Planning for College
It's never too early or too late to start planning for your children's education after high school. The earlier you adopt a savings plan, the more options you have for building that nest egg to pay for college.
Savings are a primary source for paying college or vocational school tuition and expenses. Savings plans can take many forms, and they can be started by a parent, child (or prospective student), relatives and friends. Here’s an overview of a few of the many savings options, including
the potential tax benefits or other benefits each may offer.
- Coverdell Education Savings Accounts (formerly Education IRAs). These tax-free savings plans may be set up for a minor to pay qualified education expenses for the designated beneficiary. A maximum of $2,000 per year can be contributed to the account up until the child reaches 18 years
- State-sponsored 529 Plans. Every state in the U.S. offers at least one of these college savings programs, which are established in the name of the beneficiary and which provide tax-free growth. No federal income tax is owed when a distribution is made for the
beneficiary's college costs. Although the plan is state sponsored, the funds may be used at any accredited college or university in the country. To search for your state's available plans, click here:
- Education Bond Program. This U.S. Treasury Department program allows interest to be completely or partially excluded from Federal income tax. The bond owner must pay tuition and fees at a college, university, or vocational school or pay into a State tuition plan
in the same calendar year that the bonds are redeemed.
- Prepaid Tuition Plans. These are state-sponsored college savings plans that allow you to buy tuition units. This means that if you buy units for one semester (or quarter) now, the units will still pay for one semester (or quarter) when your child goes to college.
Scholarships, Grants, Loans, and Other Financial Aid Options
With higher education costs continuing to rise, most families will need more than savings to finance a child's continuing education. Financial Aid Offices in most colleges and universities are happy to work with prospective students to put together a package of aid that draws not only from scholarships and the institution’s private resources but from government grants and loans and other outside resources. The first step in
getting started is timely completion of the Free Application for Federal Student Aid (FAFSA).
Sources of Aid:
- Scholarships. Scholarships come to mind first when thinking about financial aid for higher education. Several billion dollars are available annually in scholarship funds from a wide variety of sources.
- Federal Pell Grants. This program provides grants that do not have to be repaid. They are available for undergraduates only. Applications are submitted through the individual school.
- Federal Direct Loans. These loans are available to undergraduate and graduate students, and loan eligibility increases for each subsequent year of study.
- Federal PLUS Loans. These unsubsidized loans are made to parents by the U.S. Department of Education Direct Loan Program.
- Federal Supplemental Educational Opportunity Grants (SEOG). These grants, which do not have to be repaid, range from $100 to $4,000 per year for students who remain eligible and are only available for undergraduates.
- Federal Work Study. This program provides jobs for undergraduate and graduate students. The money earned is applied to education expenses.
- Perkins Loans. These are low interest loans administered by the individual school. Undergraduates can borrow up to $5,500 annually and graduate students can borrow up to $8,000 annually.
For more information on financial aid, visit our
Financial Aid Resources page.