Why It’s Never Too Early to Start Planning for College

11.07.2025 | Category: Build Your Financial Future

Estimated Read Time: ~9 minutes

Summary: Starting college planning early provides significant financial advantages, from helping maximize compound growth to reducing student loan debt. Learn practical strategies and tools to make higher education more affordable and accessible.

As college costs continue to rise, early financial planning is becoming more important than ever. Using smart tips to plan your children’s education early, whether your child is in elementary school or just starting high school, gives you more options and flexibility when it’s time to pay college tuition.

The average cost of a four-year college degree has increased significantly over the past decade, with many families facing tens of thousands of dollars in expenses. Starting college planning early helps you to take advantage of compound interest and explore various savings options. This approach can also help reduce financial stress.

Early planning involves creating a comprehensive strategy that encompasses savings, financial planning for college students, and preparing for the realities of college costs. This approach enables families to make informed decisions and avoid common pitfalls that can hinder their educational goals.

Benefits of starting college planning early

Early college planning opens up more financial options and provides greater peace of mind to parents.

Financial advantages of early planning

Time is your greatest ally when saving for college. Starting early allows your money to grow through compound interest, where your earnings generate their own earnings over time. Even modest contributions can grow substantially when given years or decades to accumulate.

If you save $200 a month as your child grows, after 17 years, you will have contributed just over $40,000. With an assumed annual return of 6% (compounded monthly), your child’s education fund could grow to nearly $70,646.22. This example is for educational purposes only and does not represent actual investment results. Market conditions, fees, and individual circumstances will affect outcomes.

Starting financial planning for college students early allows more time to grow your investments and take advantage of compounding returns. When you have a longer time horizon, you can afford to invest in growth-oriented options that may have more volatility but potentially higher returns. As your child approaches college age, you can gradually shift to more conservative investments to help protect your accumulated savings.

Flexibility and less debt for students

Graduates today carry an average of $39,075 in debt along with their diplomas.¹ Students whose families start planning early often graduate with significantly less debt. This financial freedom allows them to make career choices based on passion and opportunity rather than immediate earning potential. They may consider graduate school or public service careers without the burden of overwhelming student loans.

Early planning also provides flexibility in college choices. Families with adequate savings may consider private schools or specialized programs that might otherwise be financially out of reach. This expanded range of options can lead to better educational outcomes and career opportunities.

Students can focus on their studies instead of working excessive hours to pay for school when families prepare financially in advance. This academic focus often leads to better grades and stronger preparation for post-graduation success.

How to get started: College savings strategies

Smart college savings strategies make funding education more manageable and reduce financial stress.

Understanding 529 college plans

A 529 college savings plan is often considered the gold standard for education savings. These state-sponsored investment accounts offer tax advantages specifically designed for education expenses and can help make college more affordable. Contributions grow tax-free, and withdrawals for qualified education expenses are also tax-free at the federal level.

Currently, more than 50 different plans exist, as many states offer multiple options. Most of these plans are open to both residents and nonresidents. 529s allow participation regardless of income, unlike other education-savings programs. Additionally, states set generous limits on total contributions, often exceeding $300,000.

Most 529 plans offer age-based investment options that automatically become more conservative as your child approaches college age. This hands-off approach works well for families who want professional management without constant monitoring. Many plans also allow contributions from grandparents and other family members, making it easy for everyone to contribute to a child’s education fund.

The flexibility of 529 plans has expanded in recent years. Funds can now be used for K-12 tuition (up to $10,000 annually), apprenticeship programs, and even student loan repayments. If one child doesn’t use all the funds, you can transfer the account to another family member without penalty.

Other savings options

529 plans are highly popular; however, they’re not the only option for financial planning for college students. Coverdell Education Savings Accounts (ESAs) offer similar tax advantages but with lower contribution limits and more investment flexibility.² These accounts can be used for K-12 expenses as well as college costs.

Some families consider using whole life insurance as part of their college savings strategy. Additionally, Indexed Universal Life (IUL), a type of cash-value policy, offers the opportunity to accumulate cash value at a rate of return linked to a market index.

Your cash value has the opportunity to grow when the index performs well, while also providing safeguards to protect against negative market fluctuations. With this design, you can benefit from market growth without worrying about market losses. This approach has limitations including cap rates, participation rates, and policy-related charges which can impact overall policy value. However, it can offer both life insurance protection and savings growth in one product. Keep in mind, using the cash value can reduce the death benefit of the policy.

Traditional savings accounts and certificates of deposit offer guaranteed principal protection but typically provide lower returns. These options work best for families who prioritize safety over growth or those very close to needing the funds for college expenses.

Investment accounts without specific education tax advantages can also play a role in college planning. These accounts offer maximum flexibility in fund usage, but require taxes on gains. Unlike some education-specific accounts, they have no contribution limits.

Planning beyond savings: Financial aid and scholarships

Understanding financial aid and scholarship opportunities is an important tip for both short and long-term financial goal planning. Taking advantage of these options may significantly reduce out-of-pocket education costs.

The Free Application for Federal Student Aid (FAFSA) determines eligibility for federal grants, loans and work-study programs.³ Therefore, you must familiarize yourself with this process early.

Many families are unaware that financial aid calculations consider both income and assets when determining financial need. Strategic planning around asset ownership and timing of income can sometimes improve eligibility for financial assistance. For example, 529 plans owned by parents receive more favorable treatment than accounts owned by students.

Scholarship opportunities extend far beyond academic achievement. Many organizations offer scholarships based on community service, specific career interests, ethnic background, or even unusual hobbies. Starting the scholarship search early gives students more time to identify opportunities and strengthen their applications.

Merit aid from colleges represents another significant opportunity. Many schools offer substantial discounts to attract desirable students, regardless of financial need. Understanding each school’s typical merit aid offerings can help families target institutions where students are likely to receive significant assistance.

Common mistakes to avoid in college planning

Assuming they can’t afford to save for college, many families end up not starting at all. However, small amounts saved consistently can make a meaningful difference. Starting with a monthly contribution of $25 or $50 is better than waiting until you can afford larger contributions.

Another common error is choosing investments that are too conservative from the beginning. An overly conservative investment approach may not keep pace with rising college costs. Families can typically afford more aggressive growth strategies early in the savings process.

Many parents also make the mistake of prioritizing college savings over their own retirement planning. While education is important, parents can’t borrow money for retirement. Financial advisors typically recommend securing your own financial future first, then focusing on college savings.

Failing to involve children in the planning process is another oversight. Students who understand the family’s financial sacrifices for their education often make more thoughtful decisions about college choices and take their studies more seriously.

Tips for parents: Making college planning a habit

Successful college planning requires consistency over time. Setting up automatic transfers to education savings accounts removes the temptation to skip months or spend money elsewhere. Even during tight financial periods, maintaining regular contributions helps preserve the savings habit.

Consider increasing your contributions each year, using raises or tax refunds to boost your savings. This gradual increase helps your savings keep pace with inflation and growing college costs. Many 529 plans allow you to schedule automatic increases, making this process seamless.

Take advantage of family occasions to boost college savings. Birthday and graduation gifts can be directed to education accounts. Teaching children to save a portion of their own earnings for college helps them understand the value of education and develop good financial habits.

Regularly review and adjust your strategy as circumstances change. Job changes or shifts in your child’s interests may require modifications to your college planning approach. Annual reviews help ensure your plan remains on track.

Giving your child a strong start with early college planning

Starting college planning early transforms what could be a financial crisis into a manageable process. The combination of time, compound growth and strategic planning creates opportunities that simply don’t exist when families wait until the last minute to address college costs.

Starting with whatever amount you can afford is more important than waiting until you can contribute larger amounts. Every dollar saved early has more time to grow and contribute to your child’s educational goals.

At Mutual of Omaha, we understand that planning for your family’s future involves many complex decisions. Contact a financial professional today to help develop a comprehensive strategy that addresses college costs alongside your other financial goals, ensuring you’re prepared for whatever the future brings.

Frequently asked questions (FAQs)

How early should you start planning for college?

The ideal time to start planning for college is as early as possible, ideally when your child is born. However, it’s never too late to begin. Even starting when your child is in middle school or high school can provide meaningful benefits through compound growth and reduced borrowing needs.

Can life insurance help save for college?

Yes, certain types of life insurance, such as whole life insurance, can be part of a college savings strategy. These policies build cash value over time that can be borrowed against for education expenses while providing life insurance protection.

How does starting early reduce student loan debt?

Early planning enables families to accumulate more savings through compound interest, thereby reducing the amount of student loans they need to borrow. Students with adequate family savings can focus on their studies rather than working excessive hours, often graduating with significantly less debt.

Is it ever too late to start saving for college?

It’s never too late to start saving for college. Even if your child is in high school, any amount saved can reduce borrowing needs. Late starters should focus on more aggressive savings rates and consider more conservative investments given the shorter time horizon.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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