All Articles Tagged "529 plans"
6 Pitfalls in the Debt Deal That May Crush College Dreams
When President Obama struck a deal with Republicans agreeing to $3 trillion in federal budget cuts, few anticipated how these savings might impact college students. Education is usually considered an investment, in not only an individual, but also in a nation’s future. It is not a wasteful government program for the chopping block. Regardless of the lack of wisdom in undercutting our future work force, reductions agreed to in the debt deal will strike deeply into the financial assistance the government usually provides to students. CNN Money has recently reported that college costs are pricing out the middle class, so budget cuts targeting education could not have come at a worse time. Here are the top six ways the debt deal might crush many college dreams by making it prohibitively expensive.
1. Subsidized Loans: Reduced in Availability and Scope
As part of the debt deal, graduate and professional students will no longer be able to apply for subsidized loans. The federal government will continue to assist college students with subsidized loans, meaning that it will foot the bill for interest payments on the loans while the undergraduate is studying. But graduate and professional students will be out of luck, now being fully responsible for all interest payments for the term of the loan. Finaid.org believes this might drive up the cost of post-collegiate education by up to 16%. Undergraduates might retain the ability to apply for subsidized loans, but as Congress looks to cut an additional $1.2 trillion by Thanksgiving as part of the deal, it is unclear that any social programs are safe.
Is Prepaid Tuition a Good Idea?
(Bankrate) — Parents seeking an investment safe haven that provides guaranteed returns may not find one in prepaid tuition plans. Long touted as a no-risk way to save for college, prepaid plans generally allow parents to purchase college credits at slightly above current market prices, and then cash them in when their child heads off to school. Some investors predict that prepaid plans may be a thing of the past in coming years. Since 2008, several prepaid plans have either closed down entirely or stopped new enrollment, as Tennessee recently did. The 10 remaining state-run prepaid plans and one independently operated plan provide good value, but also come with restrictions on where funds can be used and questions about whether funds are safe. Here’s what you need to know before investing in 529 prepaid tuition plans.
Catching up on College Savings Plans
(Daily Finance) — High school graduation season is around the corner — what better time to review your 529 college-savings plans? With the economy still in the doldrums and a couple of state bills under consideration that may change the way 529 accounts are treated, parents may want to take a closer look at how those college funds are doing. 529 plans offer parents a way to save money for tuition in tax-deferred accounts. And while a number of states offer tax benefits to all residents for participating in an in-state 529 college-savings plan, some cash-strapped states may become more restrictive about who qualifies for those tax breaks in the future, says Chris Stack, managing consultant for Savingforcollege.com.
CollegeIllinois’ Promise of Tuition Benefits Looks Iffy
(Chicago Sun Times) — The recent revelations about the State of Illinois’ prepaid tuition program, CollegeIllinois, are troubling — but not totally unexpected. Every “defined benefit” investment program has shown losses over the past few years. But most plans have a longer time horizon than this program, which is supposed to pay out tuition benefits within 18 years or less. Suddenly, thousands of parents who thought they were securing their children’s tuition have joined the millions of state employees who are worried about their promised pensions, and the bondholders who are wondering where the state will come up with the money to pay the interest on the bonds they own, much less repay the principal. Crains’ excellent investigative report highlighted not only the investment deficiency in the funds but the changes in their investment style and accounting methodology. While CollegeIllinois executives defend their investment moves as necessary to “catch up” with the runaway costs of tuition, there is no doubt that the accounting changes give the appearance of “window dressing” to make the plan appear less underfunded.
Choosing the Right 529 College Savings Plan
(The Network Journal) – As many Americans scrounge for holiday deals, they might consider plunking those dollars saved into a college-savings fund for their children or grandchildren. But what’s the best place to park money that needs to grow at a rate to keep up with rapidly rising tuition costs? It might be a 529 plan, where tax-free earnings can give you an edge. But the plans aren’t all created equal. A 529 college-savings plan allows you to invest money for a family member that you later withdraw income-tax-free to pay for the relative’s education costs at almost any accredited college, community college or vocational school. It’s funded with after-tax money but grows tax-free to cover qualified items including tuition, room and board and textbooks.
