There is no doubt that college can be an expensive, but important, investment in your child’s future. Here are a few ways to help you financially prepare for your child’s higher education before you’re faced with a monstrous tuition bill that can turn into debt all too quickly.
Tips For Preparing For College Financially:
Start Saving Early. Unfortunately, many parents wait until high school to start thinking about saving for their child’s college education. The reality is, the sooner, the better. There are many programs like the Gerber Life College Plan that help parents save for college from the moment their child is born. Even if you can’t contribute a lot to a savings account for college, anything is better than nothing, and over time, small monthly deposits can add up.
Encourage Academic Success. How well your child performs academically in school may determine how much financial help they will receive for college through scholarships and grants. If students are taught the importance of succeeding scholastically from an early age, their chances of receiving financial aid for good grades in high school is more likely.
Become Familiar with the FAFSA. The Free Application for Federal Student Aid is an online application that should be filled out annually by students, beginning in their senior year of high school, to determine their financial aid eligibility, including the Pell Grant, federal student loans and Federal Work Study. You can use the “FAFSA4caster” to help plan how much aid your child might receive and what your family might be responsible for paying.
Tax Credits. As of 2012, there are two tax credits available to help reduce the costs associated with college by lowering your income tax.
The American Opportunity Tax Credit offers up to a $2,500 tax credit for qualified education expenses paid for each eligible student, up to four years.
The Lifetime Learning Credit offers up to $2,000 a year as a tax credit for each eligible student for tuition, fees or supplies that need to be purchased through the school, for an unlimited number of years.
529 Plan. There are two tax-advantaged 529 savings plans for future college costs: a prepaid tuition plan and a college savings plan.
Prepaid tuition plans allow you to purchase credits at participating colleges and universities for future tuition. Most prepaid tuition plans are restricted by state and have residency requirements. They cover tuition and occasionally room and board as well.
College savings plans allow the account holder to choose among several investment options, in which the college savings plan invests on behalf of the account holder. It covers tuition, room and board, other fees and required supplies such as computers and books.
Student Loans. Loans should only be used as a last resort, but they are there to lend you some temporary relief. Just remember, that a loan must be paid back, and some may include interest rates that you will also be responsible for. There are a lot of different types of loans available for students ,and filing the FAFSA annually will help you secure some loans that your student is eligible for. The most important thing to know is the difference between a subsidized and unsubsidized loan.
Subsidized loans are based on financial need, and no interest is charged while the borrower is enrolled in school and during the grace or deferment period.
Unsubsidized is not based on financial need, and interest is charged right away.
Student Loan Interest Deduction. You can take a tax deduction for the interest paid on any student loan used to pay for higher education expenses for your child, yourself or your spouse. The maximum deduction is $2,500 a year.
According to the Federal Reserve Board of New York, there are approximately 37 million student loan borrowers with outstanding student loans today. Although it is best to start planning and saving for your child’s higher education early, it is never too late to start preparing. Take advantage of the financial help that is available to you, and start enjoying your child’s academic success rather than worrying about the associated financial responsibilities.
Debbie McGrew writes and blogs for Debt.org, America’s Debt Help Organization.