Spring is a time of excitement and celebrations – Easter, Mother’s Day, Father’s Day, Wedding Season, and Graduation. As many teens celebrate the culmination of their high school careers, we’d like to address some of the questions we receive regarding college and college planning. Let’s highlight some financial considerations for before, during, and after college.
- Saving for college: The methods of saving for college can be as vast and varied as the selection of colleges your student may attend. These can include UTMAs, prepaid tuition plans, utilizing taxable accounts or even simply funds from your checking and savings account. Arguably the most popular way to save for college is using a 529 plan. In some states (not NC, unfortunately), 529 plans offer a tax deduction for contributions. In all states, funds grow on a tax-deferred basis within the 529 plan and can be taken out tax-free if used for qualified expenses. To learn more details about 529s, check out our blog post from last year’s 5-29 day: https://www.sgfnc.com/blog/happy-5-29-day
- Reducing cost of college: There are several ways to reduce the overall cost of college including athletic or merit-based scholarships through the school your student will be attending as well as independent scholarships from outside sources. Spending a small amount of money on testing prep for the SAT or ACT exam can potentially result in thousands of dollars in merit-based scholarships, but scholarships also exist for extra-curriculars like debate, the arts, volunteer work, community service, leadership skills, even part-time jobs. There are thousands of independent scholarships that your student can apply for – consider using myscholly.com or www.fastweb.com to start your search. Scholarships that require more effort – making a video, writing an essay, or doing a project – typically have fewer applications which increases likelihood of being awarded the scholarship.
- Fill out the FAFSA®: Many schools hand out aid or grants as they receive FAFSA® applications (Free Application for Federal Student Aid), so it is important to fill it out as early as possible. The applications become available every year on October 1st and will need to be filled out each year. It’s also important to determine what is a reportable verses nonreportable asset. Nonreportable assets include home equity, family-owned businesses, retirement accounts, and vehicles. Reportable assets are bank savings, brokerage accounts, and investment real estate that is not your primary residence. If you’re looking to reduce your reportable assets, you may want to consider utilizing banks savings or brokerage accounts to maximize your retirement account contributions or accelerate your mortgage payments to increase your home equity. Possible financial aid offered as a result of completing the FAFSA® can include grants, work-study, and loans.
- Distributing funds from my college savings account: You’ve saved and saved and now it’s time to pay for school. When you’re ready to take distributions from your 529, we typically see people withdraw from the 529 plan into their own bank account and then pay the school. Often, they make two distributions a year – in August and in December – to pay each semester as you go. Ultimately though, the pace of distributions is up to you. Just be sure to take the distribution in the same year that the expense is incurred and keep track of your qualified expenses. Most 529 plans also offer an option to distribute directly to the school for things like tuition.
- Qualified expenses: If you’re taking distributions from your 529 plan, they will need to be for qualified expenses to avoid penalty. Qualified expenses can include tuition, room and board, computer and software, lab equipment, and many other things. For more information about qualified expenses, check out these websites:
- Scholarships: Encourage your student to continue to apply for independent scholarships each year they are in school. Independent scholarships can also exist for graduate studies and other extension programs.
- Work study and grants: You should also continue to fill out the FAFSA® each year you attend school. A reminder that schools hand out aid or grants as they receive applications so earlier is better!
- Student loan repayment: Student loans currently amount to $1.7 trillion of debt in the United States. They were a part of my educational journey and it’s likely they impact you or someone you know. As you work to repay your student loans, it’s important to examine them as a part of your financial picture and not the whole picture. It is possible to pay down loans while also prioritizing other financial goals. It may be helpful to speak with a student loan expert, particularly if you have a degree associated with large amounts of student loan debt like the legal or medical fields. One contact we’ve found is Heather Jarvis. She can be reached at her website: http://askheatherjarvis.com/. She is just one of many, so seek out an expert that can address your student loan needs in addition to speaking with a financial advisor.
- Loan forgiveness, cancellation, and discharge: There are several types of forgiveness, cancellation, and discharge available for federal student loans including Public Service Loan Forgiveness, Teacher Loan Forgiveness, Perkins Loan Cancellation and Discharge, and several others. To find out more about your options, visit https://studentaid.gov/manage-loans/forgiveness-cancellation.
Please remember to reach out to us with any and all questions you have about college planning. There are many options and strategies and the most important strategy is the one tailored to your goals and needs.
If any of your friends, family, or neighbors have questions, please forward this information along or have them reach out to me directly at Lauren.Tompkins@sgfnc.com
Any opinions are those of Lauren Tompkins and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.