Higher Education for a Lower Cost? Saving With Scholarships

Finding Scholarship Opportunities

The vast majority of the nation's institutions of higher learning offer various types of scholarship, granting money to college students based on a host of criteria such as academic merit, financial need, and in some cases, racial or ethnic background.

Although the application process can be complicated and redundant between scholarships, a great deal of money is available for those who are willing to jump through the right hoops and prove their merit and/or need.

Higher Education for a Lower Cost? Rising Costs and Funding Strategies

THE SKYROCKETING COST OF COLLEGE

Despite a decade of low inflation, the price of higher education has seemed to defy gravity. According to The College Board, a not-for-profit membership association whose mission is to help students and parents prepare and pay for college, tuition and fees at both private and public institutions have nearly doubled in constant dollars over the last 20 years.¹

But a college education is an investment that can pay big dividends down the road. The College Board, citing U.S. Census Bureau statistics, estimates that individuals with a bachelor's degree earn over 70% more, on average, than those with only a high school diploma.² Over a lifetime, that earnings gap translates into more than one million dollars - more than enough return to justify the investment, even if the rise in prices is outpacing inflation.³

Higher Education for a Lower Cost?

College is expensive, and costs are only increasing with time.  Even if you haven't been able to save all the money you’d like for tuition costs, several alternatives exist to potentially help make up the difference.

Financial assistance comes in many shapes and sizes - from scholarships and grants, which do not need to be repaid, to federal loans, which carry very favorable interest rates and terms, but must be repaid eventually. The following are a few of the most popular sources of financial assistance:

College Savings – 529 Plans and UTMAs

In previous posts we’ve discussed considerations for college planning. In this post we are going to discuss saving for college and, specifically, two of the more common accounts for college savings: Uniform Transfer to Minor Account (UTMA) and Section 529 Plans.

The Uniform Transfer to Minor Account (UTMA) was an early popular choice for many families to save for college education as it offered a few advantages over traditional savings accounts. First, the transfer of assets was treated as a completed gift which removed the assets from the donor’s gross estate. As a gift, it was subject to the current annual gift exclusion ($14,000 in 2014). Second, any unearned income received favorable tax treatment, albeit lessened with the advent of the “kiddie tax.” Unearned income is generally investment income including interest, dividends and capital gains. Under the current tax code, the first $1,000 of unearned income is exempt using the standard deduction for dependents; and the next $1,000 of unearned income is taxed at the child’s income tax rate. However, any unearned income in excess of $2,000 is taxed at the parent’s marginal tax rate. One drawback to the UTMA is it is considered an irrevocable gift. When the recipient reached the age of maturity – 21 in Pennsylvania and most other states – the custodianship ends, meaning the recipient now has full control and can dispense with the assets however they choose.

College Savings – 529 Plans and UTMAs

In previous posts we’ve discussed considerations for college planning. In this post we are going to discuss saving for college and, specifically, two of the more common accounts for college savings: Uniform Transfer to Minor Account (UTMA) and Section 529 Plans.

The Uniform Transfer to Minor Account (UTMA) was an early popular choice for many families to save for college education as it offered a few advantages over traditional savings accounts. First, the transfer of assets was treated as a completed gift which removed the assets from the donor’s gross estate. As a gift, it was subject to the current annual gift exclusion ($14,000 in 2014). Second, any unearned income received favorable tax treatment, albeit lessened with the advent of the “kiddie tax.” Unearned income is generally investment income including interest, dividends and capital gains. Under the current tax code, the first $1,000 of unearned income is exempt using the standard deduction for dependents; and the next $1,000 of unearned income is taxed at the child’s income tax rate. However, any unearned income in excess of $2,000 is taxed at the parent’s marginal tax rate. One drawback to the UTMA is it is considered an irrevocable gift. When the recipient reached the age of maturity – 21 in Pennsylvania and most other states – the custodianship ends, meaning the recipient now has full control and can dispense with the assets however they choose.

College Planning: The Big Picture Part 1

Would you give your 10 year old your car keys and let him drive?  Would you let him drive on the turnpike?  Of course not – any parent would be deathly afraid for his safety and the safety of others.

Just as you wouldn’t let your unprepared 10 year old behind the wheel of the car, you do not want to let your high school graduate go to college without the proper preparation. In many ways, this is what we're doing with our kids and grandkids in college planning. We’re asking teenagers to make decisions about their future and their careers, when they are not prepared. Teenagers don't have the fiscal maturity to understand financing their college education, which is quite possibly putting them and others at risk.