This continues our series on finding money to pay for college—using someone else’s
Parents remain major contributors to pay for college. Most used to pay directly from their savings or earnings. Many created and contributed to a 529 educational savings plan. Sadly, too many took out their own loans to pay for their children’s schooling. The recent economic crisis and the attack on the middle class created financial stress on American families. Rising tuition rates accentuated the family’s financial crunch.
Parents Pay
Parents paid for children to go to college since the beginning of the country. Chasing the American Dream: Recent College Graduates and the Great Recession. reported 47% of respondents indicated that parents and relatives paid for their college.
“Most recent college graduates are also far from financially independent of their parents or other family members. Family members are helping their young graduates with basic necessities, such as food (22%), health care (15%), housing 30%, [student loans 10%], and car payments (9%). Overall 51% of the respondents to our survey get financial support from their parents or relatives.”
529 Educational Savings Plan
Federal Student Aid writes “A QTP/529 plan is established by a state or school so that you can either prepay or save up to pay education-related expenses. Once you’re in college or career school and you withdraw money from your account to pay your education expenses, the money you withdraw will not be taxed.”
Saving for College names the top 7 benefits of 529 plans:
- Federal tax benefits: 529 plans offer unsurpassed income tax breaks
- State tax benefits: Your own state may offer other tax breaks
- Donor retains control of funds
- Low maintenance provides a very easy hands-off way to save for college
- Simplified tax reporting through a 1099 when you start withdrawing
- Flexible if you want to move your investment around, you many change to a different option
- Substantial deposits allowed for each child’s account
Each state authorizes 529 plans. You can find the your state at this list.
Wednesday we begin examining step 3 creating reusable materials to apply for financial aid
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