College will cost more than you think! Strategies for paying your college bill

Money Matters

You may be considering college costs and wondering how you and your child will pay for it. And, unfortunately, most parents underestimate the total cost and haven’t saved enough. If you have done absolutely nothing, and your child is heading to college in the fall, at a minimum complete the FAFSA application.

A 2017 Boston Research Technologies survey found several interesting insights from more than 1,980 surveyed families concerned about college costs. One surprising find was that parents of high schoolers underestimated by an average of $70,000, and parents of kids in preschool or younger underestimated by an average of $110,000 the total expense. (See table below. Source: Fidelity College Savings IQ Survey)

Don’t lose hope. There are several ways to put away money—and find money—to offset some of the college costs. Dig into these ideas further (as we are limited by space) to learn more about which tools may be most appropriate for your situation.

529 College Savings Plan

Money saved in 529 plans grows tax-free and is withdrawn tax-free as long as it is used for approved college costs including tuition, room, board, books, fees, lab costs and more. Another perk—if you use your state’s endorsed plan, you may also qualify for a tax deduction on your state tax return. The account owner (usually a parent or grandparent) maintains control of the account even after minor child reaches the age of majority (a big plus for many parents). Grandparents are often using the plans to gift education costs to grandchildren and move funds out of their estate (and probate). The beneficiary can be changed to a related family member if needed. There is no income limit for establishing and funding plans, and maximum account sizes vary by states. Virginia now allows up to a whopping $500,000 per beneficiary. (Source: Virginia529.com)

Series EE Savings Bonds

Interest is not taxed within limits if bonds are cashed in during a year when a family member has qualified higher education expenses.

Scholarships

A must read is your college’s scholarship listings. More good resources for unusual and surprising scholarships can be found in books (and sites) like the Ultimate Scholarship Book 2018, listing millions of dollars in scholarships for a range of interests and backgrounds from Arkansas to art, engineering, farming, sociology, nursing to zoology—and more.

According to the site ScholarshipPoints (Mollie Allen, 2017), NerdWallet analysis reports the number of Pell-eligible graduates who didn’t complete the FAFSA totaled 821,041 students nationwide. (In California alone, more than 100,000 seniors did not file their FAFSA and, as a result, missed out on $396,401,205 in potential Federal Pell Grant aid). You can’t get student aid and college scholarships if you don’t apply, so be sure to get started here:

  • ScholarshipPoints.com lets you earn points to enter scholarship drawings
  • StudentScholarshipSearch.com matches you to scholarships for which you may qualify
  • FAFSA.ed.gov is the official government website to apply for federal, state and college student financial aid

Education Tax Credits and Deductions

  • American Opportunity Tax Credit (AOTC): Maximum of $2,500 per student (if there are $4,000 of qualifying expenses). Excludes room and board costs and is available for tuition, fees, textbooks and course materials in the first four years for the parent or child (dependent). No less than half time and income phase-outs apply.
  • Lifetime Learning Credit (LLC): Reimbursement for qualified tuition and related expense per family up to $2,000 per year. Must have spent $10,000 in the year to get full credit, based on 20 percent factor of qualified expenses. Can be used for undergraduate, graduate or professional degree programs and claimed for unlimited number of years. Income phase-outs apply.

Note: The AOTC and LLC may not both be claimed same year for same student.

Government Grants And Loans

  • Pell Grants: outright gifts from government, based on student need and cost of chosen school.
  • Federal Supplemental Educational Opportunity Grant (SEOG) Program: grant for undergraduates with exceptional financial need managed by colleges and students automatically considered when a FAFSA form is submitted.
  • Federal Perkins Loan Program: Federally funded program administered by colleges and provides up to $5,500 a year for undergraduate students and $8,000 for graduate students, with a ceiling of $27,500 and $60,000 respectively. Automatically considered with FAFSA form.

Additional federal programs include college work-study, PLUS loans, subsidized and unsubsidized Stafford loans.

Other sources may be Traditional IRA and ROTH IRA accounts. These avoid the 10 percent penalty for taxpayers who use distributions to pay for qualified higher education expenses for the taxpayer or a close family member. Federal and state taxes may be owed on distributions from these accounts.

Another source could be a home-equity line of credit and uniform gift to minor’s custodial accounts. It’s important to reach out to the financial aid office of the college you/your child will be attending to consider these and other programs that could help offset some—or all—of the cost.

Lastly, if you have done nothing at all, complete the FAFSA application at a minimum; don’t pay way more than necessary simply because you think you don’t have the hour and half or so to complete it.

Jayne Di Vincenzo
About Jayne Di Vincenzo 4 Articles
Jayne Di Vincenzo, AIF®, CEP® has 20 years of experience as a financial advisor and investment services provider. She holds her registrations and licenses including the 24 General Securities Principal, 53 Municipal Principal, Series 7, 63, 65, 31 and life and health insurance licenses with LPL Financial. Securities and financial planning offered through LPL Financial, A Registered Investment Advisor, member FINRA/SIPC. Contact her at 757-599-9111 or Jayne@LionsBridgeFA.com.

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