The 411 on 529 Plans: When and how to start savings for your kid’s college

If you have a newborn or a toddler, you’re probably more concerned with getting a solid 3 hours of uninterrupted sleep than saving for your child’s college education. After all, college is 18 years away, so you’ve got time.

If you’ve ever heard the saying, “the days are long, but the years are short,” take heed. It’s the truth. Blink and your child is throwing their graduation cap in the air and packing the car with dorm room essentials.

Now that we’ve established the fact that you don’t have as much time as you think, what can you do about it? With the skyrocketing cost of tuition, some parents are wondering if they’ll ever be able to afford their child’s college education.

What is a 529 College Savings Plan?

The key to building a solid financial foundation to help support your child’s academic future is to start early and save regularly. A 529 plan is one of the most popular, hassle-free, college savings vehicles available in the market today.

A 529 plan is a state-sponsored, tax-advantaged, education savings plan that is designed with features and benefits that encourage early investing for your child’s future education. It’s offered to help families establish a stronger financial strategy that will ultimately help their children—or another named beneficiary—continue their education. Any citizen or taxpayer can open an account, and almost anyone can help by contributing funds, including grandparents, other family members, and friends. It’s the perfect place for monetary gifts for birthdays, graduations, and holidays to grow with purpose.

Tax benefits

While contributing to a higher education savings plan can help make education more affordable, it also provides valuable tax benefits. The majority of states offer at least one 529 plan and the majority of states also offer full or partial state income tax deductions or other credits for contributions. Plan features and investment options can differ by plan and by state, and residents are not required to invest in their home state’s plan, nor attend an in-state school.

The IRS doesn’t specify a maximum dollar amount for annual contributions to a 529 college savings plan. However, contributions to the plan are considered gifts for tax purposes and can be included in the 2018 annual exclusion of up to $15,000 per beneficiary. Any earnings accumulated in a 529 plan are exempt from federal income and capital gain taxes.

529 plan balances cannot exceed the total cost of the beneficiary’s higher education. Plan balance limits, which vary by state and range from $235,000 to $520,000, represent each state’s best and highest estimate of the cost of attending college and graduate school.

Qualified and non-qualified withdrawals

Tax-free withdrawals from the plan can be used to satisfy tuition for most accredited universities, colleges, technical and vocational schools in the U.S. as well as many abroad. The benefit also allows up to $10,000 per year and per beneficiary for private, public, or religious elementary and secondary schools. Additionally, account funds can be used to pay for some room and board costs, supplies, books, computers, printers, and internet access. Other fees and necessary equipment may also qualify under the plan.

Any withdrawals used for non-qualified expenses, like transportation, student loan costs, or sports and activities, will result in a taxable event. These non-qualified withdrawals will be subject to federal and state taxes and an additional 10% penalty tax, but only on the earnings in the account. If, however, your student beneficiary receives a scholarship, dies, or enrolls in a U.S. service academy, the 10% penalty is waived. Unless you’re able to change the beneficiary to another student, you will, however, be taxed on the earnings in the account.

Take your first step

Saving for college is an important step in your overall financial plan. Start early with a 529 Plan and you can earn years of compounding, tax-free growth, and annual tax credits. If your children are headed for college—or you’re looking to go back to school—talk with your local investment advisor.

2018 What’s Ne[x]t Scholarship Winners

Congratulations to the 2018 What’s Ne[x]t Scholarship winners! A total of $15,000 was given away to three deserving students to help them pursue a higher education. Open to Georgia’s Own members 25 and under, students submitted applications along with a video telling us about their passions, their future, or what they plan to accomplish. From more than 100 applications received, our judges selected the following winners:

$8,000 Scholarship Winner
Anna Steltenpohl (Roswell) – Georgia State University

$5,000 Scholarship Winner
Justin Bell (Douglasville) – Georgia State University

$2,000 Scholarship Winner
Shara Chico (Lilburn) – Gwinnett Technical College

Congratulations to Anna, Justin, and Shara – we can’t wait to see all of your accomplishments in the near future! Thank you to each and every one of our members who entered this year’s scholarship contest. Listening to all of your stories was a treat.

Parents: Should you borrow for your child’s college education?

Congratulations! Your son or daughter was accepted into his or her top-choice university. You have an extra $175,000 lying around, right?

Your offspring’s education may cost that much or even more, now that the average cost of attending a private school has topped $42,000 a year, according to the College Board. If you can’t cover the whole bill with scholarships and savings, you may be tempted to borrow.

But should you? Ask yourself these questions:

How secure is your retirement?

Parents struggle with whether to put their child’s needs before their own. If you’ve followed the financial industry’s advice and prioritized your own retirement savings, you may not have been able to save much for college. Talk to a financial advisor about your retirement planning. This will help you decide whether you can handle education loans.

What’s your current debt level?

Are you still paying off your own education? If so, you wouldn’t be the only one. Many people are still chipping away at their college loans well into their careers, even as their own children near adulthood. Taking on more education debt may not be advisable if you haven’t eliminated your own.

Mortgage loans are also a consideration. Paying off your mortgage before retirement can help reduce the amount of monthly income you need once you stop working, so crushing this debt may be a big priority later in your career. If your home is worth significantly more than you owe, that equity may be a good source of college money. The interest rate on a home equity line of credit is likely to be lower than the rate on a federal loan for parents of college students. And, like other types of mortgages, the interest on home equity lines of credit may be tax deductible.

What are your other obligations?

If you buy your eldest a car as a 16th birthday present, your younger children will expect their own wheels, too. Over-extending yourself for one child’s education may be hard to replicate when the next kid enters college. Make a realistic plan that includes all your children’s likely college costs.

So should you borrow?

If your retirement savings are healthy, the rest of your finances are strong and you don’t have much debt, borrowing to pay for your child’s college might make sense. But it’s a last-resort option. Before you take out a loan, exhaust all possible financial aid options. Consider choosing a less expensive school, or having your child start at a community college and transfer to a four-year university later.

Many families find that it’s best for the student to be the borrower, rather than the parents. The interest rates on federally subsidized loans are better if they’re in the student’s name, and you can always help pay it off later if your own budget will allow it.

Your role as a parent is not coming to an end just because your son or daughter has earned a high school diploma. You still have to model good decision-making practices and healthy financial habits. That may include saying no to borrowing money for your child’s education.

Affordable ways to get your Master’s degree

There are countless advantages to securing your master’s degree in your chosen field, but really? Who can afford it? If you’re like most recent college graduates, you’re still paying off your student loans and not looking to rack up any more debt. So how can you fund the next step in your education without resorting to a diet of Ramen Noodles and living in your parents’ basement?

According to Sallie Mae’s 2017 How America Pays for Graduate School Study, 63 percent of students begin graduate school within 12 months of an undergrad degree. The average amount spent was $24,812, and 77 percent of it was paid by the student.

The study also says that 8 in 10 graduate students said they were more responsible for making decisions about how to pay for school than they were as undergraduates. Nearly three-quarters created a plan for how they’d pay for grad school before they enrolled in a program.

Here are some smart and creative financial strategies that will help make the journey more affordable, and your future career plans more easily attainable:

Let your company to foot the bill

A recent report from the Society for Human Resource Management says that 54 percent of employers offer a tuition assistance program. If you work for a company that provides any type of tuition reimbursement, and you’re interested in furthering your education, this is the first and best place to start. Tuition assistance is a way for your employer to invest in you, your career, and the company’s future. With an advanced degree, you bring a broader perspective, better understanding, and valuable decision-making skills to your position. Your skills may also lend themselves to increasing revenue, reduced expenses, or other similar benefits for the company. Overall, it’s a win-win for both sides.

Be sure to investigate the details of your company’s education assistance program. You may need to stay at the company for a given period of time after you complete your degree, or the reimbursement percentage may depend on your final grade. Not all plans are the same, so take time to meet with your Human Resources Department for the details. If you work for a smaller company that doesn’t offer tuition assistance, don’t give up too easily. You could present your boss with the benefits that a specific course of study could bring, and how it would help you add value to the company. You’ll never know until you ask, and even if it’s a no, it’ll show your desire to improve your position and further your career.

Apply for a scholarship

Yes, graduate programs offer scholarships and fellowships, but they’re typically based on merit. Check with the school’s Financial Aid office, as well as the Graduate Admissions department. They’ll be aware of any aid awarded through the different academic departments. Search for trade and professional associations in your field that may also be looking to financially support graduate student education. And, of course, check out the many online scholarship databases, like GoGrad, Scholly, FastWeb, and ScholarshipAmerica.

You may be busy balancing work, researching schools and programs, and figuring out how you’re going to afford your continuing education, but start your scholarship search as early as possible. You stand your highest chance of scoring some cash when the scholarship pot is full.

Apply for an assistantship

Work-study programs are more common than you’d think, especially in grad school. Assistantships usually pay a portion of the tuition cost and a small stipend as compensation for your research or classroom instruction time. These positions, generally considered training and not necessarily employment, usually require an average of 20 hours per week. They’re granted by the different academic department so, if you’re seriously considering an assistantship, seeking out faculty members or department heads in your program of interest is the smartest strategy. And, again, the earlier, the better.

If you must borrow, be smart

More than 75 percent of all grad students wind up taking out some type of education loan. Your first choice should be a federal loan, so fill out the FAFSA, Free Application for Federal Student Aid. It’s required for access to any federal student aid.

With a Direct Subsidized Stafford Loan, you can qualify for up $20,500 for each year of study with a combined undergraduate and graduate loan limit of $138,500. All Stafford loans are unsubsidized, so interest is not deferred, but payments are not required until six months following graduation.

Once you’ve exhausted your Stafford Loan eligibility, you can move onto a Graduate PLUS loan. The Graduate PLUS loan is a federally guaranteed loan that can be used to pay the full costs of graduate school, including reasonable living costs. You must be enrolled at least half-time and have minimally acceptable credit.

Private loans through banks and credit unions are also available for graduate study. These loans are based on your individual credit rating, so the higher your credit score, the more likely you’ll be approved, and at a better interest rate. Just as with federal loans, you’ll pay back the principal and interest. Many offer the option of making payments while you’re in school or deferring your payments until after you graduate.

Get credit for credits

As a graduate student, you’ll also want to see if you qualify for the federal Lifetime Learning tax credit. It’ll allow you to subtract up to $2,000 per year from your tax bill. It’s available to single filers whose adjusted gross income is $62,000 or less, or to married filers whose AGI is $124,000 or less. The credit applies to 20 percent of your tuition and other required educational expenses, up to a maximum of $10,000. Talk to your tax advisor for more details.

When it comes to education and expenses, there are lots of ways to find financial support, but it takes some legwork. Invest some time, exhaust your resources, and you’ll make the right financial decision about how to fund your future success.

5 facts about student loans that you need to know

The majority of students attending college will need to finance at least a portion of the cost required to further their education, most likely through student loans. While taking out a student loan may be a viable solution, there are both benefits and drawbacks of signing on the dotted line.

Here are five things you should know about the who, what, and how much of student loans.

1. Complete the FAFSA–NOW

FAFSA is the FREE Application for Federal Student Aid, and it’s the gateway to all federal financial aid, which also includes student loans. The Education Department offers scholarships, work-study, grants, and loans for eligible students in the amount of $150 billion each year. The only way to see if you qualify is to complete the application. The federal deadline is June 30, 2018, but the sooner you hit the submit button, the better, so don’t procrastinate.

2. Federal loan vs. private loans

Federal student loans often offer lower interest rates, a friendlier repayment schedule, and typically don’t require Mom or Dad to cosign to be your safety net. The income-driven repayment schedule is highly attractive, but if you have trouble making your monthly payments on that entry-level salary, you’ll also have deferment or forbearance options to consider. A private student loan is often used to fund the shortfall left by federal loans. They typically come with a higher interest rate compared to federal loans and your parents will need to cosign on the loan.

3. Parent PLUS loans

Every parent would love to save enough money to fund their child’s education, but if that’s not your reality, you might consider a Parent PLUS loan. This type of loan is available to the biological or adoptive parents of dependent students, and it does require a credit check. They’re not especially cheap, though. In 2017 the interest rate was 6.31%, the highest rate among all federal student loans.

4. Student loan default

Even with the generous repayment options, sometimes borrowers default on their student loan. You should be aware that if you default on your loan, you’ll lose all of the benefits that were so attractive when you applied. That includes deferment, forbearance, and any other repayment options that were offered in the past. You’ll also forfeit any future access to federal education aid while your loan is in default.

Sadly, it doesn’t end there. The lender may also report the loan default to the major credit bureaus so your credit score will take a serious hit and the government has the authority to garnish your wages and claim your annual tax refund. And don’t forget about your cosigner, if you have one. They’ll be subjected to the same actions.

5. Student loan forgiveness

Who doesn’t wish that their debt could just disappear? Sometimes it’s called loan forgiveness and other times it’s referred to as loan discharge or cancellation. They’re all a little bit different, but the result is essentially the same.

Loan forgiveness plans may be available for people in education, public service, healthcare, military and other professions. There are specific requirements that need to be met, and not all loans are eligible for forgiveness.

Student loans may also be discharged for personal reasons, although this is very rare. They include school closings, bankruptcy, disability, identity theft or false certification, unpaid refunds, and fraud.

School loans are an excellent means to help fund your education, but all options are not created equal. If you know the rules and can budget your repayment, it can be a wise investment in your future.

The six most common financial mistakes college students make

If you’re a college student, managing money on your own is just one of many brand new adventures. The combination of newly found freedom and a lack of money management experience can result in some costly, real-world fumbles. At a time when you’re just beginning to build your financial reputation, steer clear of these six common money mistakes:

1. Borrowing too much

If you’re borrowing money to pay for college, make sure those funds are dedicated solely to school expenses. Remember that once you graduate, you’ll have to repay that debt. Don’t compound it by financing your annual Spring Break trip just because it’s listed on the school calendar. Make smart decisions about what qualifies as an educational expense and only borrow the amount you really need.

2. Not living on a budget

Creating and living on a budget is a must for a college student living the college life. There’s likely a limited source of income that includes an allowance (if you’re lucky), wages, and savings that need to be closely monitored and spent with care. Go old school and use a notebook, a spreadsheet or an online budgeting tool to help manage your budget and keep track of your monthly spending. Otherwise, you’ll be living a life of ramen noodles.

3. Relying on credit cards

It’s easy to fall into a trap with credit cards. If you use your credit card to pay for an item, the odds are you’ll spend money that you don’t have and rationalize it by saying that you’ll pay it off by making monthly payments. Use a credit card if you need the item, it fits into your budget, and you can pay it off at the end of the billing cycle. End of story.

4. Stopping the scholarship search

It’s true that many scholarships are awarded to incoming college freshman, but there are a significant number of scholarships available to current college students. Most people hit the snooze button sophomore year and miss out on available cash. Continue to search for and apply for scholarships and grants throughout your college career so that you can fund your education and keep your debt at a minimum.

5. Skipping class

Whether it’s partying too hard, oversleeping, unpreparedness, or just plain laziness, there’s no real justification for skipping class. When you’re not in attendance you’re not learning the material, which obviously increases your chance of failing the class. Before you graduate, you’ll need to repeat the class and PAY FOR IT AGAIN. You don’t need a Ph.D. to know that’s a total waste of time and money.

6. Missing deadlines

Maybe it’s buying game day tickets in advance to take advantage of the discount, being conscious of the last day to drop a class so you’re still eligible for 100% refund, or returning rented textbooks on time in order to avoid the late fee. Whatever the case, there’s money at stake when you miss deadlines. Most of the time it’s because you’re disorganized. Get a calendar, mark the dates as soon as you know them and review your calendar daily. Huh, look at that, money in your pocket. Shocker.

The bottom line

We know, you’ve heard it a hundred times…”College life is an exciting experience, but it also brings a new set of responsibilities.” If you take away anything from this, we hope you’re just more aware of these financial pitfalls and do something to avoid them. We promise we won’t let on that we gave you any advice and when you’re finally feelin’ good about your debt management, you don’t even need to thank us!