Some Considerations to Saving for College:
According to the College Board, the average published cost for tuition and fees at four-year colleges increased by 31% beyond the rate of inflation over the five years from 2002-03 to 2007-08, and by another 27% between 2007-08 and 2012-13. For the 2012-13 academic year, average tuition and fees range from $3,133 per year at public two-year colleges and $8,655 at public four-year colleges to $29,056 at private four-year colleges.1
Saving for college can help with the increasing cost of a college education and help you to be financially prepared when your children are ready for college. Although there are many savings vehicles to consider when investing in your children’s education, be sure that you understand how these assets will be assessed for college financial aid eligibility. In order to determine the investment mix that offers the most favorable impact on your child's federal financial aid eligibility, you should first look at how the formula for computing an Estimated Family Contribution (EFC) works.
- 20% of a student's assets (money, investments, business interests, and real estate)
- 2.6%- 5.6% of a parent's assets (money, investments, certain business interests, and real estate, based on a sliding income scale and after certain allowances)
529 plans and Coverdell ESAs may be two of the better options to save for college without jeopardizing financial aid. Congress has bestowed these investments with special advantages for aid-eligibility purposes. These accounts let you withdraw money tax-free to pay for qualified education expenses. Plans typically allocate funds to stocks, bonds and money market investments and provide favorable tax treatment on a federal and sometimes state tax level as an incentive to save for future school expenses. If a parent owns the 529 account or ESA, up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included but it could affect the student's financial aid eligibility in the future.
There are also no age or income limits, and the amount you can contribute to these accounts is quite high, often in excess of $300,000. If there is money left over after the beneficiary goes to college, it’s not as if the money will be forfeited. A 529 can be kept indefinitely and even used for future generations. As a result, 529 plans can be a smart strategy to help pay for future education costs.
In most circumstances you can change the beneficiary of the plan without penalty. The funds can be used for tuition, fees, books and supplies for any eligible education institution, including many vocational and foreign schools.
1: Price figures are from the College Board's Trends in College Pricing 2012.
Financial Aid Resources:
www.collegeconfidential.com Resources to help pay for college
www.collegesavings.org Information about 529 plans
www.finaid.org Guide to financial aid, grants, etc.
www.savingforcollege.com Internet guide to college funding
www.consumerfinance.gov/students Consumer Financial Protection Bureau
College Financial Planning 101 Presentation:
The College Counseling and Financial Assistance Offices offered a second annual College Financial Planning Session on September 18th. Click here to access the Power Point Presentation.
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