Education-The Most Important Investment
Education…the most important investment
The money you save for your children’s and grandchildren’s education will probably be the most important investment you will ever make. These funds will in turn become a new investment in a child or grandchild’s future, with the potential returns measured in lifetime earnings, career satisfaction, and even the ability to help educate their own children. With stakes this high, your ability to understand the complex template of sources and methods of educational funding has implications that can last for generations.
FAFSA, the Free Application for Federal Student Aid
All students and their families are expected to contribute toward their college costs. The Expected Family Contribution, or EFC, is dependent on many factors, and the U.S. Department of Education will require you to fill out a somewhat complex form, the FAFSA, which they will use to determine your EFC. The results are sent electronically to the colleges’ financial aid offices, who use this information to determine eligibility for loans, grants and work study. The FAFSA can be daunting; it is a complex form, so much so that there are any number of companies that will charge a fee to help you fill it out. Additional information is available at the Government’s own website, www.fafsa.ed.gov.
UPromise is a college saving service that is designed to harness the purchasing power of parents and family members. The entire description of the program is available to you at www.upromise.com, but here’s how it works. First, it’s totally free to join. When you or your family shop at any of 22,000 selected retailers, 8,000 restaurants, or selected online merchants, amounts from 1-5% (and as high as 25%) of your spending are credited back to your Upromise account. When your account reaches a minimum balance you can request a check to directly pay tuition costs, transfer it to a 529 plan, or use it to pay down an existing student loan.
Section 529 plans are federally legislated but state sponsored educational plans that have become the college savings vehicle of choice. Qualified withdrawals from 529 plans, used for educational purposes, can be totally free from federal income tax, and in some cases, state tax as well. Every state has its own plan, but if you live in a different state than your grandchild, don’t worry. Any 529 plan can be used at any qualifying institution, regardless of location.
You can find out information about “Future Scholars Plans” South Carolina’s two 529 plans, at www.futurescholar.com. Both are highly rated; however, the direct plan is only available to SC residents and certain other individuals, while the second plan is offered through Bank of America, and is available to anyone. Both use a selection of Columbia funds, and offer static allocations, age-based options, and a fixed rate account. The minimum contribution to start the plan is $250.
These are just a few among many other important educational savings strategies to consider. Prepare yourself with an understanding of the financial aid procedures, what you will ultimately need, how much you can save, your expected rate of return, and an appropriate investment policy for your child’s age and your own tolerance for risk.