Money Smart Week (hosted by the Federal Reserve Bank of Chicago) takes place in Chicago from April 20 through April 26, 2008. During this week hundreds of free financial education classes, seminars and activities will be offered.
Loretta Abrams, senior vice president of Consumer Affairs at HSBC-North America, encourages parents to take advantage of the wealth of free information available to learn as much as you can about the various savings and investment options available as you implement or enhance your college saving strategy.
Facts You Should Know:
- Two-thirds (65.7%) of 4-year undergraduate students graduate with some debt; the average student loan debt is $19,237.
- Average income of a student with a bachelor's degree is $45,678 compared to $24,572 for students with a high school diploma - a difference of more than $1 million in lifetime income (US Census Bureau, December 2000)
- For the 2007-2008 academic year, the average cost of annual tuition at an Illinois Public University was $8,553 and at Illinois Private Colleges and Universities the cost ranged from $7,700 to well over $35,000.
- Grants or Financial Aid
Time is a valuable asset when it comes to saving. The sooner you start saving, the more time your money will have to grow and through the "power" of compound interest, modest amounts can yield significant returns. For example, if your child is born today and you can save $400 per month, at a modest interest rate of 4%, you will have $126,327 by the time he or she is ready for college. Even if college is 7 years, 5 years or 2 years away for your child, it's never too late to begin saving.
- 7 year time Horizon at $400 per month -- $38,702
- 5 year time horizon at $400 per month -- $26,520
- 2 year time horizon at $400 per month -- $9,977
These plans are named after the section of the federal tax code under which they are authorized. Section 529 plans are state-sponsored college savings programs that present a method for families to save for future college expenses. The two major types of plans are Prepaid Tuition Plans and State College Savings Plans.
- Prepaid Tuition Plans allow you to lock in the current tuition rates. You purchase tuition now for use in the future.
- State College Savings Plans allow you to participate in an investment plan sponsored by the state, but often administered by a third-party investment firm. Unlike prepaid plans, savings plans are not guaranteed by the state.
- You get income tax breaks. Your investment grows tax-deferred, and distributions to pay for the college costs are federally tax-free.
- You stay in control of the account. You decide when withdrawals are taken and for what purpose.
- It's a very easy hands-off way to save for college. Once you decide which 529 plan to use and complete the enrollment process, the ongoing investment of your account is handled by the professional plan managers.
- Everyone is eligible to participate and the amounts you can put in are substantial (over $230,000 per beneficiary in many state plans).
Scholarships -- Scholarships and fellowship do not have to be repaid, but are generally reserved for students with special qualifications - maybe academic, athletic or artistic talent. Search for free scholarship search sites for more information. Stay alert and be aware of common scholarship scams!
Federal Aid/Grants - Students may qualify for assistance from a federally funded or federally guaranteed financial assistance program. Visit the Federal Student Aid Web site for more information.
Student Loans - There are three major loan categories - student loans, parent loans and private student loans. The maximum amount that lenders may charge for federally-guaranteed loans is set by federal law. Many lenders may also offer a variety of student loan discounts.
College Planning "To Do" List:
1. Develop and implement a college savings plan now, regardless of the age of your child, It's never too soon or too late to begin saving!
- Personal savings
- 529 Savings Plan (College Illinois Vs. Bright Start)
- Scholarships, Federal Aid and Student Loans.
3. Do not touch your retirement savings. There are two reasons for this: first, your child has resources to draw on besides you to help pay for college, but there are no "retirement scholarships"; and second, your 401(k) and IRA savings are not treated as assets in determining the Expected Family when you apply for student financial aid.
4. Review your college planning periodically. Programs and investments will continue to evolve. Tax laws will change and so will your own circumstances. Review your financial situation periodically (at least yearly) and make adjustments as necessary.
Check YourMoneyCounts.com to learn more information on savings for college and other financial topics.