Wednesday, July 3, 2013

Shocking Trends in College Expenses and College Debt Necessitate Earlier Planning for Families


The July 2013 issue of Bloomberg Businessweek found HERE includes troubling trends in college expenses as originally presented by the Federal Reserve Bank of New York, National Center for Education Statistics.  Since 1999 and adjusted for inflation, tuition has increased more than 50%.  As costs continue to rise, if sources of college funds fall short of what is needed, student loans are taking up more of the slack.

The problem is magnified by the fact that congress missed the deadline for making a change on July 1st meaning the subsidized Stafford loan rate has doubled from 3.4% to 6.8%.

What can you do?  Saving for future college costs can seem ominous but there are things you can do now to get a jump start.  Always discuss any options presented with your financial advisor prior to acting.

529 College Savings Plan – Numerous states sponsor 529 College Savings Plans through various institutions.  A 529 plan is a great way to begin savings for college.  Contributions for 2013 can be as much as $14,000 per donor for a child ($28,000 for a married couple).  There is a 5-year rule allowing donors to make contributions of $70,000 per donor for a child ($140,000 for a married couple).  Using this rule the one-time gift is treated as having been contributed over a 5 year period.  There are several planning strategies that can be utilized with this type of account.

Coverdell Education Savings Account – While not as generous as the limits for a 529 plan, the Coverdell Education Savings Account (ESA) is another potential savings vehicle allowing the accumulation of assets on a tax free basis if used for college.  For 2013, individuals may contribute as much as $2,000 to a Coverdell ESA if they qualify under the income limitations.

Scholarships – Seek out scholarship opportunities diligently.  Begin compiling a list of possible avenues now and continue to add to the list as you find new opportunities.  Research what is required for each one and work with your child to ensure they are not just eligible but hopefully near the top of candidates applying.

Grants – If you qualify for grants, by all means accept them!  If you need help with the FAFSA process find a financial advisor in your area who is knowledgeable about college financial aid.

Part-time employment during high school and college – Although it may not be an answer for everyone, consider encouraging the student to contribute towards their future by partially paying their own way. 

Encourage an entrepreneurial spirit in kids – Children are creative beings, capable of so much.  Encourage them to realize their potential through setting a good example.  Find a mentor or teacher who can help them develop ideas into potentially viable businesses that could succeed beyond expectations.

Most importantly, begin saving and preparing now instead of waiting.  Every dollar contributed helps towards the end goal.  Structure a proactive plan of seeking out opportunities and saving early so there is less reliance on student loan debt which is becoming more unreasonable.

 
 
 
Applegate, Evan. "Correlations: Student Debt Explodes." Bloomberg Businesswek. 1 July 2013: Page 18. Print.
Applegate, Evan. "Correlations: Student Debt Explodes." Bloomberg Businesswek. 1 July 2013. www.businessweek.com Web. 2 July 2013
 
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