Family Living
Focus
by
Robin L. Kuleck
McKean Co.
Extension Agent
Conquering College Costs
While a college education does
not assure you of a job, statistics
indicate that during a lifetime,
college graduates earn in excess
of a million dollars more than
high school graduates.
Financing a college education
is a major undertaking, some
thing many families tend to put
off until the spring of the stu
dent’s high school junior year.
Families assume their smart
scholar will be able to get by with
grants and scholarships; relying
little on family finances. Once the
acceptance letter and the finan
cial aid package arrive, you
might be in for a rude awaken
ing. Where are you going to get
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the money? Especially when the
maximum a student can borrow
their first year is $2,600!
If you are reading this and
have grade-school and pre-school
children or grandchildren, take
note. The younger the child, the
more options you have to save
and invest for their future college
education. Even if your child is in
junior high, you still have op
tions, just fewer of them.
Start by developing a savings
plan. Set realistic goals. Rather
than trying to save the entire
$BO,OOO it may take for junior to
complete college, plan to use a
patchwork of funding sources, in
cluding family savings.
College savings should be
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placed in a tax-advantaged ac
count for two reasons. 1. Faster
growth without the tax bite. 2.
Penalties imposed if used for
other-than-college needs.
There is no one best college
savings investment vehicle. Each
has advantages and disadvan
tages.
Avoid using regular savings
accounts, which pay little interest
and are subject to income taxes.
Avoid saving in the child’s
name. Accounts titled to the chil
dren may legally become their
property at age 18 and college
might be the last thing they want
to do with their new found
“wealth.” Money titled in the
child’s name counts more heavily
against the child in financial aid
calculations as well.
Series EE U.S. Savings Bonds
are one of the safest, easiest to
understand, college savings tools.
Again, title the bond in your
name and if you wish, designate
the child as beneficiary, but not
as co-owner. Bonds which are
used for education will be tax
free. To learn more check out
www.savingsbonds.gov.
Education IRA’s allow you to
save and invest up to $2,000 per
child (under age 18) per year
with tax-free distribution if used
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for IRS defined qualified educa
tional expenses. Your family
must also be at or below a certain
Adjusted Gross Income level to
qualify.
529 Plans allow you to save
much more for college. Each
state has at least one sponsored
plan, but you aren’t limited to
using the plan your state spon
sors. For more information
www.savingforcollege.com or
www.collegesavings.org.
Pennsylvania’s 529, TAP (Tui
tion Assistance Program) actual
ly has two separate components.
The Investment Plan aUows
you to invest in one or more in
vestment options based on your
child’s age, your risk tolerance, or
socially responsible criteria.
While your investment is not
guaranteed, it has the ability to
outpace rising coUege costs. This
option is better suited for youn
ger children who have a longer
time horizon in which to save.
The Guaranteed Savings Plan
guarantees that your account
value will grow with college tui
tion costs. In essence, you buy to
morrow’s college credits at to
day’s prices.
Last fall when Penn State tui
tion increased 13 percent, savers
in the guaranteed plan who used
the funds for tuition essentially
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Don’t plan to save the hill cost
of college. Think of college fund
ing as a mosaic comprised of sav
ings, grants, loans, university
specific financial aid packages,
and even work-study.
Tax benefits are possible when
paying for college. The HOPE
Scholarship Credit for the first
two years of college, Lifetime
Learning Credit, and even a de
duction on student loan interest
all help make college costs more
affordable.
IRS “Publication 970: Tax
Benefits for Higher Education”
provides you with detailed in
formation on the tax implications
of various college funding tools.
It is available from www.irs.gov.
To learn more, request the
publication Conquering College
Costs (CAT-U 1372), a part of the
Financial Security in Life: Now
and Later series from your coun
ty Cooperative Extension Office
or download it from http://
pubs.cas.psu.edu/freepubs/
ui372.html.
By spending some time read
ing and learning about your vari
ous options, college costs can be
conquered.
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