College Finance

If you've earned a high school diploma and you're ready to take the prestigious leap for a higher education, be prepared for sticker shock. The costs of a college degree can be astronomical. But with the right combination of scholarships, college student loans and work-study programs, you can make the leap without landing yourself in heavy debt.

Plan A Money for nothing. Here are two proven sources of money, which can help you cover costs without costing a dime

  • Scholarships. There are an enormous range of scholarships, which are financial grants given to students for academic, athletic or artistic merit. There is also a wide range of unusual scholarships based on virtually everything from where you live to where your ancestors lived. Start searching for the scholarship that matches your profile.

  • Financial aid based on lower income. Other alternatives exist beyond scholarships and students loans. Based on your income, you may also be able to receive financial aid from the government or an individual school.

Plan B Interest rates and elbow grease. You can also borrow funds or work off the cost of college in the following ways

  • Federal and private loans. One of the most popular ways to finance college is through a student loan. There are government, as well as private, loans. Federal student loans include Stafford Loans for students and PLUS Loans for parents. These tend to be the most cost-effective. Private student loans are also very competitive and involve much less paperwork.
  • Work study and career-specific financing. Many colleges offer work-study programs, the equivalent of washing dishes in a restaurant to pay for your dinner. Specific trades-such as nursing or the military-offer co-op programs, in which you work for a participating company while you're going to school.

If you're like most students, you'll opt for a combination of the above options. Used wisely, they can help forward your education without pushing you backwards into serious debt. And the long-term rewards-intellectual growth and enhanced earning power-will be worth every penny.

Other options include student loan refinancing (refinance).

Cash-out Refinancing to Pay For College

You've got a bright kid. She worked hard for her grades, aced her SATs, and now she's been accepted to Trinity and Sarah Lawrence. While she's busy evaluating which dorms have the best amenities, you need to figure out how to pay for everything. The answer may be closer than you think.

A cash-out refinancing gives you some of your home equity back in cash, which can be especially tasty if home values have skyrocketed in your area. But there are a few issues to consider if you're going down this avenue.

One of the best perks of a mortgage refinancing is the ability to deduct some, or all, of the interest from your income taxes. If you're in the 28 percent tax bracket, the deductions can effectively knock a quarter point of interest off a 7 percent loan. In other words, it will cost you as much as a 6.75 percent loan with no tax advantages. There are limits to how much you can deduct, however.

Finding funds

Begin by taking advantage of all the scholarships and federal loans that are available to you. Nothing beats the generous terms and low interest rates on Perkins and Stafford loans. But they go only so far.

The next step is to review your home mortgage loan. It may be time to refinance into one with lower rates or better terms. This could give you the opportunity to secure funds for your star student, as well.

What to remember with a home refinancing

To take the greatest advantage of the tax code, the cash-out sum should generally stay below $100,000. If the school that you choose isn't quite that expensive, you can use the equity for any of your other needs, as well. Home improvement costs always have fully deductible interest, so this could be a good time to remodel the kitchen or replace those old carpets You should park any excess funds in a liquid account until you need them.

The cash you receive from your mortgage refinance will come as one lump sum, but college is a multi-year project. So, make sure the money is placed in a safe investment that can, at least, keep up with inflation. Short-term CDs (up to three years) can be effective options, and treasury bills represent the ultimate in safe investments. The idea is to keep your money safe until it's needed, and maybe grow it a little bit in the meantime.

Finally, if you don't need all the money you can get out of your refinancing, don't borrow it at all. A dollar not borrowed is a dollar not racking up interest and raising your monthly bill. And if your home pays for college, your child will have a whole new appreciation for that old house she grew up in.

529 College Savings Plans

The average annual cost of a public college education is now $12,796, and a private university will cost you more than double that amount. You can gradually save for the day that the kids finally leave the roost with a tax-advantaged 529 college savings plan.
Maybe you began saving the day your little bundle of joy was first placed into your arms. But if you're like most Americans, you're not prepared for the rising cost of higher education.

Investing in a 529 plan may be the solution. Far superior to yesterday's Educational IRAs and custodial accounts for children, 529 plans let you pay for college without borrowing thousands of dollars in student loans or writing your impulsive teen a fat blank check.

Investing in education

Investing in your child's education is nothing new. But in years past, many parents diligently invested each year in custodial accounts, only to see the entire amount transferred to their child once they reached the age of majority. Few 18-year-olds can resist the tempting combination of newfound freedom and unfettered access to thousands of dollars in cold hard cash. As you might expect, many youngsters have spent their investment earnings on new cars, clothes, or even day trading.

A better choice is a 529 plan, where parents retain full ownership of the college fund and simply designate a child as the account beneficiary. If the child doesn't use the account for qualified educational expenses, the proceeds can still be used for a different son or daughter.

Prepaid tuition plans

There are two main types of 529 plans available for college financing prepaid tuition plans and college savings plans. If you've fantasized about the day that Junior will grace the halls of your alma mater, buy a prepaid tuition plan in order to lock in today's rates and avoid tomorrow's skyrocketing prices. These plans can save you thousands. But they're restrictive, so review them carefully to make sure that they're right for you.

College savings plans

College savings plans have fewer restrictions. You can contribute upwards of $200,000 and use the money for most reasonable college-related expenses, including tuition, fees, room, and board. Many plans even cover the cost of textbooks and computers.

It's your money

Some 529 plans will let you claim any unused funds for yourself, although you may have to pay federal tax and a 10 percent penalty on the earnings portion, depending on why the money remains unspent. And if your only child receives a full ride to Harvard? You're probably entitled to a penalty-free exemption.

Tax-free earnings

You can't deduct 529 plan contributions on your federal tax return, but your earnings will accumulate tax-free. Some states also offer a break on your state income tax if you subscribe to a state-sponsored plan.

Ultimately, 529 plans are a wonderful way to finance your child's college education. If you review your financing options carefully, you're bound to find a plan that's right for your family.

For Students Make Money through Savings Bonds

U.S. Savings Bonds earn money with little risk and little maintenance, an ideal option for the student saver.
You've heard that you need to have money to make money. That's usually true. But this isn't necessarily a bad thing, because making money with money is a lot easier than waiting on tables or manning a cash register. Using your savings to make money might mean less work and more of the other stuff, like studying, texting, and hanging out.

Low risk, low maintenance investment

If you've parked your money in a free savings account at the bank, you're probably not that excited about the interest you're earning. A fraction of one percent on a thousand dollars doesn't add up to much. There are more profitable alternatives out there. One important one to consider is the U.S. Savings Bond.

When you purchase a savings bond, you're lending money to the U.S. government and earning interest in return. You pay out money to buy the bond and, upon redemption, you get your investment back, plus interest. Savings bonds are as safe as an FDIC-insured savings account, and may be even safer than that secret hiding place in your dorm room.

The two types of government savings bonds, Series EE and Series I, are both great options for student savings. The main difference between them is how the interest is calculated. Series EE bonds pay a fixed rate, and Series I bonds pay an inflation-adjusted rate.

For you or as gifts

You can buy savings bonds online at TreasuryDirect (www.savingsbonds.gov), or at your bank or credit union. Take note of the differences between buying bonds online and buying them at a bank or credit union branch
  • Bonds purchased through TreasuryDirect are electronic. You can open an account with as little as $25. These are purchased for face value and are available in any denomination. The 24/7 online interface makes it easy to check a bond's value or to redeem it.
  • Bonds purchased through banks and credit unions are paper. After the purchase, you'll receive a printed document that has to be protected like cash. These are available in certain denominations only. For example, you can buy a $50 paper bond and $100 paper bond, but not a $150 one. Series I paper bonds are purchased at face value, and Series EE paper bonds are purchased at half of face value. You can check your paper bond's value by using the TreasuryDirect Savings Bond Calculator. Paper bonds can be redeemed at banks and credit unions.


The next time that you have a little free time (not in class, please!), navigate that iPhone to www.savingsbonds.gov. Everything you need to know is there. If you can't spare any cash, ask for savings bonds for your next birthday. Your elders will probably love the idea.

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