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What You Need To Know About Saving For College

Karen Gibbs

college fundHi Karen, I’m a first time grandmother and want to start saving for my grandson’s college education.  Is it difficult and/or expensive to open and maintain a college savings plan?
    - Jennifer, Jessup, MD

Congratulations Jennifer on the arrival of your grandson!  You’re already showing signs of devotion by thinking ahead for his college education.  

As a grandparent, you can either open a 529 Savings Plan for your grandson, or make contributions to one opened by his parents.  With the rising cost of student loans and how that debt can hold back a newly graduated student, college savings plans are an attractive alternative.  It is not expensive to open and maintain a 529, and the State of Maryland makes it very easy to enroll.

You can invest in any state’s 529 plan, and use it for qualified higher education expenses.  It is transferable, meaning it can be for this grandson, future grandchildren or even yourself if you choose to go back to school. 

With the growing student loan crisis, it makes sense to start thinking early about how to afford college.   Average student loan debt held by graduates is $29,000 per student and is the second highest debt held behind mortgages.

While doing your research, consider the tax implications of each option.  You can also investigate setting up a Roth IRA or a custodial account for your grandson.  You may also want to consider a pre-paid college tuition plan.

While it’s a bit early to fill out a free application for federal student aid (FAFSA), you may want to talk to a guidance counselor to see what’s available.  There are many grants available, such as Pell grants, Coverdell grants and many competitive academic grants.

Explore what your local community and religious organizations are offering to aid college-bound students.  Don’t limit your choices to U.S. higher education institutions; average annual tuition at an in-state public college was $22,826 for the 2013-2014 year, according to the College Board.  In comparison, a degree earned internationally can average $15,000 per year.
Some organizations such as the Peace Corp, AmeriCorps and ROTC will wave tuition costs in exchange for a commitment to future service.

As always, you must take into account tax consequences.  The IRS offers two tax credits to offset the cost of college tuition; the American Opportunity Tax Credit and the Lifetime Learning Tax Credit.  There are eligibility requirements, so make sure you do your homework.

You have plenty of time to plan for your grandson’s college education.  Congratulations again and good luck!

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