College financing can be daunting in today's tough economy. But follow these 10 tips to determine the best options for you and your child to finance college tuition.
Shop around for a 529 plan.Because your choice of a particular state's 529 college savings plan does not impact your child's choice of college, feel free to shop around among the 80 or so programs available. When comparing 529 plans, consider the investment manager(s), the suitability of the plan's investment options to your goals, fees and expenses, plan flexibility and user-friendliness. Some programs allow you to enroll directly, while others may require that you go through a financial adviser.
An incentive, such as a state income tax deduction for your contributions, might be enough reason to stick with your home-state 529 plan. But especially for children several years out from college, investment performance is the more important factor.
Consider a prepaid tuition plan.The Independent 529 Plan allows you to purchase future private-college tuition today at a discount off current college tuition levels. If your child does not attend one of the plan's participating colleges currently numbering 274, you will receive your original investment plus or minus up to 2 percent annually depending on how the plan's own investments fared.
If you, or your child, live in Florida, Illinois, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Tennessee, Texas, Virginia, or Washington, you have the option of enrolling in your state's prepaid tuition plan. But be careful: A few of these plans provide a better deal for the student attending the in-state university or community college, and all of them except Texas charge a premium over current state tuition levels when you buy into the plan. Several of these plans have fallen into financial trouble as state college tuition levels outpaced fund investment returns, and only a few are fully backed by the full faith and credit of the state.
Establish a monthly savings program.Some refer to automatic contribution plans as "painless" savings. Whether it's truly painless, automatic contributions are certainly an effective way to build up savings over time for college. Most 529 plans offer automatic contribution plans with minimum investment levels of $25 per month. Some of the 529 plans that charge an annual account-maintenance fee will waive the fee as an incentive for enrolling in the automatic contribution plan.
Use rewards programs to boost your college savings fund.Everyone likes "free money." Several companies offer rewards programs that link directly to one or more 529 college savings plans. Over time, your purchases can generate rebates that add up to hundreds and potentially thousands of extra dollars for your child's college education.
Upromise and Futuretrust are two companies with popular 529 rewards programs. The Fidelity 529 Rewards American Express Card offers a 2 percent rebate on your card purchases for direct deposit to any of the seven Fidelity-managed 529 plans.
Plan ahead for financial aid.Demonstrating financial "need" through the FAFSA application process becomes more important as interest rates continue to drop on subsidized Stafford Loans. Steps you take now can enhance your child's financial aid prospects in the future.