May 14

This article was written by Gary Dek, a finance blogger who writes about making money, investing, budgeting, career and education planning, credit and debt, and real estate at Gary previously worked for an internet company on their M&A team, as well as investment banking and private equity firms in California. He graduated USC with a degree in financial analysis, valuation and entrepreneurship.

The competition for college scholarships and grants is fierce and even students with excellent grades are no longer guaranteed to receive academic and need-based financial assistance for college. Student loans have never been easier to obtain, but they can mean starting out in adult life with crippling debt. Careful planning by parents can help students get their degree without financing all or even most of their tuition and other costs.

The cost of college tuition is rising at nearly twice the national rate of inflation. The average education costs at private colleges last year was $38,589, while resident students attending state colleges paid about $17,000 per year. Out of state students attending state institutions paid about $29,657 per year for tuition, and these figures do not include living expenses like dormitory fees or food. Books and supplies for college classes add a significant amount to tuition and other costs.

If you are looking for unique ways to fund your child’s college education, you should try making money from home or growing your side-business. The benefit of running your own business while sending your child to college is that you can decide how much of a salary to pay yourself each year, which can increase the amount of financial aid you receive. Since your income is treated differently than your assets (the value of your business, so be conservative with your estimate), a lower income with higher unrealized asset gains can make college more affordable for your family. Otherwise, if owning a business is not an option, stick to these traditional ways of saving and investing money for college.

529 Custodial Accounts

A 529 account is owned by the parent with the child as beneficiary. The money in these accounts can only be used for educational expenses so it is important to start the account with a target figure in mind. Withdrawing funds for non-educational expenses costs a stiff 10% penalty, but the beneficiary on the account can be changed to another child or relative if there is extra money in the account, or if the child opts not to attend college. Additionally, investment gains in the account are tax-free, allowing your money to grow uninterrupted by capital gains or income taxes.

Since there is a penalty for withdrawal of funds for non-educational purposes, it is best not to over-invest in a 529 account, but other investments can be used to complement this savings plan and ensure there is enough money to cover a child’s educational expenses.

Life Insurance

There are several types of life insurance policies that accrue cash value over the years. An endowment policy, purchased in infancy will usually mature in 20 years and pay out a cash payment stated in the policy. Whole life insurance offers the option of taking out interest free loans of up to 90% of the cash value, with no repayment schedule, while keeping the policy in force. These policies also allow young people to have the lowest life insurance premiums for life since whole life is a permanent type of coverage. No income tax is due on loans taken on permanent policies.

People with a slightly higher tolerance for risk may choose a universal life insurance policy. While whole life insurance is invested conservatively and offers a guaranteed rate of interest, similar to other short term investment options, universal life policies utilize riskier investments like stocks and bonds and may yield a higher rate of return over time. Life policies can be set up so beneficiaries receive the face value of the policy minus loans if you should die or the face value plus any remaining equity.

The premiums on permanent policies are considerably higher than those of term life policies so it is best to use these policies as an alternative investment vehicle. Instead of buying all your life insurance in a permanent policy, supplement permanent coverage with cheaper term protection.

Fixed Annuities

A fixed annuity can be a way to save for college tuition if you will be at least 59½ years old while your child is attending college, since penalties for early withdrawal no longer apply. Otherwise, fixed annuities are retirement accounts that have high penalties for early withdrawal. While they are not the best and most recommended way to save for your children’s college, they do have tax advantages over other types of retirement savings. The money invested in fixed annuities and any returns earned on these funds cannot be considered as assets by lenders offering government approved student loans. This means you can keep your retirement funds while qualifying for federal financial aid, including grants and very cheap or subsidized loans.

Nevertheless, sending your child to college should not jeopardize your retirement so it is best to use this type of investment as a retirement account rather than saving for college, unless the two coincide. After all, when you pass 59 ½ and are not within the surrender period of 5 to 7 years after issuance, the annuity begins to pay out an income stream. With that income stream, you are free to do as you please.

Roth IRAs and 401(k)s

Roth accounts differ from traditional retirement savings plans because contributions to Roth accounts are not tax deductible. Income tax is paid on the money before it is put into savings. While the contributions are not tax deductible, you can withdraw contributions, for any reason, without paying a penalty since the money has already been taxed. There is a 10% early withdrawal penalty on investment returns, but this does not apply if the money is withdrawn for qualified educational purposes, including tuition payments. If the returns on your contributions are equal to or greater than the total contributions to your account, you may have to pay a penalty if you withdraw the earnings that exceed the amount of your contribution. Beyond that, Roth IRAs and retirement accounts can be a legitimate source of money for education costs.

Treasury Bonds

Treasury Bonds can be an excellent savings vehicle for those who are financially conservative. At one time, it was commonplace for grandparents and relatives to give U.S. Savings Bonds as gifts to newborn infants so they would begin their adult lives with a nest egg. Unless you need supplies for your new baby, suggest the gift of a Treasury Bond to those who ask what you need. They are available in denominations that cost less than a new stroller or crib and they take years to mature. When your child is ready for college, the treasury bonds given as baby gifts can help pay a significant portion of your child’s schooling expenses.

Final Word

The average income of a person with a college degree is more than a million dollars higher over a lifetime than the income of a person with a high school diploma. Higher education is necessary for the financial success of your child when he or she reaches adulthood and pursues a career. The average cost of a four year college degree is expected to rise to over $100,000 by the year 2016. The best way to ensure the success of your child is to begin a savings plan at their birth. Professional financial advisors can help parents find and execute the best ways to save and invest for the future of their children.

Check out to find more of Gary’s writing.

written by Joe \\ tags: ,

Aug 13

A guest post from Patricia Shuler -

Take a bite out of your student debt load with these simple tips

Your college years are a tight squeeze, financially—your expenses have never been higher, and your earning power isn’t much more than it was when you were flipping burgers in high school. For most students, that means debt, and lots of it. These money management tips can save you thousands of dollars over the course of your university experience—dollars you won’t be paying interest on when you’re 35. I’ll only mention money-saving moves that will save you over $1,000. There are other ways to cut costs, but these are the big ones.

1. Submit a FAFSA
This is a huge one; a Federal Application for Student Aid (FAFSA) provides access to Pell Grants and subsidized student loans that can make college affordable for almost anyone. If your parents aren’t paying for your college tuition, make sure to mark that on your FAFSA, and you will almost certainly qualify for a grant (unless for some reason you’re already earning middle-class wages after school).
If you’re working a low-paying, part-time job, you can generally qualify for $5,500 a year in Pell Grants, along with $10,000 in yearly subsidized, low-interest student loans—loans that don’t even start accruing interest until you graduate. Over the course of a four-year degree, that adds up to $22,000 in no-strings grant money, along with $40,000 in subsidized loans if you need them.

2. Pick a starter school
If you plan on attending an expensive school, there’s very little reason to complete your general education requirements there. Instead, pick a smaller, two-year school that will provide an “Associate of General Studies” or similar degree for a fraction of the cost, and then transfer to your dream school. Four-year universities generally waive the general-education requirements for students transferring with a two-year degree, so take advantage of the savings. Once you’ve brought home that degree from Stanford or Georgetown, no employer is ever going to ask if you were a transfer student.
Depending on how pricey your school of choice is, this option can save you tens of thousands of dollars over two years, and if your high school grades were less than stellar, it gives you an opportunity to boost your GPA and qualify for better financial aid.

3. Don’t pay full tuition for your internships
In order to work without pay legally, you have to be enrolled at school so the company you intern for can justify the internship as “training”. But the good news is, most companies don’t care what school you’re enrolled at during the internship, and most community colleges will let you enroll in a dirt-cheap summer “class” to cover your internship period, so you don’t have to pay summer tuition at your prestigious, expensive university. Even more so than finding a starter school, this tip is almost always a good idea.

4. Ditch textbooks, buy a tablet
The average student spends $1,200 on textbooks every year—many of which are unhelpful, and almost none of which will be resold at a fair price. Meanwhile, e-book versions of textbooks are routinely priced at one-half to one-third the cost of hard-copy editions, especially if you go with “rental” versions whose rights expire. Over the course of four years, buying e-book editions at half price will save the average student $2,400. Tablets won’t replace laptops, at least not for a couple years, but the extra money you’ll put down for a tablet will be made up in textbook savings within the first year.

Patricia Shuler is a staff writer from Oakland, California. She’s an admitted tech-junkie who’s quick to share her honest opinion on all things consumer electronic—including up-to-date news, user reviews, and “no holds barred” opinions on a variety of social media, tech, computer, and mobile accessories topics.

written by Joe \\ tags:

May 14

College costs continue to spiral, rising faster than inflation. 2010-11 tuition was up 4./4% from the prior year at private colleges and up 5.8% at public schools. Detailed report available in an article titled Trends in College Pricing 2010.

written by Joe \\ tags: , ,