Archive for the ‘Grants’ Category
A Primer on 529 Plans – your Best Shot Saving for your Child’s College
Posted on Dec 7, 2010 02:43:06 PM
We are friends with this young family that lives close by; they have three little daughters, all under 8, and it’s a family that anyone would want to model theirs on. To me, the most remarkable thing about them is not just that they are perfect; it is how they are perfect right down to their sense of financial responsibility. Their daughters are young and they don’t need to start worrying yet about being ready with a fat endowment when they decide to get married or anything; but the time that they will need to pick a college is maybe only 10 years away, and it’s already making them nervous. For about 6 years now, they have been socking away $500 a month in 529 plans for college (it’s been built up to $30,000 already). They had the foresight to look up college costs perhaps three weeks after their first daughter was born, and they right away got around to it without putting it off.
There is no other savings channel that could possibly give them all that 529 plans do. They lock in their college costs at today’s prices, their money grows – and everything is tax free. They won’t be able to cover all the costs of their kids’ education by the time they grow up; but they have the right idea, and they’re doing the best they can. 529 plans certainly seem to attract a great deal of fierce loyalty from families with young children. According to the Financial Research Corporation of Boston, 529 savings plans are going to attract about $250 billion of investments by next year. And that is up from practically nothing just 10 years ago.
Here’s a quick rundown of what makes a 529 plan what it is. To begin with the curious name, as you would expect it, comes from the section of the tax code that sanctions the plan. These plans come in two flavors: college savings plans and prepaid tuition plans. Depending on the state, you’ll get an option in one or the other, and sometimes you’ll get both. Prepaid tuition plans are the ones that will allow you to lock in your college costs at today’s prices. For instance, if you live in Florida and have a child who will need to be in college in five years, the belief is that a four year degree at a University of Florida college will cost about $48,000 then. With your prepaid 529 plans now though, you could freeze it at today’s prices, which would be $35,740.
If you go with state-sponsored prepaid 529 plans, they ask that you sign up right away to one of several major established state institutions. If you pick an independent 529 plan, you get your pick of several smaller independent colleges. Prepaid plans can be somewhat bothersome. Most states don’t offer them, and when they do, they require that you be a citizen of that state to be eligible to apply. And they can be expensive too – not entirely suitable for people who want to save slowly, or just a part of what is needed. The most popular 529 option lies in the savings plans. These let you begin to save for admission to colleges in every state of the country today. And they are pretty easy to set up too. The great thing about these plans is, that it’s completely up to you when you make your deposits and how you choose to see your money invested.
If you worry that sort of thing, with a 529, your child gets no say over how to spend the proceed when it finally comes due. When they have no legal funds to their name, they become eligible for financial aid. And also, in some cases, the fact that the child has no right over how the money is spent keeps me safe from careless choices (say, spending the money on a week at the Bahamas). 529 plans can be real winners in other ways too. Over the years, you can make deposits that amount to as much as a quarter million dollars; in states like Colorado, the state will contribute up to $500 each month to your account, and you get all kinds of tax breaks as well.
Of course 529 plans can be a bit of a pain for the number of choices they give you with all kinds of features (like how they will invest your money). And if you happen to use the money to not pay for college costs, there’ll be a penalty. The way they invest your money can often become an area of serious disagreement. For instance two years ago when the markets plunged, ahead of the recession, some 529 plans tried to follow their normal plan oblivious of the economic environment. For accounts that were nearing maturity, they tried as usual to shift investments from low-risk mutual funds to more conservative investments (like income securities). In doing this, they went and sold their mutual funds on the market when it was very low. Everyone tried to stop them, but they wouldn’t listen. They sold at the bottom of the market.
529 plans, like anything else you trust others with, depend on how bureaucratic their administrators can be. Even if you’re completely enthusiastic about investing in your child’s future in this way, you need to be aware that if you are hoping for Hope and Lifetime Learning tax credits, paying your child’s entire college education bills with a 529 bounty can disqualify you. Well, nothing is without the downside.
The United States gives hope to thousands and to its self through education loans
Posted on Sep 25, 2010 03:33:25 AM
In a democracy, through their vote, the people decide what issues should be set before them, what side of an issue will prevail, and what their, and their children’s future will hold. Citizens are expected to be conversant on the issues of the day, expected to use their minds and knowledge to seek and discover the concerns that will shape the destiny and form of their nation. Successful democracies depend on the wisdom of their people, and wisdom comes through discipline, training, experience, and education. Through education comes the higher skilled workers that no robust economy can do without. A strong and healthy economy is the backbone of a strong and healthy nation. No democracy can afford to ignore the importance of education if that democracy is to survive, to thrive and flourish, if it is to be a democracy capable of justice. It is the responsibility of a democracy to assure its citizens the right to an education. It must make it widely available and affordable. Education loans are one important vehicle.
Having long recognized the necessity of an educated populace, and recognizing as well that education comes with a price tag, the people of the United States have heartily embraced the practice of education loans. Education takes up time that might otherwise be used for work and profit. A citizen must live while yet attending a school or a college, and the education facilities and its teachers and staff must all be paid. Unless the citizen is wealthy, most citizens are unable to refrain from work in order to obtain an education. A part-time job will only cover so much. To cover the rest, the people of the U.S., through their government, make the first twelve years of a citizen’s education free, and for higher education, student loans are available.
Education loans in the United States have been supported by the federal government since 1965. Our government subsidizes banks and institutions such as Sallie Mae, enabling these institutions to provide student loans to citizens in need. The government encourages lending institutions to make student loans by reducing risks to the lender. The Federal Family Education Loan (FFEL) project, the government program responsible for backing student loans, will pay out 97 percent of a student loan that goes into default.
With this incentive in place, lending institutions have little trouble giving out education loans. There is money to be earned from the interest charged, and the risk is low. Granted, there isn’t the opportunity for lenders to make the highest possible profit from their capital: since 1993 the federal government has been making student loans directly to the student, putting a competitive cap on interest rates the private sector lenders may charge. FFEL has worked very well for students and lenders alike, but, under the FFEL program, the people have been expensed at about $6 billion a year. This is money that could be applied to student grants for low income students, to the Pell grant. To reduce these expenses and make the saved money available for grants, and for junior colleges, the federal government is now retiring FFEL and making education loans directly to its citizens under the Direct Loan Program.
While this may be bad news for the education loans industry, it’s good news indeed for low income students. The Pell Grant is slated to receive an additional $13.5 billion of funding. With so many people unemployed and displaced, wanting to return to school today, this change is just in time. It brings hope to thousands of people thirsting for knowledge and a better job. It is also reason to hope that the United States will win in its struggle to retain its character as democracy’s shining star. Its commitment to education ?and education loans – may very well be the means of its redemption.
How to Get College Grants and Scholarships
Posted on Jul 14, 2010 09:15:36 AM
There are plenty of scholarships that fly under the national radar, too, so make sure to scour local sources. If you work, your own company might offer tuition reimbursement, and the IRS lets $5,250 of that be treated as tax-free income. Your parent’s employer, especially large national corporations, might offer scholarships to promising students among their staffers’ children. Prominent service organizations like Rotary, Kiwanis and Lions, along with business associations like the Chamber of Commerce, often offer awards to local students as well.
Don’t forget the federal cash you might qualify for, either. They’re called Grants for college, which are needs-based and awarded to low-income applicants. To secure them you’ll need to fill out the Free Application for Federal Student Aid, which will determine your award based on factors like salary and family contribution.
Sure, there may be plenty of competition for all these college grants. But keep this basic credo in mind: you can’t qualify if you don’t apply.