What Will It All Cost?

You and your prospective college student have narrowed it down and made some basic decisions about college: two-year vs. four-year, public vs. private, in-state vs. out-of-state, and living on-campus, off-campus, or at home. Now let’s continue:

The average cost of attending college for one year is $6,185 for a public in-state school and $23,712 for a private school. The total yearly cost of attending school is called the Cost Of Attendance (COA); it will be used to calculate your eligibility for financial aid. Let’s look at the items that you’ll find on your college bills, which fall into two categories, direct costs and indirect costs:

What College Bills Are Made Of

Direct costs are basically what the college bills you for; these costs are paid directly to the school. This would normally include tuition, room and board, and fees. Tuition is what your classes cost, room and board covers your dorm room and meals, and the fees cover other areas which may include student activities, use of athletic facilities, or whatever the school charges extra for – this will vary from school to school.

Indirect costs are all the other costs involved with attending college. They are not paid to the school directly and you may be able to exert some control and keep them from getting out of hand. Some items that fall into this category are books, a computer, transportation, off-campus room and board, athletic fees, fraternity or sorority dues, your day-to-day personal expenses, entertainment and any other costs you run up in the course of your college education.

It all adds up to a very respectable number – now let’s take a look a how to cover all these costs!

Source: CollegeBoard.com

Saving For College With The Government’s Help

The Federal and State Governments know all about one particular benefit of a college education: higher-paying jobs that result in increased tax revenues! So it should be no surprise that there are a variety of ways to save for college – and save yourself significant money – with the blessings of the government!

State Tuition Programs
Most states back some type of College Savings Plan. The details vary by state, but all exempt your savings from state and local taxes. This means that your savings may grow faster than if they were fully taxable. Be aware of the limitations and the actual interest rate you will be receiving before you commit to any of these plans.

Some states also have Prepaid Tuition Plans designed for students who plan on attending a state school. These plans allow you to lock in your future tuition at current rates, insulating you from the constant yearly increases between now and when you attend. This may be a good deal for you if you are willing to attend one of the in-state public schools included in the plan. Check the fine print and make sure you can live within the limitations.

IRAs
Individual Retirement Accounts, or IRAs, can help you finance college and reduce the amount of your income that is subject to tax. Coverdell Education Savings Accounts (ESAs), formerly known as Education IRAs, are accounts set up to pay qualified education expenses. Contributions aren’t deductible, but they grow tax free until withdrawn.

With a Roth IRA, your contributions grow tax-free and can be withdrawn tax-free when your child reaches college age. You can also make penalty-free early withdrawals from your existing IRAs to cover college expenses that qualify; these withdrawals are subject to income tax.

Tax Credits – A Great Thing!
Tax credits let you get back some of your education costs at tax time. The HOPE Credit and the Lifetime Learning Tax Credit offer students and families credit on their federal income tax returns for qualifying tuition and fees. If you file a tax return and owe taxes, you can probably get these credits. The HOPE Credit may be claimed for two years. The Lifetime Learning Tax Credit allows tax savings for postsecondary education courses. Consult your tax advisor for eligibility and deductibility details.

Other Education-Related Tax Deductions!
You can still deduct the interest on your educational loans each year, for an unlimited number of years. Uncle Sam really wants your child to get that education!