March 6, 2009
Continuing our theme from yesterday, today's blog post centers on more options for saving for college. Yesterday, we discussed 529 plans, popular college savings vehicles that have been battered by recent financial troubles. If you're considering saving for college but are not sold on a 529 plan, the most common alternatives are discussed below.
Coverdell ESA. Coverdell Education Savings Accounts are similar to 529 plans in most respects, but do have their own benefits and drawbacks. Rather than being sold by a state, they are sold by banks and brokerages, which can charge their own management fees. Because there aren't any state ties, there aren't any residency limitations, though there also aren't any state tax breaks for enrolling in a Coverdell ESA.
Coverdell accounts allow more flexible investment options and unlimited changes to investments. They can also be used to pay for high school and elementary school expenses, in addition to college costs. Otherwise, the expenses Coverdell and 529 plans can be used for are roughly the same: tuition and fees, books and supplies, room and board if over half-time, and other qualified educational expenses.
One major limitation to the Coverdell ESA is the $2,000 annual contribution cap. This is the limit per account holder, not per contributor. Additionally, individuals must have an adjusted gross income of $110,000 or below to contribute, and $95,000 or below to contribute the full $2,000. Coverdell accounts are held in the beneficiary's name, so they can hurt the student on the FAFSA. They also must be used or cashed out by the time the beneficiary turns 30, and they go to the beneficiary no matter what, while 529 plans can be given back to the parent in charge of the account if the student chooses not to go to college.
Roth IRA. The Roth IRA, typically used as a retirement account, can also be used to save for school. As long as you're withdrawing contributions, rather than earnings, there is no penalty if you are using the money from your IRA for educational expenses. However, a college savings plan might be the better way to go if you're setting up an account specifically for your student (especially since contributions to a Roth IRA must come from income the beneficiary earned from working), and dipping into your retirement funds to pay for college is widely regarded as a less than ideal choice by financial experts. But if you choose to take it, the option is there.
UTMA. The Uniform Transfer to Minors Act allows assets to be given as gifts to minors without the establishment of a trust. While the options explored up to this point have been savings accounts or investments, UTMA covers everything, including property. An adult manages these assets in a custodial account until the owner reaches the age of 18 or 21, depending on the state. In the meantime, the funds in the account can be used to benefit the child, including taking care of educational expenses. Once the owner reaches the age of majority, the assets are theirs to use as they please. This can mean paying for school, or it can mean making less desirable financial choices. Since these assets belong to the student, they would count against them for student financial aid.
Government Bonds. While typically regarded as the province of grandparents, government savings bonds (Series EE is the most common) are also an option for paying for college. Bonds can be purchased online or at banks, and redeemed later for cash. As opposed to stock market-based savings plans which can lose big during crashes, government bonds are going to continue to grow as long as there's a government to honor them. And if there's no longer a United States government, well, you might have more to worry about than paying for college.
Also, since no rules state that a savings bond must be redeemed for college costs, the money can be used towards paying off student loans, covering college living expenses...or partying it up during spring break in Mexico.
While EE Savings Bonds grow at a steady rate, they do grow very slowly. You're also limited to a purchase of $5,000 per calendar year. Since they're such a safe bet, they can be great gifts for high school students, but a market-based option might be a better way to grow savings and maximize returns for younger children.
May 29, 2009
Today is May 29, also known as "529 College Savings Day," named after 529 plans, which are popular state-sponsored college savings plans. Today has been designated as a day to raise awareness of the importance of saving for college, as well as ways to do so. While 529 plans suffered along with everything else in the stock market, they are still being emphasized as a valuable tool for saving money for college.
According to a poll conducted by Gallup and Sallie Mae, 62 percent of families with college-bound children are already saving for college in some capacity, with the majority planning to contribute at least half of a child's tuition. About half of families that are saving already regularly contribute to college funds, and around a third use state 529 plans. The Chronicle of Higher Education has more information on the survey, as well as a link to the results.
If you're curious about college savings plans, we have some resources to help you get started. A few months ago, we did a couple blog posts on saving for college, featuring a discussion of 529 plans, as well as other savings options. While the focus of today is on saving for college, it's also a good time to look into college scholarships, especially for students still in high school. Read up on college savings accounts today, then do a free college scholarship search to find more options for paying for school.
March 18, 2010
As the number of returning adult students continues to grow and the "traditional" student population has only become more diverse to include those with backgrounds and life experience in varying fields of study, some schools are looking at rewarding those new students with credit hours for "prior learning," rather than prompting them to start over as most freshmen do.
A recent article in The Chronicle of Higher Education explores schools that consider academic achievements alongside individual accomplishments before students step onto campus, and look at their volunteerism, years in the military, or on-the-job training, among other life experiences. Formal assessments of those experiences are then used to evaluate incoming students as a way to award them credit hours, often as a replacement of general education coursework.
At Valdosta State University, professors conduct assessments of students' experiences by having them demonstrate what they already know about a certain field. The Chronicle describes a biology professor who awards credit to students who may have a background in science from volunteering to clean up local streams, for example, or lab experience. The school has been conducting such assessments for about a year and a half; the program started when the school decided to begin training students who had come from non-traditional backgrounds to become teachers.
At Empire State College, which is part of the State University of New York, students are able to write their own degree plans. Faculty committees and administrative offices review portfolios students craft based on their work experience in a particular field, for example, and determine how many credits students should receive based on that information. The school's administrators say having the students reflect on what they've learned before going to college helps them realize their potential and make obvious the kinds of skills they may have, as they are forced to put those talents on paper. At Inver Hills Community College, students are asked to complete two courses at the school before attempting a portfolio, which not only involves writing about their past experiences, but being able to discuss them.
Other schools conduct more standardized tests and formal assessments for students to demonstrate prior learning skills, such as the American Council on Education's evaluations of work and military training or the College Level Examination Program tests. According to the Chronicle and Stamats, a higher-education marketing company, the availability of credit for life experience is the top thing adults look for when selecting a school in their college search. About half of all schools have some kind of prior learning assessment available to students, according to the Council for Adult & Experiential Learning, so if you're a returning adult student, consider that the work you've already done could save you some time—and money—as you take on that college experience.
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