Money Matters

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Saving For Education


Most parents have already heard the bad news: a good education, especially college, has never been more expensive.  Greater government financial support for higher education is a perennial hope, but not guaranteed. Even public K-12 can be a financial challenge – with a variety of additional expenses not always covered by the school, like materials for special projects, musical instruments, sports equipment and extra-curricular travel expenses to name a few.  

Many adults are still paying off their own undergrad and post-grad student debt years or even a decade after taking out loans―and would like their children to avoid that burden.  The good news is that there’s a lot parents can do to help make the costs of college and even K-12 more manageable.

1. Invest in a Tax-Advantaged Savings Account
Two popular vehicles for K-12 and college savings are the Coverdell and 529 education savings accounts.  Contributions are not tax deductible, but earnings are tax-free when used for qualified education expenses. Both accounts have their own special benefits and limitations.  The Coverdell account for example limits annual contributions to $2,000 per child compared to unlimited contributions for a 529―athough only $15,000 per year is free of gift tax.  On the other hand, when used for K-12, Coverdell can pay for a wider variety of educational expenses than a 529, including tuition, books, supplies, tutoring, room and board, uniforms and transportation.  A 529 can solely be used for tuition with K-12 education―although for college it can cover a broader range of expenses.  Whatever savings vehicle you choose (the Credit Union offers a Coverdell Education Savings Account) if you start to save when your child is young, you could have a substantial nest egg to support their education.

2. Apply for Financial Aid
You have to be poor to receive financial aid for college, right? Wrong! While many scholarships and grants are needs-based, many other financial aid opportunities are merit-based. So, if your child does well academically, or meets other specialized criteria, they may qualify for assistance even if you are affluent. For example, many colleges and universities have endowments and use this “institutional aid” to attract promising students – and not just athletes – to their programs.

When exploring your options, keep an eye out for scammers. While there are reputable college financial planners, no legitimate scholarship program will require students to pay to apply for aid. And, of course, be wary of any college funding strategy or investment that sounds good to be true!

3. Explore Local Community Colleges
Academically-speaking, community colleges offer phenomenal value for meeting almost any degree program’s general education requirements. Plus, students at community colleges often benefit from close teacher-to-student ratios, while many university and four-year college GE classes aren’t even taught by full-time faculty. There are also huge savings on room and board when a child attends a local institution and can continue living with mom and dad. And if they do want to transfer to a four-year program, they’ll benefit from the formal credential of having attended a “big college,” but at a greatly reduced cost.   Just remember to investigate requirements for transfer students to ensure that preparatory coursework will be accepted by the student’s chosen degree program.

4. Borrow Sensibly
Even with financial aid and parental support, many students will still need to take out loans to pay for college. The key is to limit borrowing to an amount the student can reasonably be expected to pay back in ten years or less. The lower the loan amount the better, but a good rule of thumb is to borrow no more than the expected first year’s salary.

5. Let Your Child Have Skin in the Game
If the money’s there to pay all of your child’s college expenses, it’s all good. However, parents who skimp on critical goals―like cutting back on retirement savings to pay for a child’s education―may never recover from the financial hit. Remember, your child can pay for college with a combination of student loans and work earnings, but you can’t get a “retirement” loan to pay expenses when you’re no longer working!

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