Tuition Tactics

Planning for the high cost of higher education

By Pete Alfano

The nursery is freshly painted with mobiles attached to stimulate the mind of the future occupant. A changing table is in place, and you are about to head to the store for diapers and other necessities for the arrival of your first child.

But before you go on that diaper dash, go online or call your financial advisor to register for a college savings plan. Experts say it is never too early to lay the financial groundwork for your child’s higher education.

That, of course, may be easier said than done. You may be already contributing to your employer-sponsored 401k plan with pre-tax dollars. You have monthly bills to pay, which could include financing a car, and a family has to eat. Putting money aside that won’t be used for seventeen or eighteen years can be difficult, if not impossible, for families living paycheck to paycheck.

But if you have the financial flexibility, you can give your child a head start by exploring several savings options. Remember, the annual cost of attending an out-of-state university can be almost double that of one in-state and attending an in-state school can cost more than $9,000 annually for tuition alone. Private universities could cost more than $50,000 a year. Those universities have generous endowments that can lower the price tag, and students may also qualify for financial aid.

Saving for college is also a joint venture. Obviously, a six-year-old cannot get a job. But a prospective college student can find part-time jobs while in high school and while attending college. Students can also apply for academic scholarships, and you don’t have to be a rocket scientist to qualify. Grant-in-aid is available for those who are financially strapped. And students can apply for college loans.

Other helpful hints for college students include:

• Buying used textbooks.

• Skipping spring break trips.

• Eating meals on campus and listening to free music instead of paying to download it.

The groundwork for paying for a college education starts with parents and perhaps contributions from grandparents. Here are some popular options:

Texas Tuition Promise Fund: You can lock in the price of tuition today at most Texas Universities. The money is tax-free if used for tuition. Anyone, not just a family member, can contribute, and the
limit is $15,000 a year. The contributor or the beneficiary must meet Texas residency requirements.

529 Plans: Accounts owned by dependent students are treated as parent assets, and nothing has to be reported on the Free Application for Federal Student Aid (FAFSA) when the funds are withdrawn to pay for college. Contributions can total $15,000 annually and qualify for a gift tax exclusion. Funds are considered parental assets.

Coverdale Education Savings Account: It is a tax-free plan but limits contributions to $2,000 a year. Deposits have to be made before a student turns 18. Tax-free withdrawals can be used for college or even elementary through high school expenses.

Custodial Accounts: These can be set up at most banks. There is no limit on deposits, and a student does not get control of the account until he or she is considered an adult, which is either 18 or 21 years old. The money does not have to be used to fund a college education. However, the funds are considered a student asset and subject to the “kiddie tax” for unearned income over $2,100 annually.