Scholarships can provide a way for your child to get free money for college. A scholarship can reduce the burden on you, as well as reduce the burden of student loan debt for your child. If you want your child to get a scholarship, though, you both have to start preparing ahead of time.

It’s important to work hard for decent grades, as well as to consider extracurricular activities and involvement. If your teenager starts at the beginning of high school to prepare to be eligible for scholarships, he or she is more likely to find success down the road. You can also start looking around at different scholarship options so that you know what your teen needs to work on.

You also need to start applying before your teen goes to school. Applying late in the junior year of high school, and in the early part of the your teen’s senior year, is often a good idea. Check scholarship deadlines to make sure that you are on track, and make sure to fill out the applications in order so that you don’t miss options.

Where to Look for Scholarships

There are a number of opportunities for scholarships. You can start by looking in your own community. Many civic organizations, retailers and even banks offer scholarships. Find out about the eligibility requirements, and what tasks (some scholarships require that certain items be accomplished) are needed. You might be surprised at what is available in your own hometown. These types of local scholarships are a good place to start.

Also, look at the schools that your teen has been accepted to. If your child has decided to enroll with a particular school, call the financial aid office and find out what scholarships are available. There are usually different scholarships, based on need, merit or even offered to those who will study in a certain field. Get a list of available scholarships, and apply through the university.

You can also turn to the Internet. There are a number of web sites online that compile different scholarships that you can compete for. Two of the most popular sites you can visit for information on scholarships from around the country are:

1. Scholarships.com
2. Fastweb.com

You should also visit the FAFSA web site. This is the federal government’s student aid web site. It features information about grants, and work study programs, as well as information about federal student loans. If you want to apply for federal financial aid, you need to fill out one of these forms. Visiting this site is a definite must, in addition to checking into your other scholarship options.

These days, it’s harder to just get one big scholarship to cover everything. Instead, you will likely need multiple funding sources. The more scholarships your teen applies for, the more likely he or she will be be to get the help needed.

(Photo: Christopher S. Penn)

Kids & Money: When to Look for Scholarships from personal finance blog Bargaineering.com.

The reason that this is such a debatable subject is due to the fact that different degrees offer different advantages. Not everyone with a Master’s degree or a professional degree (such as a law degree or medical degree) is going to earn the same amount because the salaries you see when you are done vary widely. Georgetown’s Center on Education and the Workforce estimates that the median salary with an advanced degree is $73,738. However, that doesn’t mean everyone with an advanced degree. (Indeed, half of those with advanced degrees will earn less.) The Center also points out that payoff from getting an advanced degree can mean as little as a 1% boost to your salary, or as much as 190%.

What is Your Graduate Degree Worth?

Before you decide to spring for a graduate degree, consider how much it is going to be worth when you are done. Some things to keep in mind include:

• Wage difference between bachelor’s degree and the advanced degree: Some professions pay well with a bachelor’s degree. Someone with a petroleum engineering bachelor’s degree is already going to be making a good salary. Getting an advanced degree won’t bump up your salary very much, because it’s already higher. In some cases, the advanced degree doesn’t pay much because the job market is always weak, or because advancement is based on factors beyond your education level. You rarely need to get an advanced degree in broadcasting — it probably won’t affect your pay as much as just having a bachelor’s degree and doing a good job while gaining experience.
• Demand for the job: It might sound like a good idea to follow your bliss and get an advanced degree in something you enjoy, but what if there isn’t much demand for the job? If there isn’t a lot of demand for your degree area, then you won’t make much money, and getting further into debt with an advanced degree might not be worth it.
• Saturation in the market: Payscale.com lists the averaging starting salary for lawyers at $62,000. That’s not bad, but consider that you might pay upward of $80,000 for that law degree. The problem is that the market is saturated with lawyers. And that means your degree, though worth something, might not be worth as much as you thought. Get a realistic view of the market before you get your degree. An advanced degree in a field where there is demand, but little supply, can pay off in a big way.
• Where you go: Sometimes, it’s just not worth it to pay a lot of money for a degree from a big-name school. If you can get an advanced degree for a lower price, thanks to scholarships, assistantships and going to a public university, you can get more bang for your buck.

In the end, only you can decide if an advanced degree is worth the cost. Make sure you weigh the pros and cons, and decide how much student debt you are willing to take on — and the salary you can realistically expect when you’re done — before taking the plunge.

(Photo: digitalkatie)

Is a Graduate Degree Worth the Money? from personal finance blog Bargaineering.com.

When I look back at the last ten years, I’m amazed at the path my career has taken. I went to college because “that’s what you did after high school.” I graduated into a horrible tech job market, went into graduate school and I was able to secure a job in the defense industry working software projects a year later. Two companies and five years later, I find myself doing what I do now – personal finance blogging. Crazy huh? Very little that I did academically or professionally, in the last eight years, prepared me for what might eventually be the career that takes me into retirement.

If you want to do one thing to ensure your future success and happiness, it’s finding a career that’s right for you. Once you’ve decided on the career, knowing full well it could change a half dozen times before you get it right, the next step is to find the right school. After seeing this CNN Money piece on the most expensive colleges (Sarah Lawrence College is over $55,000 a year!), it should be clear that not everyone should be going to college… and that’s OK.

College Isn’t For Everyone

I’ve always believed that education is extremely valuable when it is a proxy for experience, either your own or of others. If you want to work in in the sciences, such as chemistry or physics, you need a classroom education to learn the basics of the field. You could experiment on your own and slowly learn the concepts, but that would take a long time. It’s better and faster to learn it in a classroom.

However, if your passion is something you can’t learn in a classroom, college is not for you. If your passion is repairing and tuning car engines, you shouldn’t go to college. Unless you go to study something like mechanical engineering, so you can design engines, you are wasting both time and money. If you love to cook and think you could do it for the rest of your life, culinary school makes more sense than a four year college. College is an expensive place to spend four years for something you won’t use.

Vocational Schools, Certifications

Vocational schools, sometimes called technical schools, may be a better choice. Remember, education should be used as a proxy for experience and this is exactly what a good vocational school will do. They will give you hands on training in the field you want to enter

When it comes to the IT field, where you went to college matters less than what technical certifications you have. When companies look to fill a requisition, they’re looking for someone who has the proper certifications in the technologies the requisition needs. If you’re curious how valuable they are, take a look at this Metafilter discussion of the most valuable IT certifications. (one important point is that you need both the certification and the experience)

Finding The Right School

Once you find the field that you want to pursue, it’s time to search for a school that will give you the skills you need. If you are still in high school, I recommend talking to your school counselor for some ideas of what schools might be right for you. They should have enough experience with students to help you pick a few places you might want to find out more about. If you don’t have one or you don’t think they are helpful, considering using a search tool to find schools in your area that specialize in your field.

Once you get all the brochures, read all the websites, and done your background research as to whether the school is a good visit, take the time to visit them. Finding the right school is about more than the required courses and the professional photos, you need to go see if it’s a place you can succeed at. If it’s a vocational school, do they teach the skills you’ll need to thrive? Do they have career resources to help you find a job after you graduate?

Be Adaptable

Finally, despite everything I’ve said, the most important thing you must be is adaptable and receptive to the opportunities that present themselves. For seven years, everything I did academically or professionally was in the field of software. Today, while I do write a little bit of software for my own projects, the vast majority of my work involves research and writing. When I was approached by various newspapers, I was scared but I still said yes to being interviewed and photographed, but I said yes. You must recognize when those opportunities are, even if they scare you or take you in a different direction, and take advantage if you think it’s the right thing to do.

In the end, it will be you, not the school you attend, that decides whether you are successful. Hopefully you don’t decide to put yourself $55,000 a year in debt by attending a school.

If you went to school past high school, how did you decide where to go and why? Do you feel it was valuable or did you feel you wasted a few years?

How To Find A School That’s Right For You from personal finance blog Bargaineering.com.

Take a four year public school like Florida State University. For a resident of Florida, the cost of room, board, books and supplies comes out to $11,000 per year. With tuition increase and other expenses, the four year cost would come out to approximately $53,000. A private school such as Princeton University will cost $175,000 for a four year degree. The average scholarship amount of a Princeton student who qualifies for a needs based scholarships is $24,000 per year while Florida State students receive an average of $5,000. There’s a big difference between these schools but the costs don’t stop there.

The average student graduates from college with $20,000 in college related debt. If it takes 20 years to pay that loan, at current interest rates, that loan will cost the student $36,600. It would be difficult to calculate an average cost of tuition since far less students attend schools like Princeton but in order to calculate the total cost of a college education, $36,600 would have to added to the total college cost.

Now that we have an idea of the total investment, what do the numbers on the other side look like? The average salary that a college graduate can expect is $46,000 per year compared to a non-college graduate who earns an average of 25% less. Possibly the most disturbing statistic is the unemployment rate. While the national unemployment rate is above 9%, the unemployment rate for recent college graduates is only 1% lower. Unlike a decade ago, there is no guarantee that a college degree with lead to a job and, in fact, a large amount of college graduates are either unemployed or in positions that are unskilled or don’t require a college degree.

Looking at all of the statistics, is a private ivy league school going to attract a higher paying job after four years compared to an in-state school? Is attending a high priced school for a degree that produces relatively low income a good return on investment?

Education majors who intend to pursue a career as a public school teacher will receive no extra money because they paid more for their degree while a lawyer may be more attractive to a law firm if they have a Harvard Law Degree on their resume. These are only a few of the questions that families have to consider in this economy more than in pre-2008 economy.

Regardless of current trends, a college education is still the best investment to make in yourself or your child. Although it may take 5 or more years to begin making a profit on your education costs, the investment quickly becomes profitable. Don’t let cost detour you from attending college.

Is College Still a Good Investment? from personal finance blog Bargaineering.com.

However, it is important to note that scholarships, for the most part, don’t just come right to you. Your teen will need to start now to prepare to be eligible for a scholarship. If your teen plans now, works hard, and does his or her best to improve in certain areas, it is possible to earn a scholarship. Here are some things your teen can do now to increase the chances of receiving a little free money:

1. Good grades: This one is fairly obvious. You get good grades, and you have a better chance of being rewarded with a scholarship. Involvement in an honor society doesn’t hurt, either. But good grades alone aren’t the only thing you need these days to be competitive for a scholarship.
2. Music and theater performance: Whether your teen plays an instrument in the band or orchestra, or performs vocally, there are scholarships available. I was offered two different performance scholarships/stipends at two different schools for my involvement in band. You can better qualify for these scholarships and stipends if you have been accepted into a state honor band or honor choir, or receive awards for solos. Schools heavy into the fine arts will also award scholarships based on your drama involvement and ability.
3. Sports: Yes, you can get scholarships for sports. You know this. But you have to be willing to put in hours and hours and hours of practice to be offered a scholarship. And competition for sports like football and basketball are fierce. However, some colleges have other sports, including soccer, volleyball, tennis, la crosse and baseball/softball that you might have a better chance at — assuming you can succeed.
4. Other extracurriculars/leadership: Another way you can enhance your attractiveness to schools is to show how well-rounded you are through other extracurriculars and leadership positions. While I was never a class officer in high school, I did gain leadership experience through my involvement in 4-H, and my achievements at the state and national 4-H levels. Look, too, for opportunities to participate and lead in extracurriculars including clubs, school newspaper/yearbook, and alternative teams.
5. Service: Many schools like to see students involved in service projects. Whether you volunteer at your church, in the community, or belong to your high school’s Key/service club, you can win scholarship points for giving back.

Looking for Opportunities

Don’t just look for scholarships from the schools of your choice. Many local organizations, banks and stores offer scholarships. My husband received a scholarship from his local bank, and stores like Target and Wal-Mart offer scholarships to local high school students. You can also find scholarships based on your intended field of study (I was offered a physics scholarship a long time ago), as well as in quirky categories, such as those offered to tall people. Do some research at places like FastWeb. Start applying now, and you might be surprised at how quickly all those small scholarships can add up.

(Photo: Gulf Coast Regional Blood Center)

Kids & Money: Things Teens Can Do for Scholarships from personal finance blog Bargaineering.com.

1. Harvey Mudd College: Mid-career median salary of $126,000 and a starting median salary of $68,900. 757 undergraduate enrollment with a 2010-2011 tuition of over forty thousand dollars.
2. Princeton University: Mid-career median salary of $123,000, starting median salary of $58,900. Tuition of $36,640.
3. Dartmouth University: Mid-career median salary of $123,000, starting median salary of $54,100. Tuition of $40,437.
4. Harvard University: Mid-career median salary of $121,000, starting median salary of $57,300. Tuition of $38,416.
5. California Institute of Technology: Mid-career median salary of $120,000, starting median salary of $69,900. Tuition of $36,282.

Sixth through eighth were MIT, Stanford, and Colgate, in that order.

Colleges That Bring the Highest Paycheck 2011 [CNBC]

2011 Highest Paid College Graduates from personal finance blog Bargaineering.com.

The unemployment rate for people with a bachelor’s degree or high is only 4.5% (the vast majority, if not all of them, of my local friends have at least a bachelor’s degree), which is around where economists believe structural unemployment should be.

The specific numbers for unemployment rate (based on July 2010 BLS data) are:

• Less than a high school diploma: 13.8%
• High school graduate, no college: 10.1%
• Some college or associate degree: 8.3%
• Bachelor’s degree or higher: 4.5%

I’ve argued in favor of college and against going to college, but I’ve always stuck to one point – going to college is a very safe decision if you can afford it. You aren’t guaranteed riches but you’re almost guaranteed not to become insolvent, despite the rising costs of a college education.

On the flip side, look at the employment-population ratio:

• Less than a high school diploma: 40.8%
• High school graduate, no college: 55.4%
• Some college or associate degree: 64.1%
• Bachelor’s degree or higher: 72.7%

It’s dangerous to read too much into these figures because education is just one factor among many as to why someone could be unemployed. However, I think it’s fair to assume that, all other characteristics being equal, the more education the better.

Thoughts?

(Photo: walkadog)

No Recession for College Graduates from personal finance blog Bargaineering.com.

This list shouldn’t surprise you. We’ve been posting similar studies for years and every year engineers, specifically chemical engineers, have topped those charts. In 2006, the best paying job was in chemical engineering. In 2007, the best paying job was in chemical engineering. In 2008, surprise surprise, the best paying job was in chemical engineering. In each of those years, chemical engineering barely edged out other engineering disciplines (oil prices!) but the point was clear – a degree in engineering is a safe bet.

Best Undergrad College Degrees By Salary

Methodology Annual pay for Bachelors graduates without higher degrees. Typical starting graduates have 2 years of experience; mid-career have 15 years. See full methodology for more.

Here’s PayScale.com’s full listing, with my beloved Computer Science putting up competitive numbers – $56,400 starting median salary and $97,400 mid-career median salary. The two careers bringing up the rear – elementary education (not bad considering you get summers off) and social work.

(Photo: argonne)

Best Undergrad College Degrees By Salary 2010 from personal finance blog Bargaineering.com.

A few years ago, I wrote about how my sister took advantage of a student loan forgiveness program for teachers. It’s a great program if you can participate because it helps the (former) student and it helps society as a whole by putting incentives and compensation more in line with the work performed. Today, I wanted to discuss the Income-based Repayment plan created by the College Cost Reduction and Access Act of 2007. It only became available/effective on July 1 of 2009.

What Is Income Based Repayment?

Income based repayment, IBR, is a system where monthly payments to federal student loans, such as Stafford, Grad Plus and consolidation loans (but not Perkins or Parent PLUS loans); are capped at 15% of your monthly discretionary income. Discretionary income is defined as the difference between your adjusted gross income (AGI) from the prior year and 150% of the federal poverty line for your family and state.

Calculating discretionary income: Let’s say you are in a family of 1 (single), you live in the 48 contiguous states, and your adjusted gross income is $40,000 a year. According to the 2009 poverty guidelines, the guideline is $10,830. You subtract $16,245 (150% of the guideline) from $40,000 to arrive at $23,755. 15% of $23,755 is $3,563.25, or $296.94 per month.

What if your income changes significantly? Since the equation uses last year’s AGI, your income this year might be lower because you lost your job or took a pay cut. Obtain an OMB approved IBR Plan Alternative Documentation of Income form from your lender for a more accurate calculation.

Who Qualifies?

There are no other qualification rules outside of the types of loans and your income. As long as you have a Stafford, Grad PLUS, or federal consolidation loan then you qualify. Perkins Loans are not included but if you have Perkins Loans consolidated into a federal consolidation loan, then it qualifies. Parent PLUS loans do not qualify.

Here’s a table from the Federal Student Aid website showing example payment amounts compared to family size and annual income, to give you an idea of whether IBR is right for you:

Unpaid Interest Waived

Your IBR calculated payment may be less than the interest that accrues on your loan. With subsidized Stafford loans, the extra interest is waived for the first three years of income-based repayment. On other loans, and Stafford loans after three years, the interest is still accrued and capitalized on a status change. You can always pay more than the IBR minimum payment.

Loan Forgiveness After 25 Years

You would think that the lowered payments would simply mean you’re paying longer, but the bill has provisions that forgive the debt after 25 years. After 25 years of payments, even if you haven’t fully paid off the debt, the loan is forgiven and the debt is discharged. The discharged amount will be considered as taxable income in the year it’s discharged, as is common with forgiven loans.

Are There Disadvantages?

Yes.

• You will pay more in interest. Since your payments are capped, you will accrue more interest on your loan as the year pass, especially if your payment is less than the interest each month.
• More documentation each year. Since the payment is based on your income, you’ll have to reset the payment amount each year and file documentation showing your much you earned and your family size.

How to Apply?

If you’re thinking about IBR and wondering how you can participate in the program, talk to your current lender.

That’s income-based repayment for student loans in a nutshell. While this program seems like it’s a benefit to students, it actually hurts future students. If the price of college is too high, the market should react by demanding less college (fewer students choosing to attend). By having this program, with the government taking on part of the burden, we’ve inflated demand because families will have to pay less in the long run. The economics of the situation sure are ugly, huh?

(photo by CarbonNYC)

Student Loan IBR Income Based Repayment Plans from personal finance blog Bargaineering.com.

There are six major topics and each major topic has a series of resources and article explaining various facets of that topic. For example, Money 101 has subsections titled Setting Financial Goals, Tracking Expenses, Budgeting, and Savings. Underneath each of those are several articles to get you on the right track. Along the side you get a bit of trivia too.. for example, the personal savings rate rose to 5% in the second quarter of 2009, vs. less than 2% all throughout 2007.

Give it a look, you might learn something.

University of Idaho Offers Free Personal Finance Courses from personal finance blog Bargaineering.com.

With dating sites flourishing and online education popping up everywhere, the stigma associated with the “online” versions of both have all but been washed away. Meeting someone online no longer means you’re meeting someone capable only with interacting with a computer and getting a degree online no longer means you took some cupcake classes and paid for a diploma.

However, just as how you still want to be careful with who you choose to meet in person from an online dating site, you’ll also have to be careful which online university you choose to attend. Like dates, not all universities are created equal.

Benefits of Online Education

The main benefit of online education is flexibility. When I attended Johns Hopkins for my MBA, I had to drive half an hour each way, pay for parking, just so I could sit in a classroom. Sure, I participated, but the vast majority of the time I listened to a lecture and then drove home. With online education, the flexibility of listening to courses when I wanted to would’ve been very appealing. Nothing replaces the classroom experience but when the majority of your other part-time classmates are looking to learn a little, get a degree, and get out – the classroom experience is limited. Plus, by taking it at my own pace, I free up an hour of my life that I can spend on something else.

While flexibility is probably the biggest benefit, a close second has to do with the speed of learning. The class always seems to progress at the speed of the slowest vocal student. This is bad for two reasons. First, if someone understands a concept quickly, they must wait. If someone doesn’t understand a concept quickly but is shy about it, the class continues on without him or her. Both students are done a disservice and that’s mostly avoided with online education.

Finally, the last big benefit has to do with cost. There are certainly plenty of other benefits of online education but cost is definitely one of them. Online programs are often less expensive than traditional programs strictly from a tuition perspective. With a lowered cost, students won’t need loans, which further drives down the cost of education. It’s a lot like the idea of online banks and brick and mortar banks, online banks don’t have the overhead that traditional banks do and they are able to pass that on to consumers.

Drawbacks of Online Education

As with anything else, there are pluses and minuses. Online education still suffers from a stigma because it’s not “traditional.” Some online universities are incorporating a classroom component, where you might have to attend a classroom session once a month, but some people still see it as “buying” your degree (which is still true with some institutions).

Another drawback of online education is that it’s self-paced. Self-paced learning is a double edged sword. For some, they learn at their own speed. For others, they learn at the last minute and don’t get the full value of the course because they’re trying to cram it all in at the last moment. Understanding how you’ll handle self-paced learning is important in understanding of online education is for you.

We’ve briefly discussed the benefits and drawbacks of online education, let’s look at how you should choose a an online education institution.

Educational Accreditation

The easiest measure of a university is whether it’s been accredited. Accreditation is a way to determine the quality of the education at a particular school. It’s performed by state and local private accreditation organizations, not the federal government. Fortunately, the Higher Education Act of 1965 required the U.S. Secretary of Education to publish a list of nationally recognized accrediting agencies and subsequently a database of nationally accredited post-secondary institutions and programs.

It’s important to note that not all accreditation’s are created equal, though all are recognized as equal by the federal government. It’s generally accepted that regional accreditation is the highest level of accreditation a school can get. There are six regional accreditating organizations:

• Middle States Association of Colleges and Schools
• New England Association of Schools and Colleges
• North Central Association of Colleges and Schools
• Northwest Commission on Colleges and Universities
• Western Association of Schools and Colleges
• Southern Association of Colleges and Schools

You can also go to the Council on Higher Education Accreditation to find out more about the accreditation body that accredited an online university you’re looking at. They track both legitimate and fraudulent claims.

Finally, individual programs or degrees of study are not accredited, the institution as a whole is put through the accreditation process. You can read more about educational accreditation, which includes any level of schooling, at Wikipedia.

You do not have to be accredited to open a school and award degrees. That’s a very important point to understand. A school may be authorized to operate and not be accredited, so you’ll want to check its accreditation and which organization awarded it.

Why does accreditation matter? Some employers and other universities may not recognize degrees you’ve obtained or classes you’ve attended at non-accredited universities because they can’t be sure of the quality of the education. By going to a non-accredited school, you run the risk that your degree or your classes aren’t recognized, so why risk it?

How to Pick the Right Online University

After accreditation, you’ll want to start doing the same research you would on a traditional university:

• Professors: Since you’ll be learning from them, do a little bit of background research on the professors that will be teaching your courses. See what their degrees are in, what their experience is, and what you think they bring to the virtual classroom.
• Cost: Online education is generally cheaper but it may not be, after you consider all the fees and charges they may add on (cost of software should be included in tuition).
• Classroom size: It may seem kind of silly to look at classroom size when you aren’t in a classroom, but this will give you a better idea of how stretched your professor may be. Remember that these professors will be reading your work and giving you feedback, if he or she has 50 students, then you won’t get as good an experience as one that only needs to interact with 20.
• Software requirements: If the online university uses software that requires you to have a newer computer, you’ll need to add that to the cost of attending.
• Classroom attendence: Some universities will require you to regularly attend a classroom session, perhaps once a month or once ever two weeks.

Free Online Courses

If you’re not concerned about getting “credit” for classes or degrees but are instead focused on expanding your skillset, you might want to try taking free online courses from your traditional universities. Many universities like MIT, Carnegie Mellon, Tufts, and Stanford offer self-paced online courses that are absolutely free. Here are a few to get you started:

• MIT OpenCourseWare
• Open University (UK’s largest academic institution)
• Carnegie Mellon University
• Stanford (iTunes)
• UC Berkeley
• Utah State University
• Kutztown University
• University of Southern Queensland (Australia)
• UC Irvine

What are your thoughts on online education?

(Photo: kenlund)

Basics of Online Education from personal finance blog Bargaineering.com.

You are 22 years old. You have just spent the past four years paying tuition, room and board, books, food, utilities, transportation, etc. The worst part is that it is all getting more and more expensive beyond peoples’ expectations. Where does that leave you? In a mountain of debt upon graduation. For some of us that means letting our debt dictate a less than optimal career.

However, what are some ways that we could better prepare for our college education? And if it is too late for you, how can we better plan for our children’s education?

I will outline three ways: Savings Vehicles, Financial Aid, and Reducing Costs. Each section contains a sub-list of “to-do’s” that I advise you to look into!

1. Post #1: Savings Vehicles, Bargaineering
2. Post #2: Financial Aid, Green Panda Treehouse
3. Post #3: Reducing Costs, Poorer Than You
4. Post #4: Wrap up, My Life ROI

So you are thinking about ways to prepare for your child’s college education. College may be five years away for your child. Or perhaps it’s next year. Or if you are really on top of your game, your child may just be a thought in your mind. What savings vehicles are available to make paying for college easier? And in doing so, which way is least detrimental to your child as well?

Custodial Accounts

Custodial accounts, to put it simply, are accounts managed by an adult that are created for a minor who is under the age of 18 or 21. They are usually opened at either a bank, a brokerage firm or a mutual fund company. Custodial accounts don’t have as many advantages as the following two savings vehicles I will mention, so I won’t spend as much time on them. In other words, they have some big downfalls.

Generally, anything you do with a custodial account is permanent. If you transfer money into a custodial account it is stuck there. Why? You would need the consent of the account owner to take money from the account and legally the account is owned by the minor that you created the account for. If they are a minor they probably cannot give consent, legally. Thus, your change is permanent. Once your child turns 18 or 21 the assets are legally theirs. How mature were you at 21? Will you be upset if your child opts to take that money and spend it on a new car rather than a college education? If so, tough luck… it is their money and they have free reign on what to do with it.

If the child chooses to go to college, custodial accounts can be detrimental! The financial aid formula assumes the students themselves will contribute about 35% of their assets towards costs and the parents need to put up 6% of their savings. Custodial accounts count under the students assets, thus heavily weighting the formula and increasing the burden on the student. By inflating the child’s assets they will lose money on financial aid.

Also, one thing you will find with the following two vehicles is the ability to transfer money around between beneficiaries. You cannot do that with a custodial account. Why would you want to do that?

Let’s assume that you have contributed $30,000 for child A. Recently the stock market has taken a large dive and you also lost your job. You can only afford to put in $10,000 for child B. Would you feel OK leaving one child $30,000 and the other child $10,000 just because of how the market worked out? It would be nice to leave each of them $20,000, in my opinion.

Alternates? For college reasons, read on to learn about the Section 529 Plans and Coverdell Education Savings Accounts. For other reasons, a traditional IRA, roth IRA, or even a trust could be a better idea! To determine if you fall into this situation, consult a financial or estate planner.

Section 529 Plans

Section 529 plans are advantageous in plenty of ways. They are open to people of all income levels. Not only that, but you do not have to be a child’s parent to contribute to the plan. You can be a grandparent, a sibling, an aunt, or just a random philanthropic person if you would like. You can even contribute to your own 529 plan as long as you are planning to attend law school or medical school!

A lot of people shy away from investments because of the minimum contributions, effects on tax planning, and the possibility of other detrimental consequences as seen with a custodial account. However, with Section 529 Plans, you can often times contribute just $25/month. Compared to some of the minimum investments for IRAs and index funds… that is pennies! In regards to taxes, the 529 plan grows tax-free! In order to take advantage of this tax-free growth even more, maximum contributions have been created that do not have any gift tax consequences. The limit on contributions without gift tax consequences is $65,000/person or $130,000/couple over a 5 year span. This comes out to $13,000 per year.

When it comes time to apply for college, these plans can be used at any accredited school in the country. When applying for financial aid, Section 529 plans do NOT count under the students’ assets for the formula!

If the child decides to forgo college education, it is simple for the parent to transfer the plan assets to another beneficiary such as a younger sibling. And the child that skips college cannot force withdrawals unless they are for college expenses.

Coverdell Education Savings Accounts (Formerly Education IRAs)

Coverdell Education Savings Accounts (which will be referred to as CESAs) also have their advantages and disadvantages.

In regards to contributions, there are many more limits in place than in a Section 529 Plan. Only $2,000 a year can be contributed for each minor. There are income limits to make contributions, as well. If you are single or head of household the adjusted gross income (AGI) phase-out is between $95,000 and $110,000. Those AGI phase-outs rise to $190,000 and 210,000 for married filing jointly.

CESAs allow you more flexibility in terms of investment strategy. They allow you to invest in mutual funds, stocks, or bonds. 529 plans bind you to the portfolios that the state-sponsored plan offers.

Despite the income limits, any contributions made are after-tax just like a Roth IRA or Section 529 plan and they grow tax-free. Typically little to no account maintenance fees are charged and contribution minimums are also little to none. As long as the money is used for elementary, secondary, or higher education expenses the money is not taxed again when it is distributed. The important distinction here is that unlike the 529, CESAs can be used for elementary and secondary education. But, just like the 529, for higher education the money can be used for any accredited school (with more flexibility to private and nonprofit institutions for CESAs). If the child decides to forgo college the money can be rolled over into another family member’s CESA as long as they are under 30.

One large drawback from a Coverdell is that once the child reaches college age they take control of the account and manage the distributions. Whether you think they are responsible enough or not, they have the final say. If any money remains after the beneficiary turns 30, the money that is left is subject to taxes.
Conclusion?

For many people, the 529 plans are the most robust. They offer the most control for the custodian/parent even once the child has reached the age of majority. The fact that there are no income limits and anyone can contribute to the plan makes it much more flexible. The gift-tax free contributions are a great perk. The ability to roll the plan over to another beneficiary is a great benefit, too. If your child gets scholarships wouldn’t it be great to just roll that money into the younger siblings rather than lose some of the money to taxes? And finally, by using Upromise you can get extra money added to your 529 from partner companies.

Consult a professional to figure out what your exact situation requires but go into his consultation knowing your options. Do not start a custodial account because a friend says its the best option and find out you have hurt your child eighteen years later. And do not start a CESA because you want to pick your own portfolio when a state-sponsored portfolio in a 529 may work for you. Talk to a professional and go over your exact situation!

I hope this brief outline of 3 of the major savings vehicles people use for their child’s college education has been educational!

Understanding Your College Savings Options from personal finance blog Bargaineering.com.

2. Request a Federal Student Aid PIN
The Federal Student Aid PIN will allow you to fill out your FAFSA on the web, which is always better than filing out a paper application and mailing it in. It will serve as a unique identification number and signature for your application. To request a pin, visit the Federal Student Aid PIN website. If you recently applied but haven’t received your PIN, you can check your PIN status here.

3. Submit the FAFSA
The Free Application for Federal Student Aid can be filled out anytime between January 1st and June 30th of the following year. However, the earlier you apply the better. Many state and college financial aid rewards have earlier deadlines and the funds are only available on a first come first serve basis. Though the FAFSA can be filled out in paper format, the fastest and easiest way to fill it out is on the web. The FAFSA website provides a worksheet for you to fill out before submitting the actual FAFSA. This worksheet will allow you to determine the answers to the questions the FAFSA will ask you beforehand. Then, you can use those answers when you fill out the actual FAFSA form online. Make sure to indicate on the form where you want the FAFSA to be sent. For more information about the FAFSA, watch this brief 5-minute video about FAFSA.

4. Receive Your SAR
After you have submitted the FAFSA, you will be sent a Student Aid Report. This report will tell you your eligibility status for federal student aid and will tell you your Expected Family Contribution (EFC). Your EFC is not the amount of money your parents are expected to spend on your education. Instead, it is an index of how much you are in need of financial aid. To estimate how much your EFC will be before submitting the FAFSA, use an online EFC calculator such as this one.

5. Complete Supplemental Forms if Necessary
Some schools require supplemental financial aid forms such as the CSS Profile. Check with your school’s financial aid office to determine if this is necessary.

6. Complete Your School’s Financial Aid Application
In addition to the FAFSA, you will need to complete the financial aid application for your college. During this process, it may be beneficial to meet with a financial aid counselor at your school. He will be able to answer any questions you may have and he may be able to help you receive the most financial aid your school can offer.

7. Verify If Necessary
In some instances, you may be asked to send in tax documents to verify the information you put in your financial aid application. Although this step can be tedious, it is necessary for receiving financial aid.

8. Receive Your Award Package
After receiving your application, your school will determine how much financial aid your are eligible for and will send you an award package. Your package could include several different forms of financial aid. Grants and scholarships are forms of financial aid that do not need to be repaid. Loans on the other hand will need to be repaid, often with interest. Finally, work study awards provide you with part-time employment to fund a portion of your college education. For more details on the types of financial aid, see this site and use the Federal Student Aid Programs link on the left side of the page. Here’s what a sample award package looks like.

By following these steps, you can navigate your way through the financial aid system. If you have trouble along the way you can call the Federal Student Aid Information Center at 1-800-4-FED-AID. You can also contact your school’s financial aid office. Good luck applying!

This is a guest post by Olivia, who blogs at Independent Beginnings, where you can learn all about personal finance and independent living for young adults. Make sure to check it out!

(Photo: sgw)

How to Navigate the College Financial Aid System from personal finance blog Bargaineering.com.

What’s the catch?

No catch, I’ve been a member for years, having joined when I took advantage of some UPromise promotion codes for free money. It does seem a little too good to be true right? I linked up my Giant (a local grocery store) card and now I earn money without having to change anything about my routine. There is no catch, you can even withdraw the funds from your account by sending them this withdrawal form, though I haven’t done this yet (I don’t anticipate I will).

Linking family and friends: You can invite your friends to join and contribute to your educational cause. When they join, they can link their cards to your account so that you earn rewards based on their spending, as if it were your own.

How do they earn money? Through the UPromise website, you can earn higher percentages when you purchase products on the UPromise site. They have partnerships with various stores that offer higher percentage contributions if you purchase through the site. For example, if you visit the UPromise website, you’ll see that you can get TurboTax Deluxe for $49.99 and earn 2% towards college. When you make that purchase, Intuit probably pays UPromise a commission, part of which they turn around and give to you as a reward. Speaking of the website, they run occasional promotions where you can get bonus percentages on certain months. If you look at the website right now, there’s a 2% bonus on top of the regular bonus if you buy something at Lancome, ProFlowers, or Sears. They may pay you a percentage, but they collect a greater one from the stores. Since you would otherwise get nothing from the store, this is a win-win for everyone involved.

In the end, it’s free money for me and little risk involved, which is why I do it. Since I’m not swayed by the site (I haven’t visited it in several months) or the marketing, I really give up nothing by being a member.

Do you have any UPromise success or horror stories you’d like to share? I’ve only had a good experience with UPromise so I don’t know what could be bad about it.

UPromise Review: Free & Automatic College Savings from personal finance blog Bargaineering.com.

Best part about grants? It’s money you don’t have to repay!

If you’re not taking a shot at these grants, you’re leaving BIG money on the table. If you’re a college student or a high school student and your parents aren’t jumping on top of this, you need to seize this thing by the horns and go after it. So many students, myself included, are saddled with student loan debt out of college and despite what the “experts” say – student loan debt is not better than credit card debt. It all sucks. If you can get even a $500 grant, you can save thousands of dollars down the road in interest payments. You can buy a car earlier, you can buy a house earlier, you can get on the wealth accumulation track and off the debt repaying track that much sooner.

Sallie Mae sent me a list of the deadlines for states that offer grants and whose FAFSA filing deadlines hit before the national deadline of June 30th. If you don’t see your state listed, double check with the local financial aid office to see if the deadline is before June 30th because you do not want to miss out on the free money. With state grants, it is typically the state where the student resides in that determines eligibility (but always double check!).

• Alaska – April 15
• Arizona – March 1
• California – March 2 *
• Delaware – April 15
• Florida – May 15
• Idaho – March 1 *
• Indiana – March 10
• Kansas – April 1 *
• Kentucky – March 15 *
• Maine – May 1
• Maryland – March 1
• Massachusetts – May 1
• Michigan – March 1
• Mississippi – March 31 *
• Missouri – April 1
• Montana – March 1
• New Hampshire – May 1
• New York – May 1 *
• North Dakota – March 15
• Oklahoma – April 15
• Pennsylvania – May 1
• Rhode Island – March 1
• Tennessee – March 1
• West Virginia – March 1 *

* Sallie Mae recommends you contact that state’s financial aid office for additional forms.

Go!

FAFSA State Grant Deadlines from personal finance blog Bargaineering.com.