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Educational Funding
 

Educational Funding

Far too many fail to plan for college expenses until it is too late. Often their savings programs are sadly unrealistic when it comes to college costs. Make sure you do something positive to help ensure you will have adequate finances to send your children to college when that time comes.

Newsletter-Dow Jones Newswire
Choosing a College-Savings Plan  

Deciding on How to Invest
Depends on Your Income,
Child's Age, Financial Aid


By JANE J. KIM
DOW JONES NEWSWIRES


There's no single college-savings plan that's perfect for every family. Deciding where and how to invest will largely depend on your income, the age of your child, and your chances of qualifying for financial aid.

A good place to start is to figure out how much you'll need to save. Tuition and fees at private colleges jumped an average of 5.8% last year, and can now top $40,000 a year at big-name schools if you include living costs. Public colleges—hurt by state budget cutbacks—raised prices an average of 9.6%, according to the College Board. Beyond that, children born today could face college costs that are three to four times current prices, says Mark Kantrowitz, publisher of Finaid.org, a financial-aid Web site.

A good rule of thumb: Parents should aim to save one-third of the expected college costs, pay one-third from current income and financial aid during college, and borrow one-third, Mr. Kantrowitz says.

It's important to keep financial aid in mind from the beginning because where you invest can have an impact on your aid eligibility. But be careful not to fall into the trap of not saving at all in order to qualify for aid. People forget that aid is determined more by income than by accumulated assets, says Joseph Hurley, founder of Savingforcollege.com, a Web site that tracks 529 plans. Investments held in a student's name typically reduce financial aid more than assets held in a parent's name.

And remember, constant changes to tax laws mean that the best savings vehicle today might not be as good later on.

Finally, evaluate each of the plans in terms of its exit strategy—that is, what are the penalties they will incur if the child doesn't go to college, said Judy Miller, a collegeplanning specialist in Alameda, Calif. For example, you may face penalties to get a refund from a state prepaid plan or could lose up to 2% a year in the Independent 529 Plan if the funds' investments fared poorly.

Please click the links below to learn more about our Education Funding.

529 Plans

UTMA/UGMA

Coverdell Savings


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