Managing Your Money

3 tips to help you pay for college

3 tips to help you pay for college

When’s the best time to start planning for your child’s education? At Valley Trust, we think it’s never too early. But we know that many of our customers aren’t able to start saving the minute their kids are born.

In fact, most Trust customers don’t start thinking about how to pay for college until their children are in high school. While it’s not ideal, there are steps you can take to prepare for education costs. Here are three tips to help you plan for paying for college:

Start saving early (it bears repeating)

The earlier you start to save, the more you can take advantage of the power of compounding. If possible, set up a systematic investment plan and encourage your family members to contribute, if they are financially able to do so.

Know your options

It helps to determine the best investment option for your financial situation, for example, a 529 Plan versus a UTMA/UGMA. Also, take into consideration the tax implications and impact on eligibility for financial aid, depending on which option you choose. 

You should also try to estimate the cost of both public and private education for each child, in addition to what the Estimated Family Contribution (EFC) might be. The FAFSA4caster is a great tool for doing this.

Think outside the box

In addition to scholarships, grants and student loans, consider applying for a home equity loan or line of credit. They may offer better rates than student loans.

Keep in mind, you don’t have to figure this all out on your own. A financial advisor can help you determine an education planning investment option that’s right for you.

Here are a couple of examples of real Trust customers who benefited from working with our team members:

  • At the age of 70, Eduardo and Roberta became grandparents. When they began to consider ways to put money towards their new grandchild’s education, they became overwhelmed. So, they turned to Trust for advice. We introduced them to the 529 Plan, an investment vehicle created in 1996 that didn’t exist when they were raising their own children. In addition to their contributions to a 529 Plan not being deductible on their federal tax return, their investment will grow tax-deferred, and distributions to pay for their grandchild’s college costs will be federally tax-free. 
  • Gail and Timothy have always been financially secure. So when they decided they wanted to help pay for their grandchildren’s education, they immediately turned to 529 Plans. By making contributions to 529 Plans, there were able to reduce their estate and help their grandchildren build savings that could be used tax-free to pay for college. They were also able to take advantage of a special rule for 529 contributions that allowed for five years’ worth of gifts in one year without triggering the gift tax. However, it should be noted that withdrawal from a grandparent-owned 529 Plan is considered student income, which could potentially have an impact on financial aid awards. 

No matter what your financial situation, the team at Valley Trust can help you find a solution that meets your needs to help pay for your child’s – or grandchild’s – education.