Student Loan Dodgers

Summer is prime time for student financial aid concerns. Students who are attending college for the first time are scrambling to get loans and aid in place before the start of the Fall semester. Federal and state departments, banks and private lenders are working to review applications and disburse funds before September.

Little attention is being paid to the cost of university expenses, which drive the ever-increasing need for financial aid. State colleges and universities are often pressured to keep tuition raises low, but face the prospect of stagnating or decreasing state aid. Therefore, the spiraling cost of education often falls on the students in the form of increased tuition.

How can students combat the high cost of tuition? A number of approaches can be used successfully to cushion the impact of college tuition increases. If time is on your side, saving for college is one of the best ways to reduce the need for aid. By using a 529 plan, parents can make regular contributions to a special savings account that is designated for qualified post-secondary education expenses. The accounts can be opened as soon as the child has a Social Security number, and have extremely high contribution limits. Contributions are made post-tax, and the accumulations can be tax-free, provided that they’re used for qualified educational expenses.

Taking money from a 529 savings plan amounts to using “free” money. It reduces the amount of aid a student needs and can be used for tuition, room and board, books, and fees. In other words, there is a broader range of “qualified” educational expenses that qualify for favorable tax treatment under 529 plans.

Using proceeds from the sale of savings bonds can also garner favorable tax treatment, but again, special rules apply regarding how the money can be spent. Consult a tax advisor or the IRS Web site for more information on tax breaks available for savings bonds.

Resident tuition rates at public universities and colleges are lower than non-resident rates. Attending local public universities is a great way to reduce the cost of going to college. Likewise, studying at a two-year college and transferring credits to a four-year institution can substantially reduce the cost of getting a four-year degree.

Borrowing to cover the cost of educational expenses and working to cover the cost of living is also another strategy that can reduce the amount of loan debt a student needs to take on. Before school starts in the Fall, make a budget that shows expected expenses and determine how much income and aid are needed to cover those costs. Stick to the budget as much as possible and develop a plan for covering unexpected expenses before leaving home in September.