Monday, November 4, 2013

Paying for College the Smart Way

The price tag to send a child to college has skyrocketed, and it seems there is no end in sight for the soaring cost of a college education. According to the College Board, a moderately priced, four-year state college now costs $22,261 per year. If you want to attend a private university, then double that figure. Yes, private schools cost $43,289 per year, on average. It is no wonder student loan debt (which is close to $1 trillion) has recently surpassed credit card debt for the first time in history. 

Before you throw your hands up in the air and tell your children their post-high school options may include the military, vocational school or -- heaven forbid -- a job (all viable options for many), there are ways to save for college. 

1. START EARLY
No matter what you earn, set up a college fund for your children as early as possible. Even if you can only afford modest deposits, the money will grow and will become substantial by the time your children graduate high school.

2. OPEN A SAVINGS ACCOUNT
The college fund does not have to be a complex investment fund. Simply open a savings account and set up an automatic funds transfer every month. Even if the monthly dollar figure is low, at least the account will grow steadily and you will not have to worry about making the deposits. You can adjust the transfer amount as your income grows.

3. SET UP A 529 PLAN
Named after IRS revenue code 529, these plans can be set up as a "pre-paid tuition plan," or a "college savings plan." Pre-paid plans estimate a specific cost for tuition, fees, books and expenses, based on current cost levels, and they lock that amount into place. College savings plans are professionally managed investment portfolios. (One warning with 529 plans ...  The IRS prohibits individuals from utilizing two tax benefits for education on the same education expenses. Using tax-protected 529 earnings to pay for their child's first semester of college disqualifies some parents for the American Opportunity Credit, worth up to $2,500. Therefore, do not tap into your 529 plan until after paying the first $4,000 in qualified education expenses, such as tuition and textbooks.)
4. BUY SAVINGS BONDS
The U.S. Treasury offers Series EE Bonds, guaranteed to double in value after 20 years. Current interest rates are low, so Series EE Bonds offer a stronger return on investment.

Experts often frown on borrowing money against a 401(k) plan to help fund a child's education. Depending on the rules of your 401(k) plan, taking out a loan against your plan may disqualify you from company matching funds. In addition, you may have to repay the loan within 60 days of a layoff or if you leave that company. 
Of course, there are several other ways to reduce the massive cost of a college education. Many students qualify for Pell Grants and student loans. There may also be scholarship opportunities available for your children.
For more information on AltaOne's student loan program, visit: http://www.altaone.org/interior.php/pid/2/sid/107

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