whom the account is created reaches legal age. Once the minor reaches age 18, 19 or 21 (depending on the age of majority in the state in which he or she resides), the account automatically transfers into his or her control. At this point, the funds within the account can be used as the beneficiary wishes, including on non-education-related expenses. These accounts don’t have the same tax advantages as a 529 or an ESA, and the funds within them count as assets for the beneficiary, potentially affecting access to need-based financial aid.
  • Savings bonds — Issued by the U.S. Treasury Department, savings bonds are backed by the federal government and pay the holder a fixed (and relatively low) amount of interest over a set period of time. In basic terms, these bonds serve as a loan to the federal government, which pays back the money with a modest return once they mature. A virtually risk-free way to save for college, savings bonds can offer tax benefits when used to pay for educational expenses and all requirements are met.
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Man doing his banking online is the only source for free credit reports authorized by the federal government. Every 12 months, you can get a free copy of your credit report from each agency.

Your credit report has your credit history for all of your credit accounts as well as any credit inquiries and public record court information such as collections. In addition, the report provides personally identifiable information such as your name, address, and employment.

Be sure to carefully review all three reports to identify any problem areas that you may need to clean up prior to applying for a mortgage. If there is any incorrect information, follow the reporting agency’s rules to correct it or add a notation to the report to explain the situation.

Your FICO Score is a score combines data from several areas include payment history, the amount owed, length of credit history, new accounts. Many lenders use this score as a guide. This score is not provided as part of the free annual credit report.

Learn more about how your credit score impacts your ability to secure a loan.


Couple looking over finances

Primary considerations for setting your housing budget require an assessment of your income, debt and current savings for the down payment on the home. The following are generally recommended guidelines; however, you should meet with an Arthur State Bank lender to get personalized mortgage information.


Couple meeting with lender

The pre-qualification/pre-approval letter is included with any offer you make on a house to inform the seller that you have met with a mortgage lender and you are prepared to make an offer. The letter states that based on certain assumptions, the bank is prepared to lend you up to a specified amount of money for a home mortgage.

When choosing a loan officer, we recommend going local to work with someone who understands your community’s real estate market. This blog on first-time home purchases includes questions to ask your lender that may be helpful when preparing for your meeting.

Helpful Resources:


Realtor shaking hands with a client

When a house is sold, the seller typically pays real estate commission to both the listing agent and the selling agent. It is extremely beneficial for the buyer to use their own real estate agent. Loan officers can often recommend selling agents in the area; ask your officer about realtor referrals when discussing your loan.

A good realtor will know the local market and can help you find an ideal home based on your budget, location and desired features. During your search, understand that you will most likely need to compromise on some items, so it’s important to identify your critical needs versus your wants.


Couple searching online for a home

Additionally, when you start with the house search and work backwards, homes can often go off the market while you’re completing steps 1-4. While browsing homes immediately can be tempting, we recommend following these steps in order so that, once you find your dream home, you’ll be well-positioned to take action immediately.

When you find the home you want and you think you are ready to put an offer on it, you will want to make sure you have all the information you need to make a solid offer.

  • Evaluate the neighborhood.
  • Drive by the house at different times of the day.
  • Examine how other houses in the neighborhood are maintained.
  • Consider any potential traffic or other disruptive noise.
  • Is there ample parking for you and visitors?
  • Read the details in any Homeowner Association agreements (HOA fees and rules).

Make sure to do a preliminary check of house details:

  • Check the water:
  • Does it have good pressure?
  • How long does it take to get the water hot?
  • Is it well water or city water?
  • Turn light switches on and off.
  • Open and close doors and windows to make sure they work properly.
  • Review previous utility bill expenses.
  • Consider the property tax bill.


Family meeting with realtor at new house

When writing an offer contract, be sure to pay attention to all of the details.

Offer Price:

Your agent should do a market analysis that pulls data on recently sold comparable houses. The best comparisons will come from the same neighborhood.

If you are asking for the seller to pay some of the closing costs, remember that this cost plus the sales commission determines the net amount you are offering the seller for the house.

Work with your agent on your negotiation strategy. There are many things to consider, such as how badly you want this particular house, whether it is a buyer’s or seller’s market and an assessment of the seller’s motivation to get the property sold.

There isn’t one best strategy.

Be sure to document in writing everything you want included with the house, such as appliances, etc. Your agent should guide you through the contract step-by-step.


  • Home inspection.
  • Mortgage.
  • Final walk through (24 hours prior to closing).

Proposed closing date. Typically, this is 30-45 days from an accepted offer.

A good-faith deposit is required for the offer. This is typically between 1-10% of the purchase price of the house. The deposit is kept in escrow until closing and the money is applied to the purchase price of the house at closing. If the house does not close due to one of the contingency clauses, the buyer receives their money back. However, if the buyer decides not to close on the property, the seller may get the deposit money.

Attach your pre-approval letter to the offer.


Two people in professional meeting

The clock starts ticking for everything documented in the contract, including mortgage application, inspections and closing date.


Woman advising other woman on mortgage application

You will need to decide which mortgage to select prior to the application.

Plan for the following potential fees:

  • Application fee (many banks and mortgage companies charge an application fee; however, there is not an application fee at Arthur State Bank).
  • Credit check.
  • Appraisal (may be paid at closing).
  • Loan origination fee (paid at closing).

Once you have approval for your loan, make sure you don’t change anything that will impact the status of your mortgage. Banks do a final check on credit and jobs just prior to closing, so now is not the time to change jobs or make another purchase on credit such as a car or furniture.


Home inspector going over findings with home owner

Depending on the size of the house, an inspection can cost on average between $300 to $1000.

Many real estate contracts specify how problems uncovered in the inspection will be resolved, up to a certain dollar amount. Should necessary repairs exceed that amount, the buyer has the option to cancel the contract without penalty and receive their deposit money back. Another option is for the buyer and seller to renegotiate who will pay for additional repairs.


Woman happily holding keys to her new home
  • Homeowner’s insurance is required by the lender prior to closing on the loan.
  • Turn on utilities in your name, effective the closing date.
  • Change your address with the U.S. Postal Service.
  • Make moving arrangements.

Three days prior to closing:

  • You should receive your final Closing Disclosure from the closing agency. The final Closing Disclosure shows a column for the seller and a column for the buyer. All closing charges and credits for both the seller and the buyer are documented in the closing statement.
  • Review the closing statement for accuracy prior to coming to closing.
  • The final amount in the buyer’s column shows you the amount of money you need to pay at closing.

The closing office will provide specific payment instructions. Closing funds have become recent targets for cybercriminals. If you are asked to use a wire transfer, call the office and ask to speak to someone you have been working with to double-check the instructions.

Closing day:

In South Carolina, the closing will usually take place at the attorney’s office. Everyone signing for the mortgage must be present to sign the closing paperwork. Make sure you bring the following:

  • Cashier’s check or proof of payment for wire transfer.
  • Driver’s license.
  • Checkbook, just in case there are any additional items that were not on the closing statement.

Be sure to understand this information:

  • How and when you will pay:
  • Your mortgage.
  • Your property taxes.
  • Your homeowner’s insurance.
  • Any HOA dues.
  • Who to call with any questions.

The best practice is to go through the homebuyer’s roadmap in this sequence. However, if you jumped ahead early in your journey, just circle back to address the steps you missed.

Arthur State Bank’s loan officers are closely tapped into local real estate markets and experts at helping clients get what they need on terms that work for them. We also offer mortgage specials for first-time homebuyers.

To start planning your journey to your dream home, try out our mortgage calculator. If you’re ready to talk to a loan officer, contact Arthur State Bank to request personalized mortgage information today. Don’t forget to ask about our first-time homebuyer offer.