How am I going to pay for my child’s college education?
According to The College Board, average 4-Year college costs for 2006-2007 are:
Four-year private $22,218 (up 5.9 percent from last year)
Four-year public $5,836 (up 6.3 percent from last year)
As they have for the last ten years, college costs rose faster than inflation, according to the report "Trends in College Pricing," released by the College Board, a non-profit association of 4,500 schools, colleges and universities.
The rate of growth in tuition costs at four-year private colleges was about the same as last year -- 5.9 percent. But growth slowed in tuition costs at four-year public universities. They rose 7.1 percent. In 2005, public school tuition jumped 10.5 percent.
Tuition costs, of course, are not the whole nut. Including room and board, the cost of attending a private college is $29,026 per year on average, and $12,127 at four-year public universities.
While there has also been a spike in the amount and sources of loans, scholarships, grants, etc., the majority of the cost associated with college is born by the student and parents.
There are several ways to begin saving for college early in your child’s life to help significantly reduce your financial burden. The main advice is to begin saving as early as possible. Time is your friend. Some options to consider include:
Taxable account |
The least restrictive way to save for college is to open an account in your name and save and invest in stocks, bonds mutual funds -- or whatever other form of investment you like. You'll pay taxes, at your rate, on capital gains and income as they're incurred. You'll get no tax breaks on qualified education expenses. |
UGMA/UTMA |
With a Uniform Gift to Minors or Uniform Trust for Minors account, you place money in the child's name and act as custodian, managing the account, until the child reaches the age of majority (18 to 25, depending on the state). The income and gains get tax breaks, but you must use the account to pay expenses for the benefit of the child. Once the child reaches the age of majority, they own the account and you no longer have control of the funds. |
Coverdell Education
Savings Account |
These accounts work much like an Individual Retirement Account. You can put aside up to $2,000 a year for each child in an account that grows tax free until you withdraw the money to pay for qualified education expenses for college or K-12 expenses, including public and private school costs. Eligibility is restricted based on your income. |
529 plans |
These plans are specifically designed for college savings. They're open to anyone, let you set aside more than a Coverdell plan, and you maintain control over the money while enjoying significant tax breaks. Some plans let you "pre-pay" tuition at today's rates. There are over 100 different state-run plans, with varying fees and features, making the selection process complex and time consuming. |
Get together with your Hagan Newkirk advisor to compare options and find which one works best for you and your family.
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