Paying for college can be an extraordinary expense, but there are ways to do it.
There's no question that the cost of college can be intimidating, especially if you have more than one child.
And paying for college may be more manageable than you assume if you plan ahead. You can also investigate a number of ways to control the cost.
COMPARING COSTS
While tuition may be the largest single expense of attending college, it isn't the only one. Whether students live on campus or commute from home, they must pay for books, food, transportation, and other expenses — many of which aren't covered by scholarships or loans. While these costs apply no matter where your child attends, you'll find that they vary, just as tuition does, from school to school. You may want to ask your child to weigh those differences in making his or her final decision, along with choices between a rural or urban campus and a large school or a small one.
AVERAGE ANNUAL COST FOR PUBLIC EDUCATION: $18,326/$29,193
(in-state, out-of-state) |
AVERAGE ANNUAL COST FOR PRIVATE EDUCATION: $37,390 |
*Trends in College Pricing, 2008. Percentages for various cost approximate. Cost is for four years. |
TAXPAYER RELIEF
You may qualify for a
Hope Scholarship credit for money you spend on a child's educational expenses if, in 2010, he or she is enrolled at least half time in a qualified higher education institution and pursuing the first four years of a degree or other credential. Qualified institutions include liberal arts colleges, universities, and vocational, trade, or technical schools. You may take the credit for your own expenses or those of your spouse, with the same conditions. The American Opportunity Tax Credit of 2009 expanded the existing Hope program for 2009 and 2010, so that you can use the credit for the first four years of post-secondary education rather than just the first two. In addition to tuition and fees, you can also apply the credit toward course materials. It's possible this benefit may be extended to 2011 and beyond, but it is not certain.
In addition, you may qualify to claim a
lifetime learning credit each year for other qualified higher educational expenses, including your own. The course work doesn't have to be part of a degree-granting program, though it can also be used for postgraduate or professional studies. You can take both credits in the same year, but not for the same person.
You can take only one lifetime learning credit per year, even if you are paying for more than one person's education. But if two students are enrolled in the first four years of post-secondary school at the same time, you can qualify for two Hope tax credits.
You're eligible for the full amount of these credits if your modified adjusted gross income is less than the limit Congress sets for the year. Those limits depend on whether you file your tax return as a single filer or you're married and file a joint return. The credits are phased out gradually and then eliminated for people who earn more than the annual ceiling. The amount of the credits and the income levels tend to increase gradually to reflect inflation.
You can get more information on all the tax benefits for education that you may qualify for on the IRS website (
www.irs.gov) or in IRS Publications 553 and 970, which you can download from the site.
SAVING IN A CHILD'S NAME
Any adult can save for college by opening a custodial account in a child's name under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). It's smart to consult your tax and legal
advisers, though, before you make this choice to be sure it makes financial sense for you and your beneficiary. Recent changes in the law mean that the tax advantages that formerly applied to custodial accounts have been significantly restricted for students younger than 24.
One advantage of an UGMA or UTMA is that you as the donor or the person you name to oversee the account can choose how to invest the assets in the account, and you can move assets you own into the account without having to sell them, which might result in a potential capital gains tax. That's not an option with a 529 college savings plan or an ESA.
But using an UGMA or UTMA can backfire if the child applies for financial aid. That's because these accounts are considered assets of the child and most financial aid formulas require students to contribute 35% of their savings toward college costs, while parents are required to supply less than 6% of theirs. The other drawback is that once the child reaches the age of majority (usually 18, 21, or 25 depending on the state and the type of account), he or she has the right to assume control of the account and spend the money.
WHAT'S AVAILABLE?
If you don't have as much as you need to pay for higher education, schools may offer your child a package of aid:
Scholarships or grants, which do not have to be repaid.
Loans, which must be repaid, but usually not until after graduation. Working in certain jobs or locations can reduce the loan or postpone repayment.
Work/study grants, which pay the student for work done on campus during the school year. Sometimes earnings are deducted from tuition and other times the student earns a salary.
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