Saving for College – Which Investment is Right for You? Part I – The Basics

By Abigail Warren, Fall 2017 IAC Student Intern

Getting an education in today’s society is paramount.  The College Board reports in Education Pays 2016, that a college education is associated with healthier lifestyles, and adults with higher levels of education are more active citizens and more involved in their children’s activities.  While most desire a college education, paying for college can be difficult due to high tuition costs.  Fortunately, many investments tailored specifically for education expenses exist, as well as other options that might be more suitable investment vehicles for some.  Among these options are 529 Plans, Education Savings Accounts, Custodial Accounts, ABLE Accounts, and Savings Bonds.

Estimate Needs

Before selecting a college savings vehicle, FINRA suggests investors estimate their needs.  You should consider tuition, room and board, books, computers, printers, and software, and financial aid.  Most college savings accounts are treated as parental assets for determining aid and could impact the award amount by 5.64%.  An account in the child’s name could reduce financial aid amount by as much as 20%.  However, custodial 529 accounts or 529 accounts owned by the child are subject to the 5.64% reduction, not 20%.  Grandparents who own 529 plans with a grandchild as beneficiary do not count towards calculating financial aid eligibility, but the distributions can reduce a grandchild’s eligibility for future aid.

FINRA also suggests that by starting early and saving regularly, even small amounts, can lead to growth.  Use FINRA’s college savings calculator to see how much you need to invest to cover college costs.  You can also estimate your financial aid eligibility by using the FAFSA4caster tool.

Beware of Scams

According to the FTC, scholarship and financial aid scams are common.  Many companies perpetrate these scams by guaranteeing or promising scholarships or financial aid packages and requiring money up front to “hold” the scholarship or aid.  Some offer a money back guarantee, but have conditions that make it difficult to receive a refund.  Others claim students are “finalists” and require payment to hold that status, while some might even ask for your checking account and debit the account without your permission.  Another tactic is for companies to ask for a fee to process paperwork while claiming to have financial aid programs.

The FTC explains that legitimate companies exist that may offer lists of scholarships or match your child with potential scholarships for a fee.  The difference between a legitimate company and a scam is that a legitimate company will never guarantee scholarships or grants.  The FTC lists signs to look for when dealing with companies that offer financial aid and scholarship programs.