Before and During College: Summer Can Be Used To Reduce College Costs

Spring semester ends soon. After finals, many students will use the summer to cut their college costs. The payoff for doing so can be huge!

Lot’s of employers need student employees to help manage increased summer activity levels. Others look to student workers to fill in for regular employees on summer vacation.

Over the last 4 years — from the summer after high school graduation through the summer before his senior year — Jack banked about $2,000 a year from his summer IMG_6029jobs. This allowed him to forgo the $2,000 per year in Federal Direct Unsubsidized Loan he would otherwise have needed to borrow for the costs of attending his university. It cut the principal and interest he’ll pay each month on his student loans by a third. It’ll also reduce the total amount he repays on those loans under the “standard” 10-year repayment plan by a whopping $11,200. That’s a darned healthy bite out of Jack’s borrowing costs.

IMG_6030Another cost saver is attending summer school at a community college close to home so the student doesn’t incur expenses for room and board. This is particularly effective during the summers after student’s freshman and sophomore years, when they’re likely to pick up courses that’ll count toward degree requirements at their universities.

Jill took this approach. Over two summers, she completed a total of 15 credit hours at her local community college. Tuition and required fees there were $117 per credit hour, versus $321 per credit hour at the university Jill attended fall through spring.

In doing this, Jill reduced the number of semesters it took to fulfill her university degree requirements from eight to seven. This cut her costs at that institution by $4,825 in tuition and fees and by $5,220 in room and board. So for $1,760, Jill cut her costs by $10,045 — a net savings of $8,285.

And the good news is that this isn’t an either/or proposition. Summer work? Summer community college classes? Many students do both!

Jack and Jill still get lots of summer “down time.” They still get to see friends they missed while away at school. And they still get to eat that good home cooking and to be with family. But their summers are also highly productive, because they significantly reduce the cost of their degrees — and what’s not to like about that?

Looking for strategies to keep college more affordable? Feel free to contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before College: Problems With Beginning at Community Colleges

The financial reasons for beginning at a community college are compelling. But this isn’t necessarily what’s best for every student. Problems along the way undermine some students’ ability to complete an affordable higher education.

If your student seeks an occupation requiring a bachelor’s degree, he’ll eventually need to transfer to a 4-year college or university, so carefully consider whether he has the academic dedication, drive, and perseverance to get there.IMG_5562

Only 16% of students who begin at community colleges transfer and get bachelor’s degrees. Of course, not all these students want such degrees but, at an age when peer pressure is a big influence on your student, these will be his classmates and friends. They could distract him from his ultimate educational goal.

Course transferability is another problem. Your student will actually lose money whenever she must retake a community college course at a more expensive 4-year school.

She’ll probably be able to transfer some, but not all, community college courses to substitute for “core” courses at your state’s 4-year colleges and universities. Chances IMG_5628are that some of her less community college coursework won’t be accepted by those schools for classes she must complete to earn a specific degree. So before she registers for community college classes, urge her to check this out with that college’s academic advisor or the admissions offices at 4-year institutions to which she may transfer.

If your student has been accepted to another college, consider his scholarship offers that are limited to attending that institution. Most scholarship providers won’t hold their awards until he transfers from a community college. If those offers are large enough, he could actually lose money by not beginning at the school to which they’re tied.

Finally, to really save at a community college, your student will have to exercise spending and borrowing discipline while there. Attending a community college but borrowing to live an expensive lifestyle is a losing proposition. Your student may actually end up taking on more debt than classmates who began and ended at her 4-year college or university.

An affordable college experience isn’t worthwhile unless your student graduates with the degree she wants. Beginning at a community college can work If her eventual goal is a bachelor’s degree, but only if she avoids or overcomes the problems described above.

NOTE:
WE’LL BE TAKING SPRING BREAK NEXT WEEK, SO OUR NEXT POST WILL BE ON MARCH 22.

College Affordability Solutions can help you conduct an affordability analysis on various paths your student may take to earn a bachelor’s degree. Contact us at (512) 366-5354 or collegeafford@gmail.com if you need such assistance.

College Savings Bonds: An Affordable, Safe, Simple College Investment

Do you have a modest income and a limited amount to invest? Are you looking for a treasury-bondssafe, simple way to invest it? Are you interested in tax breaks that’ll free more of your other money for college savings bonds? If so, think about college savings bonds. Here are the fundamentals . . .

The U.S. Treasury Department sells education savings bonds. They’re extremely low-risk because they’re backed by the full faith and credit of the U.S. government.

There are two types of education savings bonds. You can buy Series “EE” bonds at half their maturity value and they slowly grow into that amount based on a fixed interest rate 3-ussavingsbonds_590x394that never changes. You can purchase Series “I” bond in denominations of $50 to $10,000 they grow into those amounts by paying interest based on inflation every 6 months.

You, or you and your spouse, may buy education savings bonds for your child (also for your spouse or yourself) directly from the Treasury at http://treasurydirect.gov/. You can redeem them as soon as a year after buying them, but if you do this less than 5 years after buying them you’ll lose the last 3 months of the interest they earn.

That interest isn’t subject to state and local income taxes. It’s also excluded from federal income taxes if:

Your tax exclusion starts to be limited if your MAGI exceed these amounts, and, if your MAGI reaches $91,000 and $143,950, respectively, they’re eliminated.

Your tax exclusions will cover whatever savings bond principal and interest you use to pay tuition and required fees at an accredited U.S. public, nonprofit, or for-profit college, university, or vocational school. If your student receives money from scholarships, other college investments (e.g. 529 plans), and carious educational benefits such as VA benefits, employer-provided educational assistance, etc. your tax exclusions could be limited.

Want to know more? Check out the Treasury Department’s publication called Using Savings Bonds for Education and its Education Planning webpage. And remember, every penny you invest and save makes your child less reliant on student loans to pay for college!

 College Affordability Solutions can help you evaluate various strategies for paying for college. Call (512) 366-5354 or email collegeafford@gmail.com.

Saving for College? Consider a 529 Plan.

One of the best ways to save for college education is a 529 plan. This is an investment designed to help save money for a child’s future college expense. Here are the basics.

A 529 plan — also know as a “Qualified Tuition Plan” — is owned by whoever opens the plan: a parent, other relative, or family friend. The child for whom the plan is img_4691designated is its “beneficiary.”

You may contribute to a plan even if you aren’t its owner, but the owner controls it. Contributions of up to $14,000/year ($28,000/year for married couples) aren’t subject to federal gift taxes.

529 plans offer other tax breaks — no federal income taxes on what they earn, and many states offer residents state tax benefits on their 529 plans.

One type of 529 plan is a “prepaid college tuition program.” This purchases all or part of the beneficiary’s future tuition at a rate set today so, as tuition rises, it’s already been prepaid at a lower rate.

The other type is a “college savings plan.” Plan managers invest what you contribute. You usually have different investment options, and earnings vary according to the return on those investments. Some college savings plans are riskier than others, so you could end up losing some or all of what you put in if they perform poorly.

When the beneficiary goes to a college covered by a 529 plan, what’s withdrawn from the plan isn’t subject to federal taxes (or state taxes in many states) as long as it pays “qualified education expenses” — tuition, fees, books, class supplies and equipment, certain room and board amounts, and some other college costs.

If the beneficiary doesn’t go to college or use everything in a 529 plan, what’s left may roll over to another beneficiary. This must be a relative of the original beneficiary — a sibling, cousin, niece or nephew, parent, etc.

All states and some colleges offer 529 plans. The earlier you contribute, the more the plan is likely to earn. But be sure to check out any plan you consider for “portability” — the number and locations of the institutions at which the Plan can be used.

To research each state’s 529 plan(s) and how to open them, check out the College Savings Plan Network’s website. For 529 plan information on federal taxes, qualified education benefits, and rollovers see pages 59-62 of IRS Publication 970.

College Affordability Solutions can help your family devise strategies to prepare financially for college. Call (512) 366-5354 or email collegeafford@gmail.com to make contact with us.