Prep for College Now
Oct 28, 2013 07:20AM
By Linda Persigehl
“Certainly, the amount they should save depends on each [person’s] financial situation, but I tell them to put aside something. Start out with a regular savings account and build from there.” —Beverly Hobbs
Start Saving ASAPBeverly Hobbs, LPL Financial Advisor with SAC FCU Wealth Management located at SAC Federal Credit Union, says parents should ideally begin saving for their child’s college education when they’re born. “With college as expensive as it is and costs rising…the earlier, the better,” Hobbs says. “Certainly, the amount they should save depends on each [person’s] financial situation, but I tell them to put aside something. Start out with a regular savings account and build from there.”
“The key here is consistency,” adds Crissy Hayes, vice president of operations at SAC FCU. “Take what discretionary income you have and budget to pay yourself first, then pay your kids second.” Scheduling automatic checking account withdrawals or payroll deductions to make regular deposits to a college fund—a “set it and forget it” system—is highly recommended.
"...all earnings in the investment are tax-deffered and remain tax-free when funds are withdrawn for higher-education expenses." —Deborah Goodkin
Consider Investing in a 529 College Savings PlanDeborah Goodkin, managing director of college savings plans for First National Bank of Omaha, says 529 College Savings Plans are among the best tools for parents to save for their children’s education. Plans, of which there are more than 90 available nationally, are issued by individual states. Nebraska offers four 529 plans, commonly referred to as NEST (Nebraska Education Savings Trust) plans.
NEST plans offer three big advantages, Goodkin says. “First, all earnings in the investment are tax-deferred and remain tax-free when funds are withdrawn for higher-education expenses. Second, for those who pay Nebraska state income tax, up to $5,000 of NEST contributions are deductible in computing one’s state income tax, and that amount will rise to $10,000 as of Jan. 1, 2014. Third, for those who are not savvy investors, 529 plans offer an easy way to invest and offer flexibility to move funds from more aggressive to less aggressive investments as the child ages, much like an IRA with a target retirement date does. Most plans have no minimum monthly investment, and as much as $360,000 total can be saved in any single NEST plan.”
Community colleges, technical and culinary schools, four-year colleges, and even universities abroad all qualify under 529 plan guidelines. Covered college expenses include tuition, books, fees, computers (when required for coursework), and room and board. “Virtually everything except transportation to and from school is included,” Goodkin adds.
In addition, 529 plans allow grandparents and others to make deposits as well, and the funds are transferable to other family members seeking higher education if the plan beneficiary does not use them.
Goodkin warns there are penalties on earnings when funds are withdrawn for unqualified expenses. And like any investment, there are always financial risks to consider. “But NEST plans have some of the highest plan ratings in the country, based on their earnings performance, their ease of use with online management tools and customer service, and the plans’ history of giving back to the community.”
Nonetheless, Hobbs advises parents to sit down with an expert before making any investment decisions. “Prior to investing in a 529 plan or making any investment, you want to talk with a financial advisor and tax advisor to assess your individual needs, your goals, and your risk tolerance. There are so many options, restrictions, and regulations, you want to make sure you get all your bases covered.”
“Too many parents make the mistake of thinking their kids will get full college scholarships—either academic or athletic—and they’re ill-prepared when they don’t.” —Goodkin
Look to Scholarships for Help (But Don’t Depend on Them Entirely)“Too many parents make the mistake of thinking their kids will get full college scholarships—either academic or athletic—and they’re ill-prepared when they don’t,” Goodkin says. “What they don’t realize is that federal scholarship income guidelines are too low for many to quality. In addition, more people today are in need of financial assistance, so more are applying for scholarships. There’s just less out there.”
That’s not to say there aren’t scholarships to be found, many of which can be researched and applied for online. A comprehensive list of college scholarships, application tips and more can be found at www.scholarships.com. Students don’t need to wait until their junior or senior high school years to begin the scholarship hunt, Goodkin adds. Hundreds of smaller scholarships are awarded each year to elementary and high school students who enter essay contests, music competitions, and so on.
A high school guidance counselor can also be a great resource for learning about small scholarships offered in one’s community (think VFW, local charities, the Chamber of Commerce, etc.) or school system.
“Make sure to find out from the school what their priority deadline for FAFSA forms is [for financial aid for the following fall], as they vary." —Paula Kohles
Seek Financial AidIf scholarships and college savings just aren’t enough to cover your expenses, then seeking student financial aid is your next step. “Begin by completing your FAFSA [Free Application for Federal Student Aid] form well in advance and submitting to your college’s financial aid department to see if you qualify for federal grants or other aid,” suggests Hobbs.
Paula Kohles, associate director of financial aid at Creighton University, says FAFSA forms are typically filled out online these days and sent electronically to a school’s financial aid department. The beginning of a student’s second semester of their senior high school year is suggested as a good time to apply. “Make sure to find out from the school what their priority deadline for FAFSA forms is [for financial aid for the following fall], as they vary. Creighton’s is April 1st, but other schools’ deadlines are even earlier.”
Once received, the school will evaluate a student’s financial situation and send them an award notification letter spelling out their aid eligibility, Kohles says. Federally subsidized Stafford Loans and Perkins Loans, which offer college students reduced interest rate loans and special repayment options, as well as Pell Grants (which don’t need to be repaid), are some of the options students may qualify for.
“We also look at their eligibility for campus-based SEOGs (Supplemental Education Opportunity Grants) and work-study programs, as well as unsubsidized loan programs,” Hobbs adds. “There are a lot of aid options out there.”
The final takeaway? College preparation requires sound financial planning and good ol’ resourcefulness. But if you fall short, there is help available. Now get to it!
Beverly Hobbs is a registered representative with and securities offered through LPL Financial, Member FINRA/SIPC.