St. Mary's: The Worst Advice We've Ever Heard About College Saving Plans
One of the biggest obstacles most families face as their children grow older is finding the right way to plan and pay for college. You may seek advice from friends, colleagues and your trusted credit union adviser. But some of the very worst advice about how to pay for college often involves the word, “Don’t.” You and your children may hear advice from others that says, “Don’t go to college,” “Don’t apply for financial aid,” or “Don’t worry about repaying your student loans.” However, if your object is to be as financially secure as possible once you finish your degree, none of these plans really work.
The Worst Advice on How to Invest in College Saving Plans
Don’t Worry About Repaying Student Loans
Failing to repay your debts is not something that should be taken lightly. In fact, if you default on federal student loans, you may be facing debt collectors, wage garnishment, a negative credit score, the loss of your tax refunds and more. With poor credit, important life stages after college also become increasingly difficult. If you have defaulted on your federal student loans it may be very hard to get an apartment, buy a car, use a credit card or own a home.
Save Cash for College in an Annuity
In some cases, saving money in your child’s name may be beneficial for college and other times it may lower their eligibility to receive financial aid. If you have been saving in your child’s name, you may be advised to cash out their savings right before they go to college and to put the money into either an annuity or life insurance contract. Because these types of accounts are not reported on the FAFSA, many families believe this is good advice. While it is true that this money will not be counted against your child’s expected family contribution (EFC), non-qualified annuities are counted as assets on their CSS Profile. The CSS Profile is another aid from that is used by nearly 300 colleges along with FAFSA.
Better Options for Your Financial Future
At St. Mary’s Credit Union, we want to help all of our members plan for a financially sound future. Luckily, we offer our members the chance to invest in college saving plans that make sense and give you the best opportunity to finish your degree debt-free.
Saving for College with a 529 Plan
One of the best things to happen to college saving plans in the last several years is the introduction of the Section 529 plan. With this tuition-savings plan, you can watch your child’s or grandchild’s assets build up tax-free until they are withdrawn. With the 2001 Tax Relief Act, all withdrawals from state 529 plans that are used for tuition and other college costs are completely tax-free. Additionally, unlike funds that are in a Uniform Transfer to Minors account, you will keep control of the money put into a 529 plan and can take it back if you feel that the person will misuse it. Anyone can open a 529 plan for your child and each donor can provide up to $50,000 tax-free.
Download our Complete Survival Guide on How to Pay for College