$24,000 every year that's what one, state-supported university publishes as the cost to attend for residents. Out-of-state students add another $27,000 to make it $51,000 every year.
How do you manage to pay for that? Heard of the 529 Plan? It takes its name from the section of the IRS Code that stipulates its requirements and advantages. Not a bad plan, in that you deposit money from your take-home-pay (yes after you've had your taxes withheld) into an account that, from then on, will grow without tax obligations IF . . .
That is a big IF.
- If you do not need it for something else urgent and expensive.
- If those education costs line up with the approved list of expenses.
- If your children attend college and spend all of the 529 account.
- If your plan does well in the stock market.
- If, when you need the money, the market isn't having a major correction.
- If you do not mind paying a hefty penalty plus the tax owed if an if happens.
Let's just say, for the sake of conversation, you dodge all of that. There is still the small matter of once you spend the money for approved college expenses, that's it. All gone. Account balance zero.
You managed to save $100,000 for each child. Each child now has a college diploma and is looking for work, getting married, sprouting your grandchildren, trying to buy a house and all of those hundreds of thousands of dollars you had scrimped and sacrificed to save poof! -- are gone.
What if, instead of filling up that college savings tank full of money, and then draining it dry, you could have collateralized those funds?
What if your children, who earned the diploma, helped pay that all back as part of their future retirement?
In other words, what if your hundreds of thousands of dollars could have kept compounding interest while you used them as collateral to pay the expenses of a college education?
Beware of Loan Programs with Fine Print
A recent email arriving in my inbox was from a major credit card company offering money for college expenses. Forgive me for stating the obvious but, be careful!.
We offer a helpful (dare I say vital?) & objective perspective. We are good at "finding money." Call us.
Are colleges curbing costs?
The North Carolina legislature recently approved the UNC System Board's decision to hold tuition increases to five per cent (5%). The legislature also imposed a maximum of fifteen per cent (15%) aggregate financial aid from total tuition revenues. What does that mean for students and their parents?
First, the 5% cap is on tuition. At UNC campuses tuition is generally only about one quarter to one third of the cost of attendance. I have not read that there is a similar cap on the other charges room and board, and various fees that every student pays.
Furthermore, how much is your family's income growing annually? Is it by as much as 5% every year? It looks like NC public school teachers will receive something around a 7% salary increase. How long ago was their last increase in pay? How much longer will they wait for the next one? In the meantime their children face annual cost increases to attend college.
I cite teachers because, in my mind, they are representative of America's middle class -- hard-working; limited options to increase their earned income; many single mothers; struggling desperately to balance the family budget with sharp increases in food, utilities and gasoline.
Second, financial aid has been capped at 15% of revenue. For most of the system campuses that means approximately $1,100 - $1,200 per full-pay student per year. It is important to understand what those numbers mean. For every student paying full tuition the school has about eleven to twelve hundred dollars to offer other students in "scholarships."
Such financial aid is not necessarily need-based. Schools use their discretionary dollars to entice students they want enrolled. Therefore, a student with strong academics, coming from a six-figure-income family is as likely to be offered that thousand dollar grant as is a similarly strong student from a family with income of under $70,000.
Another fact is that a school's own, limited grant-in-aid money is in addition to other financial aid possibilities (e.g. Pell Grant, Federal Student Loan, private scholarships). Common practice is for individual colleges to offer their own, in-house, financial aid as a tuition discount. The significance of that bookkeeping maneuver is that no cash actually changes hands. It is merely a reduction in cost to the student, and a reduction of revenue to the school. Such reductions are real, and the schools have to budget for that. Those reductions do count against the 15% cap.
- College costs continue to rise faster than middle-class family income, and faster than inflation (based on the Consumer Price Index).
- At public colleges, Financial Aid is a convoluted and politically charged arrangement, making a family's willingness to pay more important than ever.
- College selection remains the single-best strategy to minimize out-of-pocket costs for families.
- Private colleges continue to be a viable option due to their prerogatives regarding financial aid, linked primarily to their mission, endowments and annual costs.
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