Monday, January 2, 2012

Beating the High Cost of a College Education - Savings

Adding to the list of certainties, death and taxes, we can now add a third, price increases in education. With the average cost of attending a four-year private university at around $40,000, the average cost of attending a four-year public university at around $20,000 and the average cost of attending community college around $7,000, and increasing, there are some ways to help address this issue of increasing costs. One of the best ways to help pay for college is to develop a plan early on to set aside some money, however modest, to help pay for your student's education. Every dollar you set aside for college will reduce your need for students loans by a similar amount. And with special tax treatment of most saving options there are a few good ways to attack the problem. Here is a list of ways to help.
529 College Savings Plans
These plans are administered by the states and allow a family to set aside money tax free to save for college, much like a 401(k) plan does the same thing for retirement. These plans give the ultimate in flexibility as they are not subject to income limits and the assets in the plan may be transferred easily to another beneficiary if the student decides not to attend college. As long as the money withdrawn is used to pay for a college education the funds are not taxable. This allows even grandparents to set up these types of funds. The only real drawback is that your investment options are limited by what the states choose to offer. But for tax deferred savings it is hard to beat this option.
529 Tuition Savings Plans
Once again these are administered by the states and allow a family to invest a certain amount of money to fix the tuition rate that the student will pay once they arrive at college. While many families choose this option figuring they will pay once and save a lot of money later on, it limits the student to certain schools, and, let's face it, only covers tuition. While you may be getting a great rate on tuition, room and board and books will still be growing with the rate of inflation. While some benefits are transportable to schools that do not participate in the plan your options are severely limited under this type of investment option.

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