College Financial Planning: Best Advice On How To Save Money For College

SAVING FOR COLLEGE

Let's check out some good news......It's guestimated that in 2025, an education may cost somewhere around $200,000!!!

That's a phenomenal number to think about and an even more frightening scenario for people today with toddlers to face.

How to save for the education of your best and brightest and when to get started?

Well, the time would be now.....as soon as your children are born but if you didn't do that, the sooner the better.

In an economy that appears to grow worse by the day, how in heaven's name are we supposed to think about saving for college?

There are ways and some interesting things to consider as well....so let's take a look at some of the options.

TIPS ON SAVING MONEY FOR COLLEGE

There are several ways to invest money for your child's education. You can have your own separate portfolios designated for your children's education or you can use one of the two different types of 529 savings plans that are set up for saving for your child's education while giving you, the parent, a financial tax break.

In particular, 529 plans are the recommended way to save for college because if you simply open accounts in your child's name, the money set aside in his or her name will become an obstacle when applying for student financial aid when and if needed later on.

• Prepaid 529 plan. The prepaid 529 plan is a savings plan that lets you pay for your child's education at today's rates. This type of plan usually pays for tuition but may fall short when it comes to room and board costs. It also can limit out-of-state enrollees (which traditionally cost more than in-state students and may limit coverage for private schools). But they do have the Independent Prepaid Plan for saving money for your child to attend a private school.
  

• Basic 529 savings plan. The 529 savings plan is a bit more flexible than the prepaid 529 plan. There is generally not any limit on how much you can invest......no matter how small. However, the 529 savings plan is subject to gift tax limitations. You can contribute a certain amount tax-free in 1 year though (check on line at www,savingforcollege.com)
  
  The 529 plans are basically investment based savings plans that really operate like a 401(k) or an IRA. The money is invested in mutual funds or other investments (that you have some choice in) and then the money rises and falls depending up on the stock market.
  
  If you're late to the dance when it comes to 529 plans, you might want to consider as if you need the money sooner rather than later, the hits that you take on your investment might not help you get the cash needed for college. It would be better to invest in plans for the short term where there was more stability, like stocks and bonds.

• You can also contribute to a Coverdell Education Savings Account as well as contributing to a 529 plan. Contributions for this type of account are also subjected to gift-tax limitations, especially in the event that multiple contributions are made to the account in the same child's name. More information on Coverdell Education Savings Accounts (or ESA's as they are called) can be found at irs.gov.

• Saving is not always easy but if you get into the habit of looking at saving for anything as money that just isn't "yours", it makes it easier.
  
  If money is earmarked for your children's education and put into a separate account, it makes it easier to continue the discipline of putting aside money for the future. Doing an automatic withdrawal also helps you never see the money and thus not "feel the pain".
  
  For instance, if you're putting savings aside for your child's education, open an account that has the highest interest rate per year that you can get (an online savings account will net you 5-6 times more in interest than a brick and mortar bank). Even name the account JON'S EDUCATION. It will keep you focused on what your goal is and keep you grounded when it might be simpler to say "let's forget about it for awhile".
  
  Also keep in mind that you don't have to really save for 4 years of education. Having savings for at least 2 years of education is probably realistic.

• Hopefully there are other avenues for you to pursue that can buffer up and supplement your child's educational funding, such as financial aid. While financial aid is supposedly based on a family's need, it's surprising how many people do qualify for financial aid.

• Students can also take out student loans themselves to deflate the high cost of education once they are in school. The benefit of these loans is that they are usually at a low interest rate and do not usually have the interest applied until the education is completed.
  
  After graduation, the clock starts ticking between 6 and 9 months after graduation and the payback term can be as long as 10 years. Student loans, however, are extremely important to be paid back on time because just missing a couple of payments can produce legal action.
  
  There are some student loan deferment programs but the criteria is very limited and strict as to who can have a student loan deferred.
  
  Student loans are loans such as the Perkins and the Stafford loans. Both are federally funded. Perkins loans are made directly to the student. Stafford loans are completely non-need based.
  
  There are also PLUS loans (Parent Loans for Undergraduate Students) which are non-need based loans as well. The Stafford and PLUS loans are made to the parent not the student.

• Private loan options for college are bank lines of credit, home-equity loans, and Signature Student loans such as Sallie Mae. These are loans that require immediate payment and there is no deferment of payment until after graduation.

• Tax credits are also a great option to cut tuition costs. The American Opportunity Tax Credit and Lifetime Learning Credit are great tax credits that are a dollar-for-dollar reduction in the tax you owe. These are also credits that you can use against tuition payments you make using student loans. Check with the IRS to learn more about the specific limits and rules for applying these tax credits.

No matter what way you decide to pay for your child's education, there are always scholarships, federal and state grants that will never have to be paid back ever.....free money. Encourage your children to apply for many as there is no limit to the number of scholarships and grants you can get to go towards his or her education.

TIPS ON SAVING MONEY FOR COLLEGE

As a parent, don't dip into your retirement money to pay for your kids' college expenses. It doesn't make sense and you'll need your money more in the long run.

If you have savings investment portfolios or you're doing this on your own, remember that the rules "change" the older the child gets.

Meaning, when a child is young, most college savings plans concentrate on bigger buck returns, such as stocks.

However, when they get older, the plan will shift towards more stable investments such as bonds and savings. Do the same with your own plan if you have one set up privately.

Start saving today rather than tomorrow for college expenses. The sooner you start, the more you'll have!

Taxpayers with student loans get tax breaks and tax breaks are almost as good as grants.

Plan ahead and check out the state and public schools at least a year in advance to maximize what's available in terms of scholarships, grants, or even work-study programs that can cover part of the high cost of a college education.

Another option is to have your children complete 2 years of their education at a community college which will save loads of dollars in tuition (and room and board if they still live at home).

However you decide to save for college, do your homework and get the best plan for you that will ease the burden of higher education.  Remember though that starting early is the key to having a good chance at making it work when the time comes for your kids to go off to college.

In short, there are many ways to save money for college, but there are also many ways to save money on college costs.

If you have more suggestions on how to save for college, please add to the quality of this hub by leaving your informative comments below!