|Save money while
saving for your child's education
Who can benefit?
Some financial advisers urge lower-income families, who are likely
to receive a large amount of financial aid, to pass on 529 plans.
"Financial aid often dwarfs tax savings for poorer
people," says Ray Loewe, president of College Money, a financial
planning firm in Marlton, N.J.
"If you qualify for financial aid, these plans
probably aren't for you."
Participating in a prepaid tuition has a direct impact
on a student's eligibility for financial aid.
"It's considered a resource for the student
like a scholarship. It reduces financial aid on a dollar per dollar
basis," Hurley says.
Participating in a college savings plans also impacts
financial aid, but not as severely. A family with a college savings
account will see their eligibility for aid decrease by as much as
5.6 percent of the account's value.
A family with $40,000 in a 529 plan would see their
financial aid decrease by as much as $2,240. A family with $20,000
would see their financial aid drop by as much as $1,120.
College savings plans may make the most sense for
upper income families who won't qualify for financial aid and for
middle income families who qualify for loans and little else.
Families of all income levels need to realize that
a good chunk of any financial aid package is likely to be loans.
According to the College Board, 56 percent of the
$122 billion in financial aid distributed in the 2003-2004 school
year was for loans.
"Essentially every dollar a family saves is another
dollar they don't have to borrow," Joyce says. "The earlier
they start saving the better."