Education

One strategy is where the grandparents can help the grandchildren's education by making a gift under the Uniform Gifts to Minors Act. Each grandparent can give up to $13,000 per child annually free of gift tax, which should be placed in a UGMA bank account in the grandchild's name, with the grandparent or parent as custodian. Another strategy is for the grandparents to purchase Series EE or Series I bonds, or give the money to the grandchild's parent (who must be at least age 24) to buy the bonds. If the bonds are later cashed and the money used to pay qualified college education costs for the grandchild, the interest will not be taxed. The exclusion is phased out for high income taxpayers. Maximum annual purchases of Series I or Series EE are $30,000. Series I bonds also include the feature of being indexed to inflation. Speak to your local CPA about these tax saving strategies.

Some colleges now offer prepaid tuition plans. Generally, you agree to pay a lump sum amount today and, in exchange, the college will guarantee your child four years of already prepaid education. Earnings on the plan's investments are tax-deferred. When the plan pays the tuition benefit, the difference between the purchase price and the benefit will be taxed. If the funds are used for qualified higher education expenses, the investment earnings will be included as part of the beneficiary's income, therefore the earnings will be taxed at the student's usually lower tax rate rather than the purchaser's usually higher tax rate.

Some colleges are using billing agencies to administer monthly payment plans for tuition, room and board and books. Generally, you pay a nominal yearly fee ($25-$75) and then monthly payments prorated for projected, annual expenses. This plan is available for parents that can meet monthly cash flow payments, but do not have sufficient education savings. Check with the college's Accounting Office to determine if this type of plan is offered.

Generally, taxpayers can now put up to $2,000 a year into one of these educational investment retirement accounts. Contributions to such an account are not tax-deductible, but earnings in the account will accumulate tax free. No tax liability will be incurred on withdrawals if the money is used to pay college education expenses. For the current year, the full $2,000 contribution is available for joint filers whose Modified Adjusted Gross Income is less than $220,000 and single filers with Modified Adjusted Gross Income less than $110,000.

Generally, you should consider consolidating if there currently are lower interest rates available with minimal or no loan origination fees. Also, verify that there are no penalty fees on the old loans for pre-payment. Other reasons to consider when consolidating is whether you will have trouble keeping track of, or paying, the monthly payments. Stretching the term of the loan will lower the monthly payment, but will increase the total interest cost over the term of the loans. Speak to your local CPA to see if loan consolidation is beneficial for you.

Named after IRS Code Section 529, it is a qualified state tuition plan.
A contribution to a qualified plan is treated as a completed gift passed from a contributor to a beneficiary. Contributions are eligible for the annual gift tax exemption of $13,000. Married couples can gift up to $26,000 a year.
Investment earnings within college savings programs grow federal income tax deferred.
The investment earnings are taxed at the student's rate when withdrawn for college tuition and room and board. You can use the College Savings Program assets to pay any type of qualified higher education expenses such as tuition, fees, room and board, books and supplies.
College Savings Program funds can be used at any accredited post-secondary public or private school eligible to participate in federal student financial assistance programs anywhere in the U.S. This includes any 2 and 4 year undergraduate programs, technical schools plus graduate and professional schools.
Funds can be withdrawn without penalty if the beneficiary receives a scholarship (withdrawals can be made up to the scholarship amount) or in the event of the death or disability of the beneficiary. Ordinary income taxes will be owed on any investment earnings.
State tax treatment of contributions may vary. You can take money out of a 529 plan at any time. Your investment earnings are subject to income taxes at the account owner's tax rate plus a 10% federal tax penalty. State income tax treatments on 529 Plan's nonqualified withdrawals vary by state.
There are pros and cons to this tax strategy. These accounts may be considered the child's asset when determining financial aid.

The federal FAFSA financial aid analysis no longer counts the equity in your primary residence as an asset. However, many independent, private schools ask this information when making their own financial aid determinations.

The total costs will vary substantially from school to school. As a general overview, the net cost to you each year will be the gross costs of tuition, room and board, fees, books, supplies, transportation, extra spending money, minus federal and/or state financial aid, scholarships, grants, awards and loans. Generally, financial aid and loans are paid back 6 months after the student graduates or leaves school. Generally, scholarships, grants and awards are monies given that are not required to be paid back. Generally, the better the student's grades, SAT's and/or ACT's and outside activities are, the higher the scholarships, grants and awards that may be offered. The sticker price of studying and living on campus at the average public university rose 5.4% for in-state students, or about $1,100, to $21,447 this fall, the College Board estimated. The chief cause of that increase was a dramatic spike in tuition and fees at hundreds of public universities. Tuition at the average public university jumped 8.3% to $8,244. Fewer than half of all public university students pay the full sticker price to attend. Federal surveys show at least 52% of all students at public four-year universities receive scholarships or grants. Aid, not counting loans or campus jobs, brought the net tuition paid by the average student at a typical public university to about $2,500, the College Board estimates. That brings the total average net cost of a year on campus (including dorm, books, travel and living expenses) to $11,400

The Financial Aid Form (FAF)is a form that asks for more information than the FAFSA form. Some private colleges and universities require the completion of this form.