Paying for College in 2010
A Guide for Parents and Students
College tuitions increase every year, regardless of the state of the economy. In Pittsburgh, there was even talk about a tuition tax, proposed by Mayor Luke Ravenstahl, to help the city raise $16 million for its 2010 budget. According to the Pitt News, the tax was removed from consideration when the University of Pittsburgh, Carnegie Mellon University and health insurance provider, Highmark, stepped forward and offered to increase their charitable donations to the city in exchange for elimination of the proposed one percent tuition tax; Ravenstahl agreed.
Even without the extra strain of a tuition tax, like the one proposed in Pittsburgh, paying for college is difficult. Knowing how much money to save and how to save it are questions on the minds of many parents and potential college students. An article in the December 2009/January 2010 issue of Reader's Digest, The Best Way to Pay for College, by Lisa Goff, offered a lot of helpful hints.
Financial advisors like Suzy Orman and Jean Chatzky recommend that parents start saving for college right after their children are born. Some of the ways that parents can start saving for their children's college educations are
1. 529 Savings Plan - Parents have a choice of either a pre-paid tuition account, which guards against tuition increases but is only used in 18 states and parents can lose money if the family moves to another state, or the savings account plan. Both plans are tax free, but they're also subject to plummet if the economy should take a turn for the worse again.
2. Mutual funds - These are combined investments in stocks and bonds. What separates mutual funds from 529 plans is that the money in a mutual fund can be used for any purpose, at any time, without penalty.
3. UPromise - Parents have to already have a 529 plan established in order to participate in UPromise. The big plus is that anybody can contribute to the child's education by joining UPromise, then shopping online, buying groceries from participating vendors, or eating in participating restaurants.
4. Personal savings - Purchasing certificates of deposit (CD's) or opening a money market or regular savings account can be helpful, especially if parents have portions of their paychecks direct deposited into their children's college savings accounts.
Students have options open to them, too. In addition to any savings accounts their parents may have, a student who is old enough to work, could get a part-time job after school, then have a portion of his paycheck direct deposited into a savings account of his own or to the one his parents have already started. Another option available to high school students is scoring well on the PSAT. It's not just an SAT prep test; it's a means to qualifying for a $2,500 National Merit Scholarship for students who do well. Younger students, 13 and older, are eligible for scholarships, too. FinAid has all the information parents and students need to get started.
Finally, students who have an interest in military service can choose to either attend a military school or join the Reserve Officers Training Corps (ROTC). Military schools are free and ROTC offers merit-based scholarships that cover a student's full tuition, in exchange for an extended active duty commitment, according to Wikipedia. Both require a commitment to military service right after graduation.
Applying for federal grants, loans and scholarships should be one of the first things students and parents do, once they've compiled a list of prospective colleges and universities, but saving for college should start as early as possible.