Youth and Money
Warning! Beware of scholarship scams that will take your money, rather than give you money for college. The Federal Trade Commission advises you look for these tip-offs that the “scholarship” is a scam:
• The scholarship is guaranteed or your money back."
• "You can’t get this information anywhere else."
• "You can’t get this information anywhere else."
• "We’ll do all the work."
• "I just need your credit card or bank account number to hold this scholarship."
• "The scholarship will cost some money."
• "You’ve been selected by a 'national foundation' to receive a scholarship" or "You’re a finalist" in a contest you never entered.
Work Study: The federal work-study programs give students the opportunity to work part-time to earn money for college expenses. Some jobs are on-campus, while others are off-campus, and when possible they relate to your field of study.
Other Sources: The Department of Veteran Affairs offers several programs that provide assistance to veterans, reservists, National Guard persons, widows, and orphans. The United States Army provides education benefits in several ways. The Montgomery GI Bill and the Army’s College Fund can help you pay for future education expenses. Students leaving college may be eligible for the Army’s Loan Repayment Program, which repays eligible federally insured loans for active Army or Army Reserve members. AmeriCorps provides educational awards in exchange for a year of community service. Finally, the Indian Health Services and the National Institutes of Health both offer scholarships and loan repayment programs based upon certain criteria.
Savings Choices
There are a variety of ways to save for a child’s education. A few of the more popular options are named below.
529 Savings Plans: These plans allow parents or grandparents to save for their children or grandchildren’s education. In fact, anyone can open a 529 savings account for himself or for someone else.
Individual states sponsor different 529 plans, with different costs and investment options. In some cases, there are state tax benefits to investing through your state’s plan, but don’t automatically assume your state’s plan is the best option.
Among the major benefits of 529 savings plans are:
You can contribute regardless of your income;
The amount you can contribute each year can be quite large (the limit depends on the state’s limits for the plan);
Savings can grow tax-free and you won’t pay federal taxes if you use the money for qualified educational expenses which include tuition, books, and room and board;
The person opening the account maintains control of the account; and the student needs not attend a college in their home state to use the money.
Many employers conveniently offer this option along with their 401(K) type investment programs – the pre-tax contribution can be automatically deducted from your paycheck.
Like any investment, you should research investment options, expenses and performance when choosing a 529 plan. You can find details about individual 529 savings plans through the College Savings Plan Network, a clearinghouse for information on state savings plans. Visit www.collegesavings. org
Coverdell Education IRAs: Formerly called Education IRAs, these accounts allow anyone to open an account on behalf of a child and contribute up to $2000 a year (phased out at higher incomes) into an investment account for the child’s education expenses – not just college, but also expenses for kindergarten through high school. The account earnings grow tax-deferred, and may be withdrawn tax-free for qualified expenses.
Home Equity: Some parents use their home equity as a form of college savings. They set a goal of paying down their mortgage, or paying it off entirely, by the time their children enter college. They then either take a home equity loan or use the money they have freed up by not having to make mortgage payments to pay the mortgage completely. The advantage to this form of savings is that some colleges do not count home equity when figuring aid awards, and if your child decides not to go to school (or gets a boatload of scholarships) you still have a house that’s paid for!
Keep in mind that getting a loan against your home is generally easy if your credit and income are strong, but if you run into tough times, you’ll find it difficult to tap the equity without selling. You may want to secure your line of credit ahead of time so you don’t have to worry about accessing that equity later.
Creative Strategies
Get Ahead: Passing advance placement (AP) courses in high school can allow students to earn credit or advanced standing at most colleges and universities. That means fewer courses to take (or pay for) at the college level. Visit The College Board’s website at www.collegeboard. com for more information.
Stay Close to Home: A local school, if available, can save the cost of room and board. It can also qualify the student for in-state tuition rates, which are often significantly cheaper for residents.
Work Your Way Up: If your sights are set on a degree from a more expensive school, consider taking a year or two of courses at a less costly junior college, community college or state school. Make sure to coordinate carefully to make sure the course credits will transfer
Save While You Shop: Sign up for Upromise.com (and have family and friends do so, too) and you can earn money for college when you buy from hundreds of retail stores, grocery and drugstore chains, restaurants and others. This rewards program is free, so there is no downside to joining. Visit www.upromise.com.
Learn On the Job: Some employers will pay for part or all of higher education expenses, allowing a student to work his or her way through college without taking on debt. It can be a particularly attractive way to pay for an advanced degree. Consider the benefit of tuition reimbursement when considering job offers.
