Planning for college is an exciting time of life, but it can get stressful fast if you don’t have a plan to pay for your education. Thinking about how to pay for your degree ensures you have the most options available and don’t leave any funding opportunities on the table.
By following the three steps below, you can understand all your college payment options and make informed financial choices. When you arrive on campus, you’ll only have to worry about your classes – not your next tuition payment.
1. Choose a school that fits your budget
Deciding how to pay for college starts when choosing your school. Before you enroll, consider the school’s cost and experience. It may seem difficult to measure these factors, but it’s easier when you break it down into your overall return on investment (ROI).
Here are five components to help evaluate each school on your list.
- Cost: This can vary greatly, particularly when comparing public and private colleges.
- Major: Consider how your chosen field of study will impact your future salary.
- Faculty: The right professors can help you network and potentially offer access to relevant internships and job opportunities.
- Location: Estimate your travel and living expenses for the area.
- Experience: Think about how you like the campus atmosphere and what type of extracurriculars you plan on joining.
Set yourself up for success by finding a balance between your academic interests and your finances, both now and after you graduate. You can also use a college ROI calculator to estimate how much money you can expect to earn after graduation to help inform your school choice.
2. Get the most out of financial aid
Many people take out private student loans to help pay for college, but there are many other options to explore before you borrow money.
Federal Financial Aid (FAFSA): Filling out the FAFSA gives you access to financial support programs from the federal government, including grants, scholarships, work-study programs, and student loans. Your financial aid package is determined each year by you and your parents’ income and assets. There are options for both need-based and merit-based assistance.
Scholarships: You may be eligible for scholarships through your FAFSA application and can also apply for private scholarships from companies, community organizations, and more.
Jobs: A part-time job or paid internship can help cover extra costs associated with college. If you don’t qualify for a work-study job through your FAFSA application, consider a part-time position either on or off campus. Working while you’re in college helps pay the bills now and gives you valuable experience that looks good on your resume.
3. Choose the right private lender
While your FAFSA financial aid package may include federal student loans and other support, you may still have a gap in your college funding for the cost of your desired school. Private student loans can help cover any shortfalls, but it’s important to compare multiple loan offers. Not all student loans are created equally, so you want to find the best option for you and your family.
As you explore private loans, look at the following details to find the one with the best benefits for your future plans.
- Interest, fees, and APR: The cost of your loan depends on the interest rate applied to your balance, as well as fees charged by the lender. Looking at the APR helps compare the cost of both interest and fees.
- Repayment options: Understand how long your loan lasts and when payments begin.
- ACH benefits: Some lenders offer borrower perks if you enroll in automatic ACH payments.
- Graduation benefits: Look for additional benefits that may be awarded by a lender when you graduate from your program.
- Cosigner support: Some private student loans require a cosigner, while others do not. Find a lender that matches your family’s decision on who is responsible for the loan.
- Success services: You may find lenders that offer resources to help you with academic and professional decisions.
Like choosing the right college, picking the best private student lender involves multiple factors, including cost and borrower experience.
This article originally appeared on AscentFunding.com and was syndicated by MediaFeed.org.
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10 ways a 529 college savings plan makes college more affordable
If you’re a parent or a future college student wondering how you’ll ever pay for college, the tax-advantaged 529 college savings plan was designed to encourage saving for future education expenses–even for elementary and secondary students. I’m working with Pelican to help educate people on how to save for college, especially with support from your family and friends.
By saving in advance and allocating 529 funds to various investment options, you might not need to take out any student loans to attend college. That can save a considerable amount of interest over the life of a loan.
Here are ten ways a 529 plan makes going to private school, vocational school, or an accredited college or university (in the U.S. or abroad) more affordable.
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A 529 college savings plan allows you to name and save for a future student or beneficiary, such as a child or yourself. You contribute and choose investments from a menu similar to a retirement account.
Unlike a traditional retirement account, you don’t receive a tax break for 529 contributions; however, your investment growth–such as interest, dividends, and capital gains–is tax-free. That allows your balance to grow faster than it could in a taxable brokerage account.
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In addition to tax-free growth, your withdrawals from a 529 plan are not taxed at the federal (and often state) level if you spend them on qualified education expenses, which I’ll cover. That means you don’t lose part of your account to taxes when you’re ready to spend it on qualified education expenses for the beneficiary.
However, a significant downside of a 529 plan is that if you spend it on anything other than qualified education expenses, your account earnings are subject to income tax and a 10% penalty. There are exceptions, such as when the beneficiary receives a scholarship, veteran’s educational assistance, becomes disabled, or dies.
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Most states offer at least one 529 plan; however, the fees and benefits vary, such as the maximum contribution limit and investment options. You typically don’t have to be a state resident to participate in its plan. For instance, you could live in New York, participate in a Florida 529 plan, and use the money to pay for a school in California.
However, some states that collect income tax offer a tax deduction or credit on your state tax return for residents who choose an in-state 529 plan. That could add up to significant savings, depending on where you live. Therefore, the tax benefits of a 529 planopens pdf file vary depending on your home state, how much account growth you receive, and which plan you choose.
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Most 529 plans have high contribution limits, such as more than $200,000 or $300,000 per beneficiary. That allows you to save as little or as much as you need for your or a child’s education expenses from kindergarten through graduate school.
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While a parent-owned 529 plan is a component of federal financial aid calculations, it’s a relatively small amount compared to other accounts. For instance, savings owned by a future student, such as in a UTMA/UGMA custodial account or a Roth IRA, count more toward the Expected Family Contribution for financial aid.
A 529 beneficiary typically isn’t the account owner. That makes having a 529 plan an advantage for families and students who need financial aid to supplement savings because it won’t reduce their potential aid as much as other accounts.
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A 529 plan offers unique gifting features that make the beneficiary more likely to have enough education funds. Platforms like Pelican make it easy to create your 529 and encourage family members and friends to contribute to a student’s plan.
For instance, a child’s grandparents could add funds regularly over many years or make a lump sum contribution, which can be advantageous for their estate planning purposes.
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Everyone can use a 529 plan because there are no restrictions on annual income. Plus, unlike some education savings accounts, there’s no time limit or beneficiary age when you have to spend it. The funds can be used later if a child doesn’t go to college immediately after high school.
In addition, if a child decides not to go to college or doesn’t need all the funds, you can transfer it to a new beneficiary in your family with no taxes or penalty.
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If you have unused 529 funds but no different beneficiary can use them, cashing out is an option. However, as previously mentioned, you’ll owe tax on the earnings portion, plus a 10% penalty.
Another new option created by SECURE 2.0 called the 529-rollover-to-Roth-IRA begins in 2024. If your beneficiary has a Roth IRA, you can move a certain amount of unused 529 funds to it.
However, the 529 must be open for at least 15 years, and the lifetime rollover limit is $35,000 per beneficiary. Plus, any 529 contributions (and their earnings) made within the past five years can’t get transferred to a Roth IRA.
Note that the rollover Roth IRA must be in the beneficiary’s name, not the 529 plan. That means your child must have some amount of earned income to qualify for a Roth IRA in the first place.
For 2023, you can contribute up to $6,500 to a Roth IRA if you’re under 50 and have that much earned income. So, this tax-free rollover benefit only applies to working older children–but may give them an excellent head start on retirement savings.
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I mentioned that 529 funds can also be used for younger students, a relatively new benefit in the Tax Cuts and Jobs Act of 2017. It expanded qualified expenses to include tuition for kindergarten through high school for up to $10,000 per student annually. You can spend it on public, private, or religious school expenses for a child whether they attend college or not.
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Qualified education expenses for your 529 savings include tuition, room and board, books, supplies, required equipment, special needs services, and computer technology. Plus, you can include up to $10,000 for student loan repayments and costs related to registered apprenticeship programs.
However, 529 funds can’t be used to pay for a student’s education loan interest, extracurricular activities (like sports or clubs), transportation, health insurance, or cell phone. If you’re unsure if a fee is 529-qualified, check with your plan provider.
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As you spend 529 funds, keep physical or digital receipts to prove your distributions are equal to or less than the amount of your qualified educational expenses. Your 529 plan provider will send you and the IRS a copy of Form 1099-Qopens pdf file showing your annual distributions. As I mentioned, you typically also must pay an additional 10% penalty on the earnings portion if your distributions exceed your qualified education expenses.
You might pay your qualified expenses first and reimburse yourself from the 529. Be sure your 529 withdrawals and payments occur in the same calendar year; otherwise, a distribution may be considered non-qualified.
Another way to manage qualified expenses is to move money from a 529 to your bank account or authorize a 529 provider to make a payment. Getting funds upfront may be best when you have large bills, such as college tuition, and don’t have enough to cover it in your bank account before getting reimbursed.
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Once you open a 529 plan, set a goal to make regular contributions. Whether you contribute $10 or $1,000 a month, the sooner you get started, the easier it will be for you and your family to pay for college.
Why not invite other people to make 529 gifts and contribute for special events, such as a future student’s birthday or as a holiday gift?
Check out PelicanInvests.com for 529 plan resources and great ways to share your savings goals, encourage family participation, and hopefully make paying for college much easier.
This article originally appeared on Money Girland was syndicated by MediaFeed.org.
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