Saving for College

Saving for College

PICPAThe Pennsylvania Institute of Certified Public Accountants

PICPA is a professional association of more than 22,000 CPAs working together to improve the profession and serve the public interest.

Saving for College

Start Early!• Tuition expenses are rising faster than

inflation.• If possible, start a college fund as soon as

you have kids (or even before, if reasonable).

Saving for College

Saving Options• Traditional savings account• Gifts—Tax free up to $20,000– Uniform Gift to Minors– Uniform Transfers to Minors

Saving for College

Saving Options• 529 Plans—Savings grow tax free, and

distributions for qualified expenses are also tax free– 529 Prepaid Tuition Plans– 529 College Savings Accounts

Saving for College

College OR RetirementParents often wonder if they can only save for one, should they save for children’s education OR their retirement?Most experts recommend that retirement savings take precedent.– Children can take a loan out for school or

apply for scholarships, not so for retirement

Saving for College

College OR RetirementIf you can only save for one, should you save for children’s education OR your retirement?Most experts recommend that retirement savings take precedent.– Children can take a loan out for school or

apply for scholarships, not so for retirement

Saving for College

Shop SmartBefore selecting a college or university with your child:• Look into scholarships• See what aid packages colleges offer• Be flexible—consider state instead of private

school, or suggest community college before moving to a four-year school

Saving for College

Shop SmartNegotiating a better financial aid package:• Have students to apply to colleges where their test

scores place them in the top 25% of applicants.• Contact first-choice schools if:– Aid package isn’t enough to realistically cover

costs– Second-choice school offered a better package

Saving for College

Shop SmartBefore selecting a college or university with your child:• Consider the total cost—experts recommend

students’ total loans not exceed what they’ll earn their first year after graduation. Steer students clear of costly colleges with poor aid packages.

Saving for College

Shop SmartFamilies should have a plan in before school starts:• Be clear about what parents will pay for and

what students will pay

Saving for College

Closing the GapOptions to pay college costs not covered by aid, grants, or scholarships:• Tuition payment plan—spreads the cost out over 12

months• Loans– Federal and private options• Live at home if possible• Try to graduate in 3 years instead of 4

Saving for College

CosigningWeigh pros and cons carefully:• Pro—student will likely get the loan, and have a

better rate• Con—you’re on the hook if the student can’t make

the payments after graduation.

Saving for College

TaxesCredits:• American Opportunity Credit• Lifetime Learning CreditDeductions:• Tuition and Fees• Student Loan Interest

Saving for College

Money Management BasicsWork with students to set up a budget• List sources of income• List what students might spend in a month:– Cost of books and school supplies– Meals and entertainment– Personal care items– Car expenses/travel

Saving for College

Money Management BasicsCredit card companies aggressively target college students• A credit card is a good way to build credit

and good in case of an emergency• Try using a debit card for everyday

purchases and save the credit card for emergencies

Saving for College

Money Management BasicsCredit card advice:• Beware of teaser rates• Stick with one card• Pay in full every month• Pay on time – avoid late charges• Avoid cash advance• Protect your credit history

Saving for College

Tips for StudentsIt may be a good idea to open an account at a bank near your school of choice. Locate a bank that offers free or low-fee checking for students and has ATMs on or near campus.

Saving for College

Returning to School as an AdultThe federal government and colleges base your aid eligibility on last year’s tax records. If you plan to cut your hours or stop work to go back to school, your income will obviously decrease. Bring this to the attention of the financial aid director.

Saving for College

Get Creative with Saving• Check to see if your employer offers assistance– Up to $5250 of employer-provided education

assistance is tax free• Can use 529 Plan to fund grad school or career

change education

Financial Tips for College

Resources• PICPA’s College Savings page

www.picpa.org/collegesavings • 360 Degrees of Financial Literacy

www.360financialliteracy.org • U.S. Department of Education

www.college.gov

Financial Tips for College

Questions?