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Paying for your child’s higher education

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Most parents assume their children will complete high school and attend a 2- or 4-year college. As higher education costs continue rising, it becomes even more important to plan ahead and determine how your family will pay for it. Ideally, you should start saving as soon as a child is born.

Begin by saving small amounts each month. “Even if it’s $25 or $50, it’s the act of saving consistently that counts,” says Joseph Orsolini, president of College Aid Planners Inc., Glen Ellyn, Ill. “You’ll be surprised how it builds over time.”

Ways to save

Every state offers tax-advantaged 529 plans, which families can use to save for future higher-education costs. Plan managers invest the funds you contribute and, when you withdraw the money to pay for educational expenses, the earnings aren’t subject to federal taxes. Many states exempt the funds from state taxes, too, and many have minimum monthly contributions as low as $15.

Other options for saving are contributing to Roth IRAs (individual retirement accounts) and Coverdell ESAs (education savings accounts). Roth IRAs can be good for parents concerned that they’re not saving enough for retirement, but who also want to help with their kids’ education, according to Jean Chatzky, author of “Money Rules.” “If you put money in a Roth IRA, when your kids reach college age you can decide if you’ll use it for college or retirement.”  Another option is to contribute to a Coverdell Education Savings Account (ESA). Contributions to an ESA are not deductible, but amounts deposited in the account grow tax-free until distributed.

If you’d like more information about Roth IRAs and Coverdell ESAs, contact one of our member service representative here at White Sands FCU.

Finding funds

Seek financial aid if you need additional funding. The first step is completing the Free Application for Federal Student Aid (FAFSA) at the beginning of your child’s senior year of high school. You can apply online at fafsa.ed.gov.  Colleges you apply to will put together financial aid packages and send you award letters. They may include federal need-based grants, called Pell grants, or low-cost, need-based federal Perkins loans. They also may include federal Stafford loans, which have slightly higher interest rates. Schools may also offer need- or merit-based grants.

In addition to your savings, look for scholarships and grants. The guidance counselling office at your local high school can provide information about them. If that’s not enough, use federal loans, which you and your child don’t need to repay until after graduation.

If you’re still short of funds, apply for private student loans. White Sands FCU offers The Smart Option Student Loan® by Sallie Mae®. Contact us today to learn more at 800-658-9933.

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