As another 4 th of July comes and goes another summer is going by as well. For those who have kids, every summer that passes brings on the start of another school year and that signifies another year closer to when your child will be starting college. The start of college can be a difficult time for many parents or guardians. On one hand this is the biggest sign that your child is grown up and is on his/her own but it also means the beginning of those tuition bills. Anyone who has recently looked at the price of a college education might be frightened. National averages for tuition, fees, room and board are $12,800/year for a public school and $30,400 for a private school +. With those types of numbers how can anyone afford college? Well, there are ways to help cover and fund that cost and we will take a moment to review both;

• Financial Aid. One of the most common ways to cover a portion of a college expense. The financial aid we are referring to is need-based aid. There will be an estimated $4 billion of Financial Aid available in 2007 and well over 50% of all college students receive some need-based aid +. Need-based aid uses a rather simple formula in determining aid amount. They look at the cost of the school and the family’s ability to pay. The form that needs to be completed is the FAFSA form (Free Application for Federal Student Aid) and can be easily obtained on several websites including the College Board Website ( www.collegeboard.com) and The Federal Student Aid website ( http://www.fafsa.ed.gov/). This financial aid is based on need and does not have to be paid back.
  
  
• Scholarships. Awarded to students based on their accomplishments and not on need. Scholarships are dollars that do not need to be paid back and represents a reward to a student for what he/she has done or what he/she is expected to do at that college or university. Scholarships are usually specific to that college or university. Check with your school and other community and business organizations to see what is available.
  


• Loans. Any individual can apply for a loan to pay for college but there are special low cost loans available for college students. Low cost loans are typically based on many of the same formulas as need-based aid but loans are not limited to those requiring need-based assistance. Low cost loans are loans that have a lower interest rate associated with them.
  
  
• Cash. As a tuition bill comes due you write a check to cover the cost. You are not borrowing; you are not relying on scholarships you simply pay the bill when it arrives.

The above are ways to cover college costs once they are upon you. Much like retirement savings, there are ways to help you save for college expenses. Saving for college is usually done using one (or a combination) of the following types of accounts;

• 529 account. A 529 account is an education account in which earnings grow free from federal tax and withdrawals for qualified higher education expenses are tax-free. The owner of the account maintains control until withdrawals are made. You are allowed to change your asset allocation to become more or less aggressive⁺. 529 accounts allow the owner to change the beneficiary and when qualifying for financial aid 529 accounts are considered assets of the owner, not the child. If your state or your designated beneficiary’s state offers a 529 plan, you may want to consider what, if any, potential state income tax or other benefits it offers before investing.
  
  
• UTMA account. UTMA stands for Uniform Transfer to Minors Account. Growth on a UTMA is taxed each year and the child’s age and amount of growth will effect just how much tax is paid (if any) each tax year. The beneficiary of a UTMA account retains full ownership at age of maturity (usually 18 or 21). UTMA assets are considered the child’s assets and therefore have a high impact on financial aid.
  
  
• A Coverdell Account, also known as an Education IRA, has an income limit of which you need to be aware. Earnings grow free of federal tax and withdrawals for any qualified educational expenses are federal tax-free. The beneficiary assumes control at age of maturity, and much like UTMA accounts, Coverdell Accounts are considered assets of the child and have a high impact on financial aid. Contribution limit is $2,000/child/year.

Education funding is usually a two step process with step one being the pre-funding of college expenses with one of the above mentioned accounts. Step two is finding a way to supplement the difference, by obtaining financial aid, scholarships, getting loans or paying with cash. Contact your Fragasso Financial Advisors financial advisor if you wish to discuss this further.

+ Source: www.collegeboard.com/press/releases/150634.html

This article is for informational purposes only and not intended as financial advice. Consult your financial advisor to determine what is appropriate for your situation.
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