College Financial Planning
“Congratulations!” is the first sentence all high school seniors pray to see when they tear open that envelope from their desired college. Upon acceptance, the fun begins: finding a roommate, new student orientation, declaring a major, and joining clubs and teams. But where is the money to pay for it all?
When preparing for college, the planning should start way before the application process. It all starts with a 529 Plan, otherwise known as a “qualified tuition plan”. With a 529 Plan you have to pay normal income tax on the money you put into your plan, but you don’t pay taxes on the investments’ earnings once they’re in the account or when you leave for college. If you are a New York State taxpayer and account owner, you are able to receive a state income tax deduction of up to $5,000 ($10,000 for married couples filing jointly) on contributions to your Direct Plan account per year. If you also own another New York’s 529 College Savings Program account, your maximum total deduction on all contributions is still $5,000 per year.
If you start the process early, this can be a tax break worth thousands of dollars. There are two types of 529 Plans:
Prepaid Plans: You pay for a year or a portion of a year of college tuition ahead of time. This allows you to effectively lock down your price.
College Savings Plan: This plan is more designed for parents with young children. You choose how you want to invest your funds and then you can use that money for any educational costs you’d like.
Prepaid Tuition Plan
Locks in tuition prices at eligible public and private colleges and universities. No lock on college costs.
College Savings Plan
All plans cover tuition and mandatory fees only. Some plans allow you to purchase a room & board option or use excess tuition credits for other qualified expenses. Covers all “qualified higher education expenses,” including:
· Tuition
· Room & board
· Mandatory fees
· Books, computers (if required)
College is only getting more and more expensive. This previous academic year (2014-15) the private school tuition and fees averaged $31,381, as calculated from 728 ranked private schools. College tuition varies: Columbia University charges $51,008 in tuition and fees while Berea College charges students only $870 by offering students full four-year scholarships. This is why having a 529 Plan is so important.
Before deciding on which plan to choose, ask yourself these questions:
· Is this plan available directly from the state or is through a plan sponsor?
· What fees are charged with the plan?
· Are there withdrawal restrictions?
· What type of investment options are offered by the plan?
· Does the plan offer state benefits?
· What are the limitations with this plan?
· How has the plan performed in the past?
After you have chosen the best plan for you and your family, the fun begins. Now it is your child’s turn to become financially informed and responsible.
Cost of school not only sways students on where to go, but it also can be the reason why many students drop out. When you arrive on campus there are a couple things you need to do:
Meet with a financial aid representative on campus, to go over the financial aid application. Don’t be afraid to ask questions!
Attend seminars, and courses on college finances, the more you know the less stressed you will be.
Students become overwhelmed with expenses and have the inner battle of what to spend their money on: the college “scene” or the education. Students have openly admitted to not purchasing textbooks or picking up a late night spare time job to make and save a few extra bucks. This is when the academic advisors need to step in. College students have spent the last 13 years being told how to act and what to learn, now in college, it’s their time to decide what they want to do. The advisors need to understand this so they can talk to the students on their level. Explain to the students the better ways to save money:
· Cook your own meals
· Buy used books
· Work on campus (working on campus allows you to make money that goes directly towards your tuition)
· Sell used textbooks
· Utilize student discounts
A major issue students run into is the curse of the credit card. Students put everything and anything on their cards, whether it be a slice of pizza or their tickets for spring break. If you are a student and want to start applying for a credit card, look into joining your school’s affiliated credit union, many offer a much lower interest rate than most standard cards.
Once enrolled, it is important to keep in the back of your head ways to secure financial stability. Take courses that will help prepare you for your earnings potential. Try to diversify your skills giving you every opportunity to land an internship that can lead to a job.
At the end of the day, you want to increase your future earning potential while decreasing your present debt.
Going to college can be intimidating. You’re leaving home for the first time and becoming fully independent. But if you take the necessary steps, the finances of college don’t have to be so difficult.
