PayForDegree

By Ann Lloyd, Student Savings Guide

If you’re planning for your child’s future education, the picture can seem daunting. Between 1985-86 and the 2017-18 academic year, the cost of attending a four-year university or college rose a staggering 497%, which was more than twice the rate of inflation.

That has made saving for college a lot more challenging than saving for retirement – where you can get help from 401(k) accounts – or just the plain old rainy day.

It’s hard to even estimate how much college will cost a few years from now, so the sooner you start saving, the better. But how much you can save will depend on your budget, as well as your and your child’s goals for college.

No matter what your budget, however, there are ways to save that can help your kids make it through with a minimum of student loan debt hanging over their heads for years down the line.

And that’s a real concern: What good is landing a good-paying job if a lot of your paycheck is going to student loans, and if you’re still paying later in life? While fewer people in their fifties are paying on student loans, those who are doing so have significant balances: an average of more than $42,000 for those in the 50-61 age bracket.

Gifts and loans

If your child racks up significant student loan debt, it can be tempting for you, the parent, to step in and help. But you may not have money in the bank to do so. One option is to take out a loan to help. If you decide to go this route, you’ll need to have good credit, and that’s something that will take time to build.

Check your credit report, resolve any late payments, dispute any errors, reduce your debt, and be sure to make future payments on time. Be aware, also, taking out a loan to pay off a loan may not be a good idea if your terms are worse than those on the loan you’re replacing.

If, on the other hand, you do have money to make a gift to your child, be aware of the tax ramifications. if you pay more than $15,000 a year, you’ll trigger a federal gift tax (although you can gift an extra $15,000 a year to your child’s spouse, if they have one).

Set up a 529 plan

A 529 plan is a state-run plan to help pay for education, which can apply to higher education or K-12 students.

You can choose from a prepaid tuition plan or a savings plan, which is more common. You contribute money to a savings plan and can choose how it’s invested. It can then be withdrawn to cover educational expenses, such as tuition, room and board, etc. Up to $10,000 can also be withdrawn to cover the cost of student loan repayment.

Under a prepaid tuition plan, you lock in current interest rates for children who’ll be attending years later, when rates will theoretically be higher. It just covers tuition, though.

The earnings from 529 plans aren’t subject to state or federal taxes — unless you use them for something other than education, which will trigger a 10% penalty. Plus, the money you contribute to these accounts is not tax-deductible. So, if you’re not sure whether your child will go to college, this may not be the best option for you.

Put money into a savings account

Putting money into savings is perhaps the most straightforward and traditional way of saving for college. On the positive side, it’s a low-risk move, especially if your bank and account are FDIC insured.

It also offers you some flexibility, because you’ll be able to use the money anywhere: at a community college, a four-year university, or elsewhere if your child decides to forgo college altogether. Money is money, and it can be used as a down payment for a house, moving expenses to relocate for a good job, or anything else in the long run.

Another upside of a savings account is that it can involve your kids by opening a joint savings account with them, teaching them the value of saving.

The downside is that savings accounts earn modest interest: The highest rate available carries an annual percentage rate of 0.7%, which is less than the rate of inflation, even in most good years. Here’s a list of the best high-yield savings accounts in 2021.

Purchase savings bonds

Bonds are another old-school way of saving for college. Back during World War II, Americans were urged to buy bonds in support of the war effort. Many patriotic citizens did just that, and put them away for their kids or grandkids to use on college tuition.

Of course, tuition was a lot cheaper then, and bonds have fallen down the list of ways to save since then. Still, they are an option that’s available to you as long-term investments. You buy them at less than face value; then they generate interest over the next 15 to 30 years, at which point they can be redeemed for their full value. Before that, you’ll get less; afterward, they stop earning interest, so there’s no point in holding on to them.

A 30-year Treasury bill, like an FDIC-insured savings account, is secure because it’s backed by the government. Also like savings accounts, however, government bonds are not high-yield options and may not earn the kind of interest you need to send your child to college.
Pull money from your Roth IRA
Roth IRAs are meant for retirement, but you can withdraw the principal at any time for any reason — including your child’s education. You can’t, however, touch the interest you’ve earned without incurring a penalty before you’re 59½.

Also worth considering: The more you pull from your principal, the less you’ll be earning for your retirement, so you should either be comfortable with what you’ll have left or have an alternative plan to make up for it.

Buy CDs

Certificates of deposit are another way you can save for your child’s education. When you buy one from a bank, you give that bank the right to use your money for a specific period of time. In return, the bank pays interest.

CD interest rates are generally a little better than those paid by savings accounts. And like savings accounts, they’re safe if they’re purchased through a federally insured bank.

These are some of the many options you have when it comes to saving for your child’s future education. If you’re unsure which works best for you (you can always employ a combination), consult with a financial advisor to come up with a plan that makes sense.

Click To A List Of Schools Specializing In Online Degrees

The government education loan programs that are less-well-known to many students than Pell or Stafford grants include:

The Federal Supplemental Education Opportunity Grant

A need-based award to undergraduate students enrolled in their first bachelor’s degree program. Funds for FSEOG’s are relatively limited, and are generally reserved only for students with the greatest financial need. While you are required to fill out the FAFSA form for these, the grants, when available, are administered directly through your school’s financial aid office (they’re known as “campus-based” grants).

A FSEOG grant can be $100. up to $4,000. for one academic year, though you may get a bit more if you have certain costs for studying abroad that are in addition to your normal school costs. Like a Pell Grant, an FSEOG does not have to be repaid. But this grant is only available to you if your school participates by providing 25% of the funding.

National SMART Grant

If you’re already getting a Pell Grant, you may qualify for an extra $4,000. per year in aid through this grant. SMART stands for “Science and Mathematics Access to Retain Talent”. You can receive SMART grant money only during the third and fourth years of a four-year undergraduate degree program, and only if you maintain a grade average over 3.0. To qualify, you also have to be studying physical or computer science, engineering, math, technology or a major foreign language. Application is through FAFSA.

Federal Perkins Loan

A “needs based” loan program using a mix of government and private funds. You must be in school at least half time. If you are, the government will pay the interest on your loan until you complete school. Perkins loans are given at a fixed 5% interest rate, and as of the 2009-2010 school year, loan limits were $5,500. per year for undergrads and $8,000. per year for graduate students. Application is made through the FAFSA form. Your school will then inform you if you have received a grant.

Federal PLUS Loan

Federal Plus Loans are available not to you, but to your parents. They can borrow an amount up to the difference between your total cost of attendance and the amount of financial aid you are receiving from any program. The loans are backed by the government, but administered by private lenders, who offer a very wide variety of repayment options. This type of loan can be found at institutions ranging from your local bank up to Sallie Mae. Interest payments are tax deductible, but your parents need to have good credit to stand a real chance of getting this type of education loan. It takes some research, usually starting online, to start locating potential sources of funding of this type. The problem with many types of college financial aid is that if you or your parents fall over certain income and asset ownership thresholds, you don’t qualify. That puts tuition aid out of the reach of many people who are actually far from being wealthy. PLUS loans do not present this problem, as your parents can take one out regardless of how high their income is.

Federal Work Study Program (FWS)

Under this program, the federal government gives money to about 3,400. colleges and universities so they can hire students to work for them and earn extra money for school. If your college or university participates in FWS, they may be able to hire you to either work on campus or for a non-profit group in your community, for a maximum of 20 hours per week. This would obviously not apply to online degree students. Ask your financial aid office if your school participates in the FWS program.

Dropping Out Can Cost You In Loan Money

Most of the government (and private) loan programs require you to remain in school on at least a par-time basis. If you stop school completely for any reason, you may be required to start paying back both the principal and interest on an accelerated schedule. Again, it’s good to talk about this with your school’s financial aid office before accepting any loan money so you know what you’re getting into. You should also be aware that if you are truly unable to keep up with your loan payments, many states have “advocacy units” that can help you consolidate loans and deal with your lenders. The good news is that the recent Obama health care bill also included provisions that allowed students much more time to pay back some types of education aid loans.

Don’t Forget About Tax Breaks

Beyond the low-interest federal loans available, there are several tax brakes that are particularly good for adult online students. The “Lifetime Learning Credit” allows you to subtract up to $2,000 per year or 20% of your total education cost from the amount of money you claim on your tax return if you are enrolled in an eligible school. In other words, you wind up paying tax on a lower income than you would without this credit.

That’s a plus for elearners, most of whom are working and earning money while they study. To get this credit, your school must file a 1098-T statement with the IRS, and you must submit a Form 8863 with your federal tax return. A particular bonus for adults who are gradually working towards a degree online is that there is no limit to how many years you can claim this tax benefit for.

The credit can also be applied to some non-degree courses. Your school’s financial aid office should be able to tell you which courses qualify you for this deduction. Keep in mind, however, that you can’t claim it if you are earning more than $55,000 per year as an individual or $110,000 per year as a couple filing jointly. This is a tax credit you can claim for your own education, unlike most other tax credits that are meant for families paying for a child’s college education. You can also take this credit for any tuition you pay for your spouse, and your parents may take it if you are dependent on them and they are directly paying some of your college costs.

Click To A List Of Schools Specializing In Online Degrees

With economic times so tough, many students are looking at online degrees as a way to save money. But if you want to absolutely maximize your savings and still get a high quality degree online, it’s important to cover all your bases. Here’s an overview of money saving opportunities in getting your college degree through elearning:

Basic savings:
• No college dorm fees. Not having to pay to live on a campus is probably the single greatest money saver about studying online. It’s one of the main reasons so many students are pursuing online degrees today. At a private school, dorm expenses can easily surpass $20,000. per year, while even state schools in large cities often charge more than $12,000. a year.
• Auto costs. If you had planned to commute to college, elearning eliminates the need to drive to and from school. That means zero gas costs, no wear on your car and a whole lot less chance that you’ll have a car accident and the rise in insurance costs that can result from it.
• Child care expenses. If you are a parent, attending a traditional school can involve a lot of babysitting expenses. Taking an online program can eliminate those costs, though it will require some discipline to get the work done with your child or children in the house.
• Clothes. No need to dress up to attend an online course, obviously.
• Parking fees. A parking pass can cost up to $500. per year at some colleges. No need for one if you’re in an online degree program.
• Less eating out. College students often pay a big fee for a college meal plan, and then add to the cost of it by eating out a great deal – because they don’t like the school’s cafeteria food. As an elearner, you can eat for a lot less, and probably end up a lot more healthy by avoiding the fast food that college students tend to favor.
• Online books and other library materials. Online colleges often subscribe to digital libraries that provide students access to textbooks, publications and other study materials over the internet at no cost to the student. In addition, many professors who teach online courses make a point of not requiring their students to buy any physical books. Depending on what kind of courses you are taking, that can save you anywhere from $300. to $1,000. per year.

Advantages For Smart Savers
• Accelerated degree programs. Though these are not only available to online learners, the big online colleges tend to offer more of them because they know their students are so cost-conscious. The details on these programs can vary – some are three-year bachelor degree programs, while others are 18 month RN to BSN nursing bachelor programs or five year bachelors plus masters programs (as opposed to the normal bachelor to masters track, which takes six years or more in most specialties). There are accelerated programs offered in just about every specialty. The key issue to remember here is that while a “fast track” approach can save you money and time on your online degree program, it will require a more intensive commitment of time and effort than a full-length program. But cutting a year off a four-year bachelor program, for example, can easily save you $10,000.
• Taking it slow. The flip side of taking an accelerated program is that online schools are generally very liberal about allowing you to take only a course or two per semester, or taking a break in your studies to take care of work or family responsibilities. That means that if things get busy at your job, you can stop studying for awhile and then return later. On-campus programs often require that students take a minimum number of credits per semester, and place restrictions or re-application requirements on students who stop for a few months and then want to return to their studies. On a personal level, an online degree program can allow you to attend your kids’ school plays or ballgames, or keep going on family vacations – as long as you bring your laptop with you.
• Tax benefits. Getting the greatest tax benefit from your degree program requires some work – but you never want to miss out on any deductions you have the right to take as a student. You may qualify for a hope and lifetime learning credit for some tuition and other non-tuition costs (books, insurance, athletics), a tuition deduction for up to $4,000. or you may be able to deduct most of interest you pay on a student loan. All together, these can add up to thousands in savings when it comes time to file your tax return. Learn more here at the Internal Revenue Service website. More on student loans for online degree programs here.
• Use a community college to your advantage. With many community colleges offering online degree programs, it can make sense to study a few years at one, and then transfer to another, better-known school to complete a bachelor’s degree program in particular. You may save up to 40% on the credits you get in your community college.
• Transfer as many credits as you can. If you have taken advanced (AP) high school classes, taken a few college courses in the past or even done work that you feel might qualify you for “life experience” credit, make sure to ask the admissions people at your online college if you can get credit toward you current degree program for it. This may require you to take one or more College-Level Examination Program or “CLEP” exams to prove that you have knowledge in particular areas, but if you can pass them you may be able to skip many introductory level classes and save money on your online degree by getting it finished a whole lot faster.
• Don’t fall behind on payments. Be careful about keeping up on your school or loan payments, and not going too deeply into debt on your credit cards. Getting behind on payment can trigger extra fees in all areas that can send the overall cost of your education through the roof.
• Shop around for the right school. Make sure to get information on several online degree programs. When you focus in on a few that seem right for you, make sure to ask lots of questions about the complete costs of the program you want to take. Online schools are often hesitant to show fees clearly on their websites because they don’t want to scare students away. Don’t sign up until you feel you’ve been given a complete picture of fees by your prospective school.

Click To A List Of Schools Specializing In Online Degrees

Since most online degree seekers are adults in the work force, getting an employer to pay for school is a very popular strategy for this group. In fact, according to a survey by the American Society for Training and Development (ASTD), almost one-third of corporate tuition plans now fund online or “blended” school programs.

Making Commitments
Like a scholarship, school financial aid from an employer is “free money” — or at least it’s almost free money. Employers will often give a good deal of tuition assistance. But while they won’t ask you to pay the money back in most cases, an employer tuition grant usually comes with strings attached. Almost all companies will require you to keep working for them for at least a year after you complete any degree or certificate program they pay for, and some will ask you to stay with them for several years. It’s extremely important to find out exactly what you are committing to before accepting college tuition assistance from your employer. Your company’s human resources director should be able to tell you exactly what the rules are, and you may find that there is a good deal of information about tuition assistance on your company’s website as well.

The current economic recession has caused companies to cut back spending in many areas, and tuition assistance has definitely been affected. At a general level, you probably have a better chance of getting help in paying for school if you work for a very large company. But no matter where you work, the tough financial environment probably means that you’ll do some work to convince your employer that they should pay for you to go back to school.

Selling The Value Of You
The key is to convince your employer that will make your more a more valuable worker. Getting a degree that will help you change careers is not what they’ll want to pay for. An employer will usually show interest in paying for training that will either boost your skills for the job you’re already doing for them, or for something they are thinking of promoting you into. An MBA is the usually looked upon most favorably – so favorably that some companies actually insist that managers go back to school to get one. But don’t expect to get reimbursed for art history or philosophy courses.

Positive Feedback
To succeed at getting your employer to pay for your degree, be prepared to tell your HR director or your boss (and possibly both) exactly why they should finance your education. It’s a great idea to actually rehearse exactly how you are going to make the case that going to school will not interfere with your work and that it will be a good investment for your company.

Remember that employers have a very real interest in giving their workers the skills they need to be successful. It’s a lot more expensive and frankly, a lot more troublesome to bring in new hires than to keep good people in the company, and most companies know that they’ll have a better chance of keeping you for some time if you rely on them to pay for your degree.

Taking an online degree program should not put you at any disadvantage for company tuition reimbursement. In fact, companies are among the biggest boosters of distance learning, because they love the fact that it’s so economical.

A Big Company Benefit
If you work for a large company, make sure to ask if your employer has a partnership with any particular college or university, either online or traditional. It many be easier for you to get reimbursement for a university degree online at a “partner” school than with other institutions.

Expect that you’ll have to stay for at least a year after completing your degree to qualify for employer tuition reimbursement, and that the course of study will need to clearly relate to your job. While most companies are more willing to fund education for full-time employers, being a part-timer doesn’t necessarily mean you will be shut out. Some large companies offer a flat tuition benefit of a few thousand dollars a year to part-timers, even if they don’t cover the full tuition bill. But as a part-timer, you may have to work for the company for several years before you can qualify for this type of benefit.

Creative Thinking
Even if there is not formal tuition reimbursement program at your company, you may be able to simply create your own. Try writing up a detailed proposal of what you want to study, the costs and the time commitment and what the benefits will be. According to U.S. News and World Report, almost half of all American employees are offered some type of education benefits with their jobs. Corporate tax laws allow companies to give you up to about $5,000 tax free to pay for school tuition.

Another tip to keep in mind: make sure to check if you can transfer any credits from any courses you may have taken previously toward your new degree, or if you can get credits for taking a CLEP (College Level Examination Program) test. Either option will make you and your boss happy by making your study program take less time and money.

Back Your Tuition Assistance With A Contract
Don’t be surprised if your employer asks you to sign a tuition reimbursement contract before getting any grants for college. It’s a reasonable request. Key issues you need to understand before signing such a contract are:

• Your commitment level. Don’t sign a contract that asks you to live up to impossible terms or stay more than a few years with the company.
• How will your tuition be paid? Many online colleges and universities now offer direct payment options for employers to pay for employee schooling. But some companies will want to deduct your educational costs from your paycheck and then pay it back to you later – but only after you get your grades. Make sure you understand the terms in this critical area.
• Academic standards: Make sure you know what grade average you must maintain to keep getting financial aid. It’s quite common for companies to insist that you maintain at least a B average for them to continue paying tuition assistance.
• Stopping school: If you stop taking classes because you get sick, decide to leave the company earlier than you originally intended or decide you don’t like the school you’re studying with, what happens? Some employers will require you to pay them back for the courses you have taken if you do not follow through and complete your degree, while others may have a rule that you complete your studies within a set period of time.
• What about books? It’s not unusual for tuition assistance to include coverage for your textbooks, which could save you a few hundred dollars per semester.

The biggest employee tuition packages, by the way, are generally paid by colleges and universities themselves. Schools often give tuition help not only to their own professors and administrators, but provide money for the education of their children as well.

Next: Government Loans For School

Click To A List Of Schools Specializing In Online Degrees

Here’s a look at the top government grants and loans that can help you get your college or university degree online. There is more government money available for both traditional and online learning students today than there was just a few years ago. But you need to be careful to borrow only as much as you should — signing on the dotted line for an education loan is something that can affect your financial life for many years to come.

Make sure you understand exactly what interest rate and payment schedule you are agreeing to. Also, be prepared to spend some real time filling out forms in order to get a government loan for your degree. A good tip to keep in mind: try to borrow as much as you can from a single source that offers you a good interest rate. It will be easier to keep track of your payments and debt balance than it will be if you borrow from lots of different lenders.

A Better Deal For Online Learners
The federal government made an important move two years ago that has opened up more aid to online learners specifically. For years, government student loans to elearners were restricted by the terms of the Higher Education Act of 1965. That law included the so-called “50 per cent rule,” which dictated that classes had to be delivered in a brick and mortar lecture hall for at least 50 per cent of the time in a school for any students there to qualify for government tuition aid. The rule, originally designed to keep a lid on phony degree programs where students signed up and never did any class work, was scrapped by Congress early in 2007. As a result, a college student in an online degree program can qualify for just about all the same government loans and grants as an on-campus learner.

Say Hello To FAFSA
Filling out the the “FAFSA” (free application for federal student aid) application online is the first thing just about everyone does when they’re looking for college financial aid. Unfortunately, it involves quite a bit of work. FAFSA requires you to provide in-depth information on all aspects of your personal finances, whether you are pursuing an online degree or a tradition college course of study.

You use the FAFSA form after you’ve made a decision about which school you will attend – you have to reference your school on the online form. Before signing up for any degree program, find out if your school participates in federal loan programs. If it doesn’t, you’ll need to look for student financial aid from non-government sources, which is unfortunate because no one else has quite as much tuition assistance to offer as Uncle Sam (though the FAFSA does also allow you to apply for some state-sponsored grants). Two main types of financial aid offered by the government are available to students getting university degrees online: Pell Grants and Stafford loans.

Pell Grants: The “Expected Family Contribution”
Federal Pell Grants are given, on the basis of need, to undergraduate students working toward their first bachelor’s degree. That need – the ability to pay really – is determined by a calculation of the student’s “expected family contribution” (EFC), which is based on family financial assets and income.

Total family income, or the “Expected Family Contribution” (EFC) to your tuition bills, can be a tricky question for online degree students who are paying for school tuition on their own. You are basically required to include your parent’s financial resources in your estimate until you are 24 years old, unless you are married or have a child. After age 24, only your income will be factored into the government’s estimate of your need for a Pell Grant. Keep in mind, though, that if you are married, your spouse’s income will be counted in the formula.

There is a FAFSA “dependency status form” you will need to fill out if you are an adult and have income of your own. The lower your EFC is, the more aid you will be eligible for, and vice versa. The EFC is calculated on not just your income, but also on whatever assets you or your family own as well. If you have low income but have a valuable house you’ve inherited, for example, your financial need will seem less in the eyes of the government – a problem given that it’s become a lot harder to borrow against a house than it was before the recession.

Pell Grant Limits
You can receive up to $5,500 in Pell Grant money per year (the minimum grant is $555). The grant cannot exceed half of the total cost of your annual tuition. The government uses a complicated formula to determine exactly how much it should give you, and it does not reveal exactly how your number is arrived at. A few points to be aware of, however:

• In the past, Pell Grants were only available to students enrolled on a full-time basis. They are now available to part-time students, but the grant will limited if you’re only attending school part-time.
• If you get a grant for your spring and fall semesters, there’s now also an option to get a second Pell Grant within the same year to help cover additional summer courses you may take. But you cannot get Pell Grants to use toward two different schools in the same year.
• The government does factor in college costs beyond tuition, like textbooks and supplies, in estimating your need. – You need to be either an American citizen or an eligible non-citizen and have a GED or high school diploma to apply for a Pell Grant.

Some great things about Pell Grants: They are, as the name implies, grants that don’t have to be paid back, which means that your ability to pay back is not even considered in your application. The information you put on the application is also confidential, so it cannot have any impact on your credit score. Keep in mind however that you generally have to keep up an academic average of at least a “C” to keep your eligibility for ongoing Pell Grant money. If you do receive a Pell Grant, it will be administered through your school. Your school may credit back the grant money to your account, give you a check or do a little bit of both. You must be given your grant money at least once every semester that the school has.

Stafford Loans
Stafford Loans, on the other hand, do have to be paid back. But they still offer real advantages over the other kinds of education loans that are available to a distance learner with limited resources. The interest rates on Staffords are generally among the lowest available, there are no origination fees, and you will have anywhere from 10 years to as many as 25 years (due to recent legislation), to repay your debt. These school loans come in two forms.

“Subsidized” Stafford Loans are given, like Pell Grants, on the basis of financial need, based on your estimated family contribution to your education. They are currently being offered with a fixed interest rate of 5.6%. The government actually pays any interest that accumulates while you are in school. This “grace period” represents a crucial advantage over just about any type of private education loan you can get. The terms of the Stafford Loans are so favorable that some lenders require you to state that you have already tried to get one before they will talk to you about any other type of education loan.

“Unsubsidized” Stafford loans are not based on financial need, and are currently being given at a 6.8% fixed interest rate. A key difference is that, while you don’t have to pay any interest on the loan while you are in school, it does accrue until you graduate and you are required to pay it in full over time. You’re required to apply for either of these loans through the FAFSA form.

More Than One College Loan
You are allowed to take out both (subsidized) and a non-subsidized loans. The formula for how much you can borrow on an unsubsidized loan takes into account how much money you are already getting on the subsidized loan.

Loan limits are based on whether you are financially dependent on your parents or not. Dependent undergrads can borrow a total of about $31,000 in combined subsidized and unsubsidized Stafford Loans over four years towards a degree program, but the subsidized part of the loan cannot be greater than $23,000. Independent students can borrow more – up to $57,000 for a four year program, though the subsidized portion of the loan can’t be more than $23,000.

Formulas for how much you can borrow each year are a bit complex, ranging from $5,500. per year for dependent freshmen up to $12,500 for independent seniors. Unlike Pell Grants, the Stafford Loans are available to graduate students, who can use them to borrow up to $138,500. To qualify for any of these loans, you must not currently be in default for any other federal loan, be in a program that will result in a degree, be in a school that participates in the Federal Family Education Loan Program and be planning to attend school on at least a half-time basis.

Next: Less-known government education loans.