Early College Savings Can Prevent Loan Debt

Millions of parents dream of sending their kids to college. Most of these same parents are not sure how this college education is going to be paid for. Before they know it their child is graduating from high school and the prospect of spending upwards of $10,000 a year (or more) is staring them in the face. At this point there is often very little choice but to borrow money to pay for the education. Sometimes this comes through a home equity loan while others apply for student loans. The end results are both the same, thousands of dollars worth of educational debt. Proper planning and early action can change this outcome in a very positive way.

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Savings can begin at any time; in fact, some people begin setting aside money as soon as the child is born or even earlier. Although, savings can be started at any time the earlier you choose to begin saving the more money you. ll generally be able to accumulate.

Educational Savings Options

An Educational IRA. This vehicle has a maximum investment of $500 yearly. The proceeds can be withdrawn for college fees tax free. If a designated child does not use the money it can be transferred to another family member. (1)

529 College Savings Plans. These plans allow for higher yearly investments and offer significant tax advantages. The proceeds grow tax deferred and the money can be withdrawn for college expenses on a tax free basis. To avoid penalties the money must be spent on approved college related expenses. Although the 529 plans are offered through individual states the money can be used at college institutions nation wide. This plan is also transferable if the designated individual chooses not to attend college.

529 Prepaid Tuition Plans - Individual states offer this plan allowing consumers to lock in today. s rates for a future education. Earnings are taxes deferred until the money is withdrawn. The selection of schools from which to choose are generally instate. (2)

Another great alternative which works nicely in conjunction with savings options are grants and scholarships. Many people do not explore these avenues due to the misconception that these awards are only given on the basis of sports or academic excellence. This could not be farther from the truth. There are literally thousands of grants and scholarships available from private and government sources that are awarded on a wide variety of criteria. This is an avenue well worth exploring but as with education savings it pays to start early.

1. http://www.fool.com/money/investingforkids/investingforkids03.htm

2. http://www.nasdr.com/529_saving_sect05.asp

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About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.