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College Cost Planning: How 529 Plans Help You Save Now & Pay Less Later

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Planning is important when it comes to your child’s education expenses. The amount of debt that can be prevented by saving ahead of time for school costs could be life changing for the parent(s) and the child or children. When the typical college student graduates, they are likely taking on entry level salaries after graduation.

Add the burden of a monthly student loan payment, and you have a recipe for a difficult come up in the world. Career advancement is easier when money isn’t your first problem, like a monthly student loan repayment the size of a luxury car note.

The current student loan debt crisis shows us why it’s important to save for college. Regardless of what’s been done in the past, wouldn’t you rather save money now anyway?

What are 529 Savings Plans?

529 savings plans offer an incentive for education savings in that the money is tax-free when a payment is made toward qualifying education expenses like tuition, housing costs and books, to name a few.

These 529 plans are not limited to college education payments. You can also use a 529 plan to pay for qualifying education expenses for children grades K-12.

How Do You Use a 529 Plan?

The money saved in a 529 savings plan can be used for qualifying education expenses, such as tuition, housing and books.

Currently, the maximum withdrawal per year, per beneficiary, from a 529 plan is $10,000. If you do not use all of the money that is saved in a 529 plan, you can change the name of the beneficiary so that they can use the funds, or keep the money in the plan in the case that the current beneficiary decides to go to graduate school. You can make a withdrawal from the 529 plan at any time, for any reason.

If the withdrawal isn’t paid toward qualifying education expenses, a 10% tax on the money may be added. Different rules also apply, depending on your state.

Student Savings Accounts: Paying Cash vs. Borrowing Loans

Paying cash without the interest payments of a loan is deal when covering college expenses. Paying cash means the debt is paid and you won’t have a debt that’s collecting interest over time. Because the costs for tuition and housing (among other expenses) is often so large, most families don’t have the kind of cash to cover all the expenses in one swoop.

student-savings-accountBut what’s also important to keep in mind is educating your children about smart decisions with money, including savings. On college campuses around the country, students are given the opportunity to sign up for credit card accounts, and small loans that seem like a good idea.

What students sometimes do not understand is the impact interest rates can make on meeting monthly payments – making it harder to pay off the balance. Through your journey of researching smart ways to pay for your child’s education, you may also think about inviting your children to understand the value of money and smart ways to spend or borrow with programs like PrimeWay’s Student Savings Accounts.

Student Savings Accounts are a fantastic way to save for college and to teach your kids about saving money. These accounts are available for students ages 13-22 years old and will help teach them about daily money management.  

To help you get an idea of how much savings are needed to cover your child’s college expenses, check out PrimeWay’s college savings calculator. In a matter of minutes, you could get the perspective you need to make informed decisions when it comes to planning ahead.  

Another excellent online resource for learning more about your savings options is PrimeWay’s Family Finance Guide.

Seek Out Scholarships

college-savings-calculatorScholarships are a wonderful way to save money on college expenses. Based on qualifying criteria, like good grades and/or being enrolled in a full-time course load, scholarships are like paying cash for these expenses – which means no loan necessary, and therefore no interest payments.

While schools and community organizations offer a myriad of scholarships to support your child’s education, don’t forget to look to your bank. Financial institutions like PrimeWay Credit Union offer scholarships to the public, and to their account holders based on qualifying criteria.

PrimeWay Credit Union’s current scholarship programs include:

  • Scholarships for Houston Students
  • PrimeWay Student and Dale Roberts Scholarship Qualifying Criteria
  • Luker Leadership Scholarship Qualifying Criteria

Being an account holder at the financial institution where you are applying for a scholarship could increase the chances of being awarded. For any scholarships you apply for, read the eligibility requirements and the terms for maintaining the scholarship. Some scholarship amounts are a one-time payment, whereas others will pay for part or all of tuition payments.

However, if the terms for maintaining the scholarship are not met (such as maintaining a “B” grade average), the funding could be disqualified and stop. In this case, its good to have more information about student loans that could supplement what scholarships won’t cover, or for a solution in the event a scholarship program ceases.

Got Questions? Contact PrimeWay Today

A savings account that offers tax-free spending on education expenses could be a two-for one win: you set money aside for education, without needing to pay taxes on qualifying expenses. And then there are programs that can teach your kids about healthy spending, while also offering you the incentive to save cash ahead. To learn more about ways you can save for your child’s education, contact your trusted financial advisor at PrimeWay Credit Union.

About the Author

Andreana Binder


andreana-binder

Andreana always looks for ways to make life better through good food, exercise and creative flow - that rarely stops! A corporate writer by trade, Andreana also enjoys teaching workshops, making art, blogging, and sharing good food with friends and family. You can find Andreana soaking up the sun at the park with her mini schnauzer Murdock in her free time when she's not writing, cooking, creating or watching scary movies.