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Funding Options for College Bound Students
With so many funding options for college bound students, which one is best for you? Paying for college may be the
largest expense a family can have, especially for families with multiple children. There are so many funding
options to assist you. Here are some brief descriptions of your options.
A Coverdell educational savings account is a popular plan for college funding. You can contribute up to $2000 per
year per child. If you use these funds for qualified education expenses, the earnings are tax deferred and free of
federal tax. You select the investments for optimal flexibility.
Section 529 plans are state-sponsored plans that can be used to pay college expenses. This is a tax-advantage plan
for approved education-related expenses such as tuition, room and board, supplies and fees. The state generally
hires an investment firm as a program manager who provides various investment choices. You invest in the
appropriate portfolios that match your investment time-line and risk tolerance. The two types of 529 plans are
prepaid and savings. Prepaid plans (independent) let you purchase tuition credits at member colleges, at today’s
rates, for future usage. Savings plans have growth based on the market performance of your investments.
UGMA/UTMA accounts are custodial accounts opened on behalf of a minor. This gift is considered irrevocable with all
withdrawals required to be for the minors benefit. The balance of the account is turned over to the minor at the
age of majority.
Grants and scholarships are “free money” options that don’t have to be paid back. This is a debt-free way to fund
an education. Financial need typically must be demonstrated to receive a grant. Scholarships are usually based on
merit.
Work-study programs provide part-time employment from the federal government to earn money for college. This
program is not only in place to help to fund college, but a work-study job can provide essential work
experience.
Federal student loans are low interest, long-term loans for students. These loans offer attractive repayment
options including being able to post-pone payments while attending college and in times during repayment of
financial difficulty. There are federal loans for both parents and students. The best know ones are Stafford Loans
for students and PLUS for parents. A lot of people turn to these programs for their funding needs. You can also
often find private loans that have low interest rates for college students. Be sure to choose a reputable lender
who in knowledgeable on loan choices if using a private lender.
Tuition payment plans are an interest and debt-free way to spread payments over several months. Not all colleges
offer this plan. Typically used by families who have income that will cover the gap between the amount they are
billed for college and the amount of financial aid received.
Assets of a family are often used to fund college. IRA’s, savings accounts, 401k plans and stocks offer a debt-free
way to fund an education. As a word of caution, before you liquidate one of these accounts, consider the earnings
you may be missing out on. Use this number as a comparison to the amount of interest you would incur from a student
loan plan.
Credit cards are often a popular but poor choice for funding a college bound student. This is for the simple fact
that interest rates can be high. Use this funding choice with caution.
It’s important to think about your own situation as you plan to fund your education. Establishing a savings plan at
an early age will make a huge difference. There are lots of funding options for college bound students. Which one
makes the most sense for you?
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