Paying for college can be a daunting task, but there are a variety of options available to students and parents. You can start by researching available grants, scholarships, and other forms of financial aid. You may also want to consider student loans, 529 plans, and EE savings bonds. Additionally, you should file the FAFSA form to find the best options for you. Taking the time to explore all the possibilities can help you find the most affordable way to pay for college.
Financing their student’s college education is a big goal of many parents. With the costs of college soaring to more than $100,000 for students living on campus and attending a public four year school, and more than $200,000 for those living on campus and attending private universities – careful financial planning is a must. This article will help familiarize you with several college funding options and who they are most appropriate for.
Paying for College for Those With Household Incomes Under $60,000
For families with income below $60,000 a year they may qualify for Pell Grants, the Supplemental Educations Opportunity Grant and Subsidized Stafford Student Loans.
Pell Grant – the maximum dollar amount for a Pell Grant each year is about $6000. They are available only to undergraduate students. This money does not need to be paid back. Most are awarded to students whose families make less than $30,000 annually. It is rare for a Pell Grant to be awarded to those whose families earn more.
Supplemental Education Opportunity Grants –are available for Pell Grant recipients and are needs based. They offer up to $4000 per year.
Subsidized Stafford Loan – these are need based loans eligible to low-income students. Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods.
Paying for College for Those With Household Incomes Above $60,000
For families with income above the $60,000 threshold the options include parent PLUS Loans, unsubsidized Stafford loans and self funding the costs through 529 plans, Coverdell plans, UGMA/UTMA, and Series EE Saving bonds.
PLUS (Parent Loan for Undergraduate Students) Loans – parents can borrow the entire cost of college including tuition and living expenses minus any financial aid. There is no income cap on PLUS loans and anyone can apply. One downside, is that parents must meet federal standards of credit worthiness.
Unsubsidized Stafford Loans – there is no income cap on these loans which are available through the federal government’s loan program. Unlike Subsidized Stafford Loans, the government does not pay the interest on these loans. The current interest rate for undergraduate student loans is 4.99% and fees of up to 1.057% are charged and deducted from each loan disbursement.
529 Plans – a college savings 529 plan is an investment account established to fund qualified college education expenses, as well as K-12 tuition and qualified apprenticeship programs. It is funded with after-tax money, and investments can be made in stock funds, bond funds and FDIC-protected money market accounts. There is no income limit, and the maximum annual contribution is set by the state in which the 529 is registered in. The best part is there are no taxes on the capital gain of the account and those earnings are tax-free for qualified education expenses!
Coverdell Plans – eligible for K-12 and college expenses. Contributions are limited to $2000 per child under 18 years old, per year. Earnings accumulate tax deferred. When Coverdell ESA funds are distributed and used for qualified tuition expenses, they are free of taxes and penalties.
UGMA/UTMA – Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts enable assets to be owned by children. Both can hold stocks, bonds, mutual funds, CDs, and savings accounts. Additionally, UTMA can hold real estate or limited partnerships. These assets can be used to fund college expenses.
Series EE Savings Bonds – normally purchased in the parent’s name. Purchaser can be anyone, such as grandparents. Bonds must be redeemed in the year the owner pays qualified higher education expenses. Interest is fully exempt from federal income tax, if modified adjusted gross income is below a certain threshold: $158,650 for MFJ and $100,800 for singles.
For more information on how to reach your financial goals, set up a complimentary 1:1 session with Tamara.