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
