Paying for college
Get the most bang for your tuition buck
Even if you’re still buying diapers and baby formula for your child, the thought of sending your little one off to college has probably crossed your mind at some point. It may also cause you some stress since, according to www.collegeboard.com, annual tuition can range between $5,000 a year for a public four-year university, to more than $20,000 for a private college.
But before deciding how—or even if—you’re going to help pay for those costs, it’s good to look at the numerous ways to pay for college. From tax-deferred savings plans to grants and scholarships, there are many different methods for sending your little one to the quad without having her saddled with a mountain of debt afterward.
A 529 Plan allows you to save pre-tax money to pay for college tuition and is named after the section of the federal tax code that covers such deductions. This money is, in turn, put into some type of investment that earns interest, allowing your money to grow.
Every state has at least one version of a 529 Plan, and all of them have features that make them a great savings tool:
- The money you invest is set aside tax-free
- You can withdraw money from the fund for qualified education expenses, also tax-free
- You take advantage of compounded interest, leading to more money in the long run
There are two basic 529 plans, but some states (such as Arizona) offer as many as four varieties. Each of these offers different benefits, restrictions and methods of paying for college.
- Prepaid Tuition Plans—These plans allow you to save for a specific college or university in a specific state. The advantage is that the cost of tuition is locked into the rate charged when you open the plan. With tuition costs continuing to rise, this is a good way to hedge against those raises. The money is also transferable to another family member without tax penalties if your child decides not to attend college. The disadvantage of the prepaid tuition plan is that most of the states have some type of residency requirement—either you or the child for whom you are saving must be a state resident. If the state does not have a residency requirement, then you might not be eligible for a break on state taxes. This can be quite difficult for military families due to frequent moves and the generally mobile military lifestyle. To find out your “state of residence” (which may not be where your family is currently stationed) is the one you selected on DD Form 2058, and also appears on your LES.
- College Savings Plan—These plans differ from prepaid plans in a number of ways, but the main one is that a savings plan accrues much like a retirement savings plan—the money you contribute is invested in mutual funds and can increase as the stock market increases. And since this is a long-term savings plan, the chances of it increasing in value are very good since it won’t be affected by temporary fluctuations in the market. The advantage to this type of plan is that you can use it for higher education in any state. Most have no residency requirement—if you lived in Georgia, you could contribute to a plan in Michigan and send your kids to school in Oregon. Another advantage is that you can use the money for your own education, or that of other family members. The disadvantage is that, if you choose to use an out-of-state plan, you may not receive the full tax advantages offered by an in-state plan. Also, the state or federal government does not insure your 529 investments in any way, so be aware that there is a possibility of the fund losing money.
All 529 plans have a few things in common:
- Beneficiaries—The College Savings Plan Networks notes that “anyone can be named the beneficiary of a 529 account, regardless of their relationship to the person who establishes the account. You can even establish an account with yourself as the named beneficiary.” This allows you to save for anyone at any time, just so long as they are “a U.S. citizen or a resident alien” and “have a social security number or federal tax identification number.” You can also have multiple 529 accounts for a single person.
If your child decides not to attend college, you can change the beneficiary and transfer the funds, so long as it is transferred to a family member. You can also withdraw the money for non-education purposes, but any earnings (not the entire amount—just whatever money the plan made) will be taxed and charged a 10% penalty fee.
- Contributors—Anyone can contribute to a 529 plan—grandparents, cousins, friends, even companies and non-profits. This can lead to many opportunities to save, since people can make a donation in lieu of a present at a birthday and contribute to other family members.
- Tax implications—You will not be taxed when you withdraw the money for educational costs, nor are funds from investments in the plan taxed. But contributions are not tax deductible.
To find a listing of the 529 plans offered where you live, and more detailed information, visit www.collegesavings.org.
While your child may be able to get traditional athletic or academic scholarships, there are literally thousands of scholarships available just for military families. Private and public companies, non-profits, and even the Department of Defense offer scholarships for service members, their spouses, and their children. Even students that have a lower grade point average or test scores may qualify for scholarships that encourage them to continue their education beyond high school.
Where to start
The first and perhaps easiest place to find scholarships is the Internet. A simple Google search can yield more results than you can realistically sort through, so try to be as specific as possible with your terms to start.
For example, if your spouse is U.S. Army officer at Fort Hood, Texas, and you’re searching for scholarships for your daughter, try “scholarships for daughters of U.S. Army officers in Texas” rather than just “Army scholarships” since the first is more likely to generate the results you want than the second. Take your time, make a thorough search, and be sure to bookmark any sites that fit your profile.
You can also go through the appropriate military relief agency, military non-profit (i.e. AUSA) and even the commissary system, which has one of the most popular military scholarship programs (found at www.militaryscholar.org). We also have a blog that provides more information about military scholarships.
Tips on applying
Every scholarship will have different criteria, whether branch of service and school, to race, gender or nationality. Some are very specific, while others are more general. The key is to double check all of the criteria and know the exact requirements—the last thing you want to do is spend time filling out an application and collecting paperwork, only to find your child doesn’t qualify.
It’s also important to apply for as many scholarships as you can (keeping the criteria in mind) to ensure you’re getting as much money as you can. Again, though, make sure to read the fine print carefully to ensure there are no rules that may limit your access to other scholarships. For example, one may have some sort of requirement about only paying for room and board, yet you already have that covered with another scholarship.
Whether your child’s entire schooling is paid for through scholarships, or you’re just applying for a few hundred dollars, it’s more than worth the effort.
Federal financial aid
The federal budget always includes several billion dollars in financial assistance. To receive it, however, you must first carefully complete the Free Application for Federal Student Aid (FAFSA) form and include all the required information. Students can pick up a copy of the FAFSA form from the high school counseling office, or from the college financial aid offices. You can also download them, or even complete them online, at www.fafsa.ed.gov.
Because financial aid is distributed on a first-come, first-serve basis, it is critical you submit the form as soon as possible after January 1, during your child’s senior year in high school. Once your student’s FAFSA form is reviewed, he or she will be sent a Student Aid Report that outlines the types of government financial aid available based on the information submitted.
To find complete information about the federal financial aid process, visit www.studentaid.ed.gov.
If you decide to apply for financial aid, you and your child should pay a visit to your child’s high school guidance counselor. They will have a current listing of available scholarships and grants. These professionals are experts in the college application process and can provide assistance with the application. If necessary, they can also review essays and provide computer time. Be sure to check back with the counselor often, as updates to available scholarships are frequent.
You can also visit a college financial aid office, even if it is not the college your child plans to attend. College financial aid offices can be a great help in finding the best financial aid. In addition, your spouse’s workplace, civic clubs, not-for-profits and other organizations may offer money for college.
Just remember that there are many untapped scholarship and grant dollars just waiting to be had by those willing to do the research. And with the rising costs of college tuition, every dollar counts.
There are many sites that can help you track down money to help pay for a college education.