A Beginner’s Guide to College Funding

July 31, 2019

Written by: Matt Escalante

We all know kids can be expensive when you add up the costs for everyday essentials such as food, clothing, daycare, etc. (just to name a few). The moment a child is born, the clock starts ticking on developing a proper plan for one of the most daunting expenses: funding a college education. College funding is one of the most significant expenses in anyone’s life, whether you’re paying for it for yourself, your child, or your grandchild. The cost of attending college continues to raise at a pace approximately double the rate of annual inflation.

When developing a plan to fund a college education, it helps to start by identifying the total annual cost; the cost of college is so much more than tuition, fees, books, and housing. You must also consider the cost of living: meals, travel to and from campus, extracurricular activities, etc. Once the total cost has been identified, consider these three areas as sources to funding a college education: Savings, Tax Credits, and Grants.

Savings

When my son was born back in 2011, I immediately knew that opening a 529 plan would be high priority. The question quickly became which program would I use. Section 529 plans have become the most popular vehicle for college savings. Each state can sponsor its own 529 plan, and some even offer state income tax deductions for using the 529 plan of the state in which you reside. Since I reside in a state that does not have state income tax, there was not tax advantage to use the 529 plan sponsored by my state. That means the 529 plan universe was open for my consideration. Contributions to a 529 plan are invested and offer tax-deferred growth. As long as the money is used for a qualified expense such as tuition, fees, books, or supplies, the distribution is tax-free. Additional benefits of the 529 plan include:

  • Five-year accelerating contributions allow an individual to use up to five years of annual gift exclusion in the first year
  • As of January 1, 2018, money from a 529 can be used for elementary or secondary public, private, or religious schools, up to $10,000 per calendar year

Once I finally opened a 529 plan for my son, I very quickly discovered one additional benefit… The willingness of grandparents, aunts, and uncles to make contributions during birthdays and holidays!

Grants

Think of a grant as a gift that doesn’t need to be paid back, unlike a loan which requires repayment over time. Grants are considered based on the needs of the student and the cost of attending a college. Federal Pell Grants are issued by the government to undergraduates in pursuit of their first bachelor’s degree. The Federal Supplemental Educational Opportunity Grant Program is also available for students with financial needs. This is also a grant program that is managed by the college instead of the government.

Tax Credits

The American Opportunity Tax Credit provides an opportunity to reduce your tax liability in a given year where you incur qualified education expenses for yourself, spouse, or dependents. The tax credit equals 100% of the first $2,000 of qualified expenses paid, plus 25% of the next $2,000, resulting in up to a $2,500 tax credit in a given year. The credit is allowed to be applied per student, per year. There are a few requirements that much be met to qualify:

  • Room and board expenses are excluded
  • The student must be enrolled at least half-time
  • The credit is subject to phase out based on income

In addition to these three key funding sources for college, parents and students can explore a variety of loan and Financial Aid options based on credit score and/or need. Financial aid packages are often made up of a combination of student loans, grants, and tax credits.

Fill out the following form to learn more about TCG:

Contact us form — blog posts
Sending

Related Posts

JC Duque Joins TCG Advisors

JC Duque Joins TCG Advisors

Senior Wealth Advisor JC Duque joins TCG with over 25 years of wealth management and private bankitng experience. JC graduated with a Business...

read more

0 Comments

0 Comments

Submit a Comment

Your email address will not be published.

DISCLOSURES
Total Compensation Group Investment Advisory Services LP (“TCG Advisors, LP”) is a registered investment advisor regulated by the U.S. Securities and Exchange Commission (SEC) subject to the Rules and Regulations of the Investment Advisor Act of 1940, and is a part of TCG Group Holdings, LLP. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training. We are located in Austin, Texas. A copy of our Form ADV Part 2 is available upon request.

This website is not authorized for use as an offer of sale or a solicitation of an offer to purchase investments. This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

Past performance may not be indicative of any future results. No current or prospective client should assume that the future performance of any investment or investment strategy referenced directly or indirectly in this brochure will perform in the same manner in the future. Different types of investments and investment strategies involve varying degrees of risk—all investing involves risk—and may experience positive or negative growth. Nothing in this brochure should be construed as guaranteeing any investment performance.

This website may contain forward-looking statements and projections that are based on our current beliefs and assumptions on information currently available that we believe to be reasonable; however, such statements necessarily involve risks, uncertainties, and assumptions, and prospective investors may not put undue reliance on any of these statements.