Planning to Pay for College
An average college will charge tuition fees of about $20,000 per year. This money, however, is not the entire amount you pay. There will be expenditure on food, accommodation, stationery and transport. So, unless you are from an affluent family, you will have to plan to raise this large amount of money across a period of four years. Paying for college involves careful financial planning.
The Cost of Higher Education
Over the past two decades college education has become very expensive. Judging by the rate at which higher education is growing in expense, a private college by 2021 would charge nearly $70,000 per year. Though these are rough estimates, there is not much hope of the figures being over-calculated or education getting cheaper. The tough competition faced by educational institutes to establish themselves as the best and the tremendous demand for higher education has left a demand-supply gap that is increasing the price of education. The simplest solution to this problem is early planning - as early perhaps as when the child is born. If the parents can save and earn as much interest as possible on savings, then by the time the child reaches college-going age, you will need to borrow very little and escape a debt burden that harasses most college goers. Also read Making College as Cost Effective as Possible for further insight into financing a postsecondary education.
When You Should Begin Planning
Planning for college starts right from high school days - the type of courses, the colleges that interest you, and, of course, the financial aspects of higher education. If you have not planned the finances from an early stage, then high school is a good time to start. You cannot afford to wait any longer, as much of the financial aid depends on applying early. Involve your family when you are taking these big decisions. Financial aid other than a student loan does not have to be repaid. Government grants are given based upon the financial need of the students.
Your first step would be to fill up the Free Application for Federal Student Aid (FAFSA) form and apply for government grants. Once you have submitted this form, you will be matched with the aid program for which you are suitable. Your college will also have some scholarship programs. Check with the college financial aid administrator and student employment/ scholarship officers.
Plan Your Payments
One of the quick ways to save for college education is to invest in stocks or growth mutual funds; the second option particularly will be a fast, professionally managed and less risky way to make your funds grow faster than in a regular bank savings account.
A U.S. savings bond (Series EE and Series I) can be used to pay for qualified education expenses (tuition and fees). If the bond is in the name of one or both parents and is bought before 1990, when the owner/owners are not less than 24 years of age, then using them will not involve payment of any income tax on the interest. You have to redeem the bonds when you use them to pay for your education expenses. Consult your tax advisor when you take any of these measures.
You can also take a loan against the cash value of a permanent life insurance policy for which you are paying a fixed premium. Taking a loan will reduce the death benefits, but the advantage is that the repayment schemes are flexible.
Certain U.S. states like Alabama, Alaska, Colorado, Florida, Massachusetts, Michigan, Ohio, Pennsylvania, Tennessee, and West Virginia have varied prepaid tuition plans called 529 Plans. You can buy bonds at a price based on present college tuition rates. The state will invest your money (absorb all risks) and earn the difference between what you pay and the projected cost of tuition at the time your child reaches college. However, invest only after you have found out the details involved.
States such as Connecticut, Iowa, Kentucky, Louisiana, Massachusetts, New Hampshire, and New York have a College Savings Plan, also called the 529 Plans. Check with your State Commission on Higher Education to find if your state has such a plan or if you can opt for one from a different state, which is open to non-residents.
You can also set up an IRA for paying college fees. There is no tax cut and you can withdraw money for college expenses such as tuition, fees, books, room, and board.
The National Center for Education Statistics reports that on an average a college student passes out with a debt of $19,000, a daunting sum of money considering the fact that the person will just start his/her career and has to consolidate. Though you will have a six to nine month period before you have to start repayments, the possibility of not getting a job that will support your education loans exists. So, another important plan has to be put in place from your final year in college - that for a good career.
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