It is no secret that college costs have been increasing faster
than the rate of inflation for several decades. According to
College Board's " Trends in College Pricing 2010 ," the average
cost for tuition and fees nationwide in 2010-2011 is:
- $7,605 for an in-state student at a public four-year
college
- $27,293 at a private four-year college
- $2,713 for a public two-year college
For students who will live on campus, add an additional
$8,000-$9,000 for room and board charges on average. While the
prospect of saving for college may seem daunting, planning in
advance can help ease the burden. It is never too late to start
planning!
Tips for Those Saving for Future College Costs
A recent study by the Financial Industry Regulation Authority
(FINRA) Investor Education Foundation, "Financial Capability in
the United States" found that 41 percent of families with
children have set aside money for college education. Of those who
have saved for college, 33 percent report using a tax-advantaged
savings account, such as a 529 Plan or a Coverdell Education
Savings Account. For those who wish to save to pay for a college
education for children (or grandchildren) it is advisable to:
-
Take care of yourself first:
Make sure that an emergency fund is in place and that you are
on track to save for your own retirement.
-
Share with your child what you can afford:
As your child begins to think about college, have a
conversation about how much is available from you (the parents)
or other sources to fund their education.
-
Consider tax-advantaged savings if
appropriate:
-
A Coverdell Education Savings Account:
Available to anyone who meets the income limits, you can
choose the investments, however contributions are limited
to $2,000/year per beneficiary.
-
529 Plans:
Each state has a 529 Plan, which can be in the form of a
prepaid tuition plan or an investment plan. While you can
choose a 529 from any state, 34 states have a state tax
advantage for contributions, most for investing in that
state's plan. Be mindful of costs and investment choices
when selecting a 529 plan. Also, you can easily switch
beneficiaries down the road.
Tips for Parents of High School Seniors
High school seniors are starting to receive their decisions from
the colleges where they applied. While the total financial aid
package may not be determined until March or April, there are a
few important steps that parents should take as soon as possible.
-
Free Application for Federal Student Aid (FAFSA)
Form:
Some parents overlook filling out the FAFSA form, assuming they
will get no need-based aid. However, this form is required for
all federal student loans, including Stafford Loans and Plus
loans which are not solely need based. The FAFSA form asks for
information such as student and parent income and assets, but
does not take into consideration retirement assets or the
equity in the primary residence. The FAFSA will determine the
family's "Expected Family Contribution," which is the amount
that the family is thought to be able to pay - often a higher
number than the parent thinks they can afford! Be sure to check
the due date with the schools where your child is
applying.
-
College Scholarship Service (CSS) Profile
Form:
Some schools require additional forms for financial aid,
including the CSS Profile form. The CSS Profile form asks more
detailed questions than the FAFSA, such as the equity in your
house. Some schools may also request a copy of a tax return, so
if possible, try to get your taxes done early.
-
Investigate Grant Opportunities:
There are numerous opportunities for scholarship and grants,
and many have a separate application process. School guidance
offices are often the best place to start the
investigation.
-
Education Tax Credits:
The American Opportunity Credit replaces the Hope Credit
through 2012. The American Opportunity Credit is available to a
broader range of families and has a maximum benefit of $2,500.
Read Internal Revenue Service (IRS) Publication 970, "Tax
Benefits for Education" to determine if you are eligible. Other
tax benefits may be available to you depending on your
circumstances.
-
Plan for the Payments:
Deposits are usually due in May to secure a place for your
student. First semester tuition and housing costs will be due
later in the summer, so plan accordingly to tap your savings
and secure student loans in time.
The landscape for student loans has changed in the past few
years. Most students who fill out a FAFSA form are eligible for
unsubsidized Stafford loans. First year students can borrow up to
$5,500 in Stafford loans. The interest rate on unsubsidized loans
is currently 6.8 percent and is not based on the applicant's
credit score. Need-based subsidized Stafford loans now have an
interest rate of 4.5 percent for the present school year,
dropping to 3.4 percent in 2011-12 and the interest does not
accrue while the student is in school. Parents can also borrow
through the Direct PLUS program. Parents can borrow up to the
cost of attendance less any other financial aid received. The
interest rate is presently 7.9 percent and is charged beginning
with the disbursement of the loan. Please note that certain fees
apply to these lending programs, so read the details carefully.
FPA Member Jeanne Gibson Sullivan, CFP®, is a financial
planner in Wakefield, MA and a parent of two sons in high school
- a senior and a sophomore.