close

Saving for College 101: a class for parents

4 min read

Notice: Undefined variable: article_ad_placement3 in /usr/web/cs-washington.ogdennews.com/wp-content/themes/News_Core_2023_WashCluster/single.php on line 128

As every parent knows, saving enough for a college education has gotten more challenging. Even with tuition increases slowing down in recent years, paying for higher education is among the fastest-rising costs in American culture today.

For toddlers of today, a four-year degree at a private university may eventually cost up to $500,000, according to some estimates, and a public university may cost $84,000 for a four-year degree. With many states running deficits, they are unable to offer the same level of financial aid, which means more costs are passed on to students.

Not all professions have the same earning potential and not all college degrees are created equal. Whether you save for the cost of the degree in advance or take out loans, if it’s overpriced, it’s financially unwise. A college degree should increase one’s earning power significantly over a lifetime.

According to College Board, working professionals with a bachelor’s degree earn almost $24,900 more per year than those with only a high school diploma. Together with your student, research the expected earning potential for graduates with similar degrees from institutions similar with those your child is considering.

Traditionally, grants and scholarships have opened the doors to college education. Stafford loans, Perkins loans and PLUS loans may give families additional flexibility.

But while grants and scholarships do not have to be repaid, student loans do. One way to avoid taking out loans and remain debt-free is to start to save for college as early as possible. The sooner you start, the more time your money will have to grow.

Here are a few popular ways to get a head start on savings for college:

529 Plans.

  • Section 529 of the Internal Revenue Code allows for “qualified tuition programs” to help offset future college costs. These plans allow more significant contribution amounts than most other options and you maintain control of the assets.

As long as you remove funds for qualified education expenses, contributions and earnings can be withdrawn tax-free.

Coverdell Education Savings Account.

  • A Coverdell ESA is a trust or custodial account that allows you to set aside up to $2,000 per year (from birth to a child’s 18th birthday) for qualified educational expenses. Assets in the account must be used by the time the beneficiary turns 30 (with a few exceptions), but you maintain control of the account.

The Uniform Gift to Minors Act and Uniform Transfer to Minors Act

  • are designed to hold and protect assets for the benefit of a minor. Although a federal gift tax will apply to contributions over a certain amount, there are essentially no contribution limits.

Assets can be used for any reason at any time for the benefit of the named beneficiary, and the beneficiary gains control of the assets of these at maturity (18 to 21 years old, depending on the state). Assets can be used for education expenses, but because assets are considered the property of the beneficiary, there may be a high impact on financial aid.

The truth is, few families pay the full amount for college, particularly if they have a student who has achieved some measure of academic success or if they’re able to qualify for some form of financial aid. As parents are figuring out how to afford college, know that students may receive some sort of need-based grant, merit scholarship, fellowship, work-study aid or a combination thereof.

The Federal Student Aid office of the U.S. Department of Education and Sallie Mae are good places to start. And do a search for college grants in your home state as well.

Ultimately, you may want to consider urging your future student to accept responsibility for part of his or her education, even as a loan, so they may learn to understand the financial impact of a college education.

Bob Hollick is a State Farm Insurance agent based in Washington. His column appears every other Thursday in the Observer-Reporter.

To submit columns on financial planning, investing or business-related matters, email Rick Shrum at rshrum@observer-reporter.com.

CUSTOMER LOGIN

If you have an account and are registered for online access, sign in with your email address and password below.

NEW CUSTOMERS/UNREGISTERED ACCOUNTS

Never been a subscriber and want to subscribe, click the Subscribe button below.

Starting at $3.75/week.

Subscribe Today