Money Sense Tips

It’s never too early to start thinking about your children’s college education. The sooner you start saving, the greater the chance your child will have enough money to get through college with no worries. But when considering college savings, many parents are unsure just what they should do with the money.

You could stuff it in a sock drawer, but it would have no chance of drawing interest there. A savings account might be slightly better, but any interest earned would be taxed. A 529 plan is a much better option.

529 plans are similar to 401K plans, but they’re for higher education instead of college. Parents, grandparents or anyone else can put money into one for a specified beneficiary. Any interest earned is tax-deferred, and if the money is left in the account until the child goes to college and used for college expenses, there is no tax liability.

There are two basic types of 529 plans. The College Savings Plan is the most similar to a 401K. Investors are allowed to choose from a variety of investment options for the plan, and their money earns interest according to the investments’ performance. The Prepaid Tuition Plan is different in that it allows contributors to purchase tuition credits at current prices to use in the future.


Most 529 plans are run by states. Every state offers at least one plan. Each plan is different, but most require either the plan owner or beneficiary to be a resident of the state issuing the plan. Some allow residents of any state to invest, but out-of-state residents may not be eligible for all available tax benefits. In most cases, the funds from state-run plans may be used at any college or university, even if it is not located in the same state.

There are also 529 plans offered by colleges and universities. All plans offered by educational institutions are prepaid tuition plans. Unlike state-run prepaid tuition plans, however, those run by schools are not guaranteed by the government.

The funds withdrawn from a 529 plan must be used toward eligible expenses. With prepaid tuition plans, these generally include only tuition and mandatory fees. Some plans, however, offer an option to purchase room and board credits or use extra tuition credits for these expenses. Money withdrawn from college savings plans may be used for tuition, fees, books, computers and room and board.

A 529 plan can help you save money for education without incurring a huge tax bill. These plans are easy to set up, and all of the investing is taken care of for you. All you need to do is make contributions and make sure that the beneficiary uses the funds properly when the time comes. More Info, check out: StudentLoansMentor

Getting a college education can greatly increase your earning potential. Statistics show that those with four-year degrees earn about 60% more than those with no education beyond high school. So if you can come up with the money to attend college, it should be worth it in the long run.

The trouble is, college is quite expensive. Earning a bachelor’s degree costs many thousands of dollars. This is why many students turn to student loans. There is no interest charged while you’re in school, and you do not have to start repaying the loan until you graduate. Still, it’s important to carefully consider a student loan before making a commitment.

The Alternatives


If you truly can’t afford college, you can usually get funds that do not have to be paid back. Even if you don’t think you will qualify due to your family income, it’s a good idea to apply for federal student aid. Applying is free, and you might be surprised to learn that you do in fact qualify for some assistance. This aid may not pay all of your expenses, but it can be a big help.

It’s also smart to apply for scholarships. There are scholarships out there for all types of students, not just those at the head of the class. Scholarships are offered for those participating in sports, theatre, clubs and more. Some scholarships are awarded for winning competitions, so it doesn’t matter what kind of student you are.

Federal aid and scholarships can greatly offset the costs of a college education. They can reduce the need for student loans, or possibly even eliminate it.

Disadvantages of Student Loans

Student loans can help us get the education we need to succeed, but they are not without drawbacks. One of the most significant is the time it can take to pay them off. You may end up making payments for decades depending on how much you borrowed. This can make it more difficult to afford the things you want and need in life.

Another drawback is the fact that you may or may not be able to get a job in your field immediately after graduation. Even if you do not get a job right away, you are still obligated to start paying back your loan. If you don’t, it could damage your credit and your wages could be garnished when you do go to work.

Defaulting on student loans can make your life much more difficult. Employers who run credit checks on prospective employees may pass you over if they see you have defaulted. Such a default will remain on your credit history indefinitely, and student loan debt usually cannot be discharged by bankruptcy.

If you find that you need a student loan, try to get one that is backed by the government. Government-backed loans usually have low fixed interest rates and more flexibility in repayment than private student loans. No matter what type of student loan you get, paying it back should be a top priority in your budget. The quicker you can repay it in full, the more you will be able to enjoy the increased income your education brings.

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