Investing in Education

March 16th, 2010 by leialorica Posted in Education, Finance

One of the reasons that America is considered the land of opportunity is because of the unlimited options to expand one’s horizons through higher education. However, due to the financial crisis, colleges across the country have been forced to not only cut back on financial aid, but also to raise tuition. Unfortunately it is our nation’s families who suffer and often face years of heavy debt, just for wanting to enrich their lives through education.

The good news is that there are ways to prepare that can significantly reduce your debt burden in the future while also ensuring that your children have the opportunity to become college graduates.

For parents, if you have plenty of time (10-20 years)

• Consider investing your money in plans specifically designed to fund higher education. The most advantageous plan is the 529 plan. Enrolling is simple and withdrawals are tax free if they are used to pay qualified education costs. All 50 states offer a version of the 529 plan, so this program is available to all U.S. residents. Talk to your financial advisor about establishing one if you still have time.
• Other less appealing options are Coverdell Plans (which only allow a maximum investment of $2000 per year) or zero coupon bonds, which can guarantee that you will have a certain amount of money at a specified date in the future. However, zero coupon bonds do not have the tax-free advantage that 529 plans and Coverdell plans enjoy.

For students, if you have relatively little time (0-2 years)

• Scholarships are your best bet, and there are plenty out there. Try Fastweb or FindTuition or Think about what you are passionate about, where you excel and what you enjoy doing. There is a scholarship out there for everyone - even bloggers! Look for opportunities through your local church, community center and philanthropic groups.  Devote an hour a day to finding and applying for relevant scholarships. Think of it as part of your homework and be disciplined about the process. Keep track of scholarship deadlines in a spreadsheet and follow up on the ones you have already applied for.
• Take on a part-time job. The summers leading up to college are an especially good time to contribute to your tuition fund. Consider after-school and weekend employment. Not only will the work experience look great on your resume, but little bit of cash here and there will add up.

Things NOT to do:

1.) Use retirement money from a 401K or Roth IRA to pay for your child’s tuition-

You not only still have to pay income taxes on all or part of the money, you’ll have less money on hand to grow towards your retirement. Additionally, the money you withdraw will count as income when you fill out next year’s financial aid form. The more income you report, the less financial aid your student is eligible for.

2.) Forget to fill out the free FAFSA form - http://www.fafsa.ed.gov/

FAFSA stands for Free Application for Student Aid and true to its name, it costs nothing to fill out. The FAFSA may seem daunting and time consuming, but it is well worth the effort. Once you’ve filed your FAFSA, you’ll receive your Student Aid Report, or SAR, in three to five days if you filed electronically or two weeks if you filed it via snail mail. The key piece of information you’ll get from the SAR is your expected family contribution, or EFC. This will show you how much of a school’s tuition your family will be expected to pay out of pocket when seeking aid from your schools of choice.

Finally, if you absolutely MUST take on student loans. Get as much as you can from government agencies such as Sallie Mae, before turning to private loans.

Your education is the best investment you can make. Don’t let money stand in the way of bettering yourself.

Questions? Feel free to ask them here.

Ingat!

Financial Filipina