Get to Know Me Monday #4 - Paying for College
Today I’m discussing paying for college. As a CPA and CFP, I’ve advised clients on saving for college, how to pay for college when the time comes, etc. As a parent of two college graduates, I’ve also experienced the college process firsthand, from savings, applying for colleges, applying for scholarships, completing the FAFSA, paying for college and everything in between. I really enjoy collaborating with parents and students on the college process. Today’s article talks will focus on paying for college. There is so much that can be covered on each of these areas, I’m going to address the highlights and provide links for more information. Of course, I am happy to discuss with you the best options for your specific situation.
Complete the FAFSA (Free Application for Federal Student Aid). https://studentaid.gov/
This is necessary to qualify for any federal grants, federal student loans, Parent Plus Loans. Many scholarships require a copy of your EFC (Expected Family Contribution) as well. There are several changes coming to the FAFSA in 2022, but not much has changed for the form that is available now. The application opened October 1 for the 2022-2023 college year. Don’t delay in getting this completed.
There are several financial planning strategies to lower your EFC. These strategies are very specific and should only be completed in line with your other financial planning goals. For advice on how to best strategize for your specific situation, contact me for an appointment. Be leery of firms charging several thousands of dollars to assist you with completing your FAFSA, college applications, and moving assets to lower your EFC that also sell products (often life insurance).
If you will be in college in the fall of 2022, start looking for scholarships now. Some scholarships have very early deadlines, some as early as December 1. Check with your high school guidance counselors or check their websites. Check with your local community foundation (in Fairfield county www.fairfieldcountyfoundation.org) , organizations such as South Central Power that give out scholarships in the communities they serve (https://www.southcentralpower.com/south-central-power-company-foundation/scholarships/). Research the schools to which you are applying. Sometimes the scholarship applications are separate from the admissions applications. There are also many national scholarship searches that are free; don’t pay for a scholarship search.
The financial award letter from the college will inform you if you are eligible for any Federal Student Loans, and whether they are subsidized or unsubsidized. The loan qualifications are determined by the school, but you must complete the FAFSA to be eligible for any federal student loans.
For more information on Subsidized vs Unsubsidized, how much can you borrow for federal loans, etc., visit this link https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized. In short, subsidized does not accrue interest while you are in school.
If you have younger children, a 529 plan is a great way to save money for their college. The income grows tax-free if used for education, plans can be transferred between siblings tax-free, and if you use your state plan, it may qualify for some state income tax credits or deductions. Plans can be setup online, or through a broker. For more information on the Ohio 529 plan, visit https://www.collegeadvantage.com/ .
Education Tax Credits
Currently, there are a couple options for federal tax credits for tuition paid for higher education, as long as you are not using tax-free money (such as 529 plans) to pay for the tuition. The American Opportunity Credit for the first four years of college is often the best option. It provides a credit of up to $2500 for the first $4000 paid for tuition, fees, and books, subject to income limitations. For graduate or other higher education tuition, a Lifetime Learning Credit is available. This also has income limitations. For more information on these tax credits, https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-llc. Again, this is something we can strategize how to best pay for college using the resources above, and still take advantage of these credits. The goal is to gather as much financial assistance as possible to enable you to pay the least out of pocket.
If you have a topic you would like me to discuss, please let me know.