These days, huge and rising costs for tuition, fees, and room and board have made paying for college a family affair. Instilling your children about the importance of a college education and the character-building exercise of working with other family members to fund it can be a good lesson in family and personal values. It is also part of a trend in recent years towards helping even the little ones to be financially responsible; it is a good habit that they will thank later for helping them cultivate.
According to collegeboard.com, average annual college costs in 2006-07 were $ 22,218 for a four-year private school (5.9 percent more than last year), $ 5,836 for a four-year public school (6.3 percent more than last year) and $ 2,272 for a two-year public school (4.1 percent more than last year).
Many options, loans if necessary
The good news is that there are many ways to tackle the problem of college funding at any stage of the game. You can take advantage of ways to lower your income tax bill with education credits like the Hope Credit and the Lifetime Learning Credit. Parents can consider the popular 529 college savings plans and grandparents who are able to contribute to their child’s college fund may qualify for deductions from state income tax and gift and inheritance tax benefits through the use of certain instruments. (Be sure to investigate the new “child tax” law of 2008, which closes a loophole that encouraged parents to transfer assets to their children to save on taxes.)
Debt is the least attractive option, but sometimes unavoidable. There are needs-based resources like the Federal Perkins Loan Program. There are subsidized, federally guaranteed Stafford loans (www.fafsa.ed.gov) and unsubsidized federally guaranteed loans (Parent Plus and a version of the Stafford), neither of which is based on need. Private loans may also be available from banks or finance companies. The U.S. Department of Education’s National Student Loan Data System (http://www.nslds.ed.gov/) is the central database for information on financial aid resources.
Getting a head start on stocks and real estate could make a big difference
A great idea for any family member who can start saving for college, one that is particularly well suited to involving your child, is some type of automatic investment plan (AIP) that transfers money directly from a checking or bank account. savings to a mutual fund chosen based on the time frame you are working in. An AIP is a convenient way to take advantage of dollar cost averaging, which means you will buy more shares when prices are low and fewer shares when prices are high – one of the keys to a successful long-term investment.