Ways to Save for College

Should you take out loans for college even if you have the money available to pay? This is a tough question but it might become easier when you consider some legislation that is currently in Congress. Congress is considering lowering the interest rates on subsidized loans. If approved, the loans would follow this interest table:

Loan Issue Date - Interest Rate
Through June ‘07 - 6.80%
Through June ‘08 - 6.12%
Through June ‘09 - 5.44%
Through June ‘10 - 4.76%
Through June ‘11 - 4.08%
Through June ‘12 - 3.40%

Many people assume you should automatically use the money from your 529 plan to avoid penalties. However, withdrawals from a 529 plan can still be tax free if the funds are withdrawn in the same year the beneficiary incurs qualifying college expenses.

When attempting to calculate college expenses, the College Board states that published tuition prices are not what most students actually pay. Grants and educational tax credits reduce the cost of higher education for many students and families.

The average amount students actually paid for annual tuition and fees at public colleges and universities after receiving grant aid and taking advantage of tax breaks was reduced from the published price of $5,491 to $2,200.

Private colleges and unversities are a different story, the average amount students actually paid was reduced from the published price of $21,235 to $11,600 per year.

Even with grant aid and tax breaks, college students receive more than half of their financial aid in the form of loans, and aid in the form of loans is growing at a faster pace than grant aid, a concerning trend for future students.

Series I savings bonds and Series EE savings bonds purchased after 1989 have a tax-savings college education feature. When you use the bonds to pay for higher education, you may be able to exclude the bond’s interest income from your tax return.

In addition, savings bonds are a great way to support your country while helping your child save for their future education. Savings bonds also make a great gift to give to grandchildren as presents.