Paying for College Part 1

Make one of the most important steps in life a little easier on yourself

Saving for college. Those three words inspire fear in the hearts of parents across the nation. Endless debt. Birds flying the nest. Kids living on their own for the first time since….well, ever!

Choosing the Right College

Saving for college doesn’t have to be a nightmare. There are options for families who want to put money away specifically for their child’s education so they don’t have to graduate facing mountains of student loans. No matter your financial situation, hopeful families must calculate how much money they will need when their child reaches college age. Families will have to consider how many kids they want to send to college, what type of profession the student wants to pursue, and what type of colleges meet those needs.

Your cost of college depends on the type of college you choose. Here are a couple quick tips on choosing the right college:

1. Discuss what type of study your child wants to pursue. Ensure that the schools your apply to provide those types of programs, and are strong in those programs.
2. You can save a lot of money by going to a community college or public two-year college, then transition to a four year college or university. Classes are a bit easier, and most transfer most if not all of their credits to four-year universities. 
3. If your child is showing desire to pursue a profession that requires graduate school, make sure you factor in those costs and requirements into your preparation.  

Paying for College

Some families may choose to pay for their child’s entire college education, while some students take on the entire amount of the loan. More commonly, a combination of parental payment, student payment, student loans, as well as scholarship all contribute to making college happen for Americans across the country.   

In this article, I will talk about saving investment instruments, as well as factors to consider in your college planning and loan repayment. 

Saving Instruments 

529 Savings Plan

(According to SavingforCollege.com)


A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996.

Which states offer 529 plans?

Nearly every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest, research state 529 plans and even compare between plans.

Tax Benefits

As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. See the top 7 benefits of 529 plans.

Some states (but not all) offer tax incentives to investors as well. Research your state's tax treatment.

NOTE:

Hawaii does not allow you to take a state tax deduction on your contributions to the plan. 

Types of 529 plans

529 plans are usually categorized as either prepaid or savings plans.

Savings Plans work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select. You can see how each 529 plan's investment options are performing by reviewing our quarterly 529 plan performance rankings. [updated date 05/2015]

Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Private College 529 Plan is a separate prepaid plan for private colleges.

Educational institutions can offer a 529 prepaid plan but not a 529 savings plan (the Private College 529 Plan is the only institution-sponsored 529 plan thus far).

Enrolling in a 529 plan

There are two ways to invest in a 529 plan.

1. Directly with the 529 Plan manager. See a list of 529 plans.
2. Through a financial advisor. Find an advisor in our Pro Directory.

NEXT TIME......

Pay Down Your Student Debt!