Paying for College, without Student Loans

If you loved attending your college, but hated paying for it raise your hand. Those of us who were forced to take out student loans to pay for our education can probably remember those frustrating days in the A-Building trying to sort out our financial situations to get that coveted validation sticker. Without a generous financial aid package college can be very expensive.

Now a little bit of bad news for those of you who have small children. If you were fearful of the costs of a college education when you went to school, please brace yourself for the following. According to the Bureau of Labor Statistics, the college education inflation rate is above 6% (that exceeds general inflation by more than 200 bps). Unless your child is academically or athletically inclined or both, it’s a good chance that you will bear the tremendous costs of education out of pocket or with help from the federal government or a private institution. The majority of us know the financial distress that student loans can cause. I would say that paying back student loans is probably the #1 concern among all the young professionals that I work with; especially for those who have borrowed privately @ very high variable rates.

Well here’s some Education Planning 101 for you parents, and aspiring students. Preparing for the costs of higher education doesn’t always have to be such an arduous task. There are ways to send your kids and yourselves to college without having to rely solely on the modest financial packages these schools offer and those dreaded student loans. 529 ways to be exact. A 529 plan, is an investment vehicle that allows individuals to save for education expenses at an eligible education institution. This includes any post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education, not just colleges and universities.

So what’s so great about a 529 plan other than the fact that, using it to save aggressively could potentially put a dent in your future educations costs? The TAX ADVANTAGES! Earnings in a 529 plan are tax free if used for qualified education expenses. I must highlight the value of tax-deferred investing. Investing in a tax deferred investment plan allows you to accumulate money for your child’s education over time without the government taxing you and slowing its growth. There is also the opportunity for investors to deduct the contributions made to the plan depending on your state of residence. Not to mention, contributing to a 529 plan puts your investment dollars in a much better position to keep pace with the rising costs of college tuition.

With my investment practice, clients who have children or are expecting to have children will not leave my office without establishing some type of foundation for education planning. Especially because it is so easy. Now there are several tools one could use to accumulate assets for future education, and a 529 Plan is a great way to start. If you haven’t already asked your financial professional about the advantages of a 529 Plan, do yourself a favor and ask now. Start planning for tomorrow’s commencement today. The question we have to ask ourselves is, do we want to invest now, or borrow later? Personally, I prefer the former.

Andrew Bedward
Financial Advisor
Nemec Financial Group
New York, NY 10167

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