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2006: A look back - A look ahead  
  Change was the name of the game in 2006 while the biggest push for reform in 2007 will be aimed at college-related debt.
 College financing
 Personal finance calendar  Personal finance calendar 

Paying for college: best strategies for the year

There's a lot to love about these plans. Earnings in a 529 grow, and can be withdrawn, tax free as long as they're spent on bona fide higher education expenses. These tax breaks won't expire in 2010; they are now permanent.

In coming months, 529 participants may also find it easier to snag state tax breaks, too. Roughly half of all states offer tax incentives to residents who open an in-state plan instead of opting for one elsewhere. Pennsylvania, Kansas and Maine recently started offering "full parity" for 529s. That means they've extended their tax perks to any resident who invests in a 529 plan, even one from out of state.

Experts predict that "full parity" offers will become more commonplace.

"It's hard to say how many more will follow," says Jacqueline Williams, chair of the College Savings Plan Network. "But clearly some states are beginning to say 'We feel it's important to enhance these plans.' "

And there's good news for those who find the prospect of picking the best 529 plan daunting. The College Savings Plan Network is making big improvements to its Web site, www.collegesavings.org, so consumers can quickly compare and assess their options.

"It's going to help you get critical information," Williams says. "You'll be able to see if your state offers a tax deduction or matching funds, then compare it to other states. You can do that today, but we're going to make information about fees, expenses, (investment) performance more readily available."

Consider prepaid tuition plans
There's also great news for prepaid college tuition plans. Offered by 18 states, these plans let families lock in tuition at predetermined prices at public universities. These can be great deals if you're fairly certain that your child will attend State U. Students who, instead, go to private colleges can still use the funds in the account, but there may be a savings shortfall.

Also, now that prepaid savings plans are counted as the account owner's asset (parents, in most cases), that means a student's eligibility for financial aid is not at risk.

"This does make prepaid plans more attractive and puts them on par with any kind of investment you might have," says Chris Hunter, program manager at College Savings Plan Network.

Apply for financial aid
Even the most diligent planners may wind up short on cash when tuition comes due. For that reason, be ready to seek out financial aid.

You must start with the Free Application for Federal Student Aid, or FAFSA. Get it from a school's financial aid office or apply online at the Department of Education's Web site, http://www.fafsa.ed.gov. If forms make you light-headed, rest assured.

-- Posted: Nov. 1, 2006
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