The high cost of educating children can certainly keep a parent awake at night. We have some ideas that can help you get started. First, let’s look at the current estimated costs for attending a 4-year college.
The estimates in 2016 - 2017 for the aprroximate annual charges for a Full Time student to attend a 4 year college are for surprising. Thee good news if you have a few years before the need for this education, you can spend some time planning.
|
College |
Resident Student |
Commuter Student |
|
Public School |
$20,090.00 |
$9,650.00 |
|
Private School |
$45,370.00 |
$33,480.00 |
* Includes tuition, fees, room and board; in-state residency is assumed for public schools. ** Includes tuition and fees only. Source: The College Board Trends in College Pricing 2016
The total lump sum that would need to be invested today in a per child fund in order to provide for a child's expected education costs through his/her graduation.
The lump sum that would need to be invested today in a family fund in order to provide for each of your children's expected education costs through your youngest child's graduation.
The level savings that must be made periodically (e.g., monthly or annually) to each child's education fund from now through that child's graduation in order to pay his or her expected education costs.
The level savings that must be contributed periodically (e.g., monthly or annually) to a family education fund from now through your youngest child's graduation in order to have sufficient funds to pay total expected family education costs from a single family fund.
An additional consideration is whether to plan in today's dollars or in future dollars, which reflect an assumed inflation rate.
In addition, parents and grandparents have the option of establishing an Education Savings Account, to which $2,000 per year per student who has not reached age 18 can be contributed. While contributions are not tax deductible, earnings are not taxed and withdrawals for qualified education expenses are excluded from income. Beginning in 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) not only provided for higher Education Savings Account contributions, but also expanded the education expenses for which withdrawals can be used.
There may be certain tax advantages to maintaining a separate educational fund in the in the child’s name.
By setting up a custodial account under the Uniform Gifts to Minors Act (UGMA) or, in some states, under the Uniform Transfers to Minors Act (UTMA), you can realize any available tax savings and still maintain some control of the funds.
Each parent and grandparent can gift up to $14,000 in 2017 to each child without any gift tax consequences.
The primary problem with borrowing is that it adds to the cost of education and may possibly divert funds that are needed to accomplish other important financial objectives, such as saving for retirement. If borrowing becomes a necessity, your child may qualify for a student loan, although that source of college funding may become less available or attractive in the future. In most states, you can take a home equity loan for education purposes and benefit from tax-deductible loan interest.
You can begin a systematic savings plan today to help finance your child’s future education costs. If life insurance is one of your education funding choices and you die prematurely, the death benefit could be used to help fund your child’ s education. In addition, certain types of life insurance provide a tax-deferred accumulation of cash values. These cash values could serve as a source of education funds, in addition to being available for emergencies or other opportunities (withdrawals and loans will reduce the policy’ s death benefit and cash value available for use).
A variety of education tax incentives are available in 2017, including the American Opportunity Tax Credit, the Lifetime Learning Credit, Qualified State Tuition Programs and Education Savings Accounts. In addition, interest paid on qualified education loans is deductible up to specified limits.
Note: The potential impact on the availability of student loans and grants should also be evaluated in selecting educational funding options.
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