Top 10 tips for college planning

While your kids are stressing about college, as in their essays and SAT scores, you're probably stressing about college planning, as in coming up with the money. Of course you want your kids to have the best education possible -- but have you seen what the best education costs these days? Don't worry -- with these top 10 tips for college planning, you may not have to spend the rest of your life paying for the next four years of your kid's life.

College Planning Tip #1: Negotiate your financial aid. You should start to receive financial aid packets from colleges about two weeks after receiving an acceptance letter, and these packets are crucial for college planning. In fact, it can help in your final college planning decision, as schools vary widely in what they'll offer, as they present what they can do to try to make up the difference between their fees and your expected contribution. They calculate this amount via several factors: your financial need, your kid's academic achievements and the aid they have available. This calculation often poses the biggest problem for middle-income families who are college planning -- they have too much to qualify but too little to pay.
So don't panic when you get your financial aid packet and don't base your college planning strictly on what you see in those packets. Those aren't the end all numbers. College planning often consists of a patchwork of aid, loans and grants. And keep in mind that you have negotiating power if your kid has been accepted by several schools -- you may be able to mention what other colleges are willing to offer and get a better package.

College Planning Tip #2: Look into the PROFILE alternative. The College Board, a nonprofit membership association that helps connects kids with colleges (their members include more than 5,000 colleges and they serve more than 7 million students), offers a financial aid application called PROFILE. Register online. if you are applying to one of the 500 schools and/or scholarship programs that accept the PROFILE application. Registration costs $5, and you pay $18 per school or scholarship program you apply to.

College Planning Tip #3: Start a 529 savings plan. Offered by all states, the 529 savings plan is a popular element of many parents' college planning plans. You open an account, choose an investment strategy and accumulate your earnings tax free. Withdrawals you make for tuition, room and board and even books are also tax free. Shop well when choosing your investment strategy and invest aggressively early and more conservatively as your kid nears high school graduation. Another benefit of 529 that you shouldn't overlook is to extend it to your family and friends. Anyone anywhere can contribute to your kid's 529 plan, though some states do charge residents taxes on out-of-state 529 earnings.

College Planning Tip #4: Consider a 529 prepaid tuition plan ... carefully. Talk about college planning: Did you know that you could pay for tuition for a state college or university at today's prices and use it to pay for your kid whenever you want, no matter what the cost at that future date? So theoretically, you could pay for your kid's college education before she is even out of elementary school, and pay 2010 prices for a 2020 education. More than a dozen states now offer prepaid tuition plans. The catch to this college planning strategy, of course, is what your kid will actually want when college application time rolls around. If she chooses to go to a private or out-of-state school, you may have to pay big additional costs. Another consideration with the prepaid tuition plan is the effect on financial aid. the 529 savings plan has a lesser effect, because it's counted as an asset, whereas the prepaid tuition plan is counted as a resource, like a scholarship.

College Planning Tip #5: Understanding the new benefits of the Coverdell Education Savings Account. Formerly known as an education IRA for college planners of yesteryear, today's Coverdell offers better benefits. As always, the parent sets up the account and the kid is counted as the beneficiary. Your contributions are not tax deductible, but your earnings are tax free and withdrawals for eligible school costs are tax free. The improvements: You can now contribute $2,000 per year vs. $500 previously, plus grandparents, godparents and friends can also contribute to add up to that $2,000 total (you are charged taxes if it exceeds $2,000). Also, Coverdell investments can now be combined with other education-related tax breaks and you can use it to cover more types of education expenses than in the past. And if the parent opens it, it's considered the parent's asset and won't have that big of an effect on financial aid (it was previously considered the student's asset). You can start a Coverdell account at any bank or financial institution that handles traditional IRAs.

College Planning Tip #6: Education bonds can provide you more control over your college planning investments. The federal Education Bond Program consists of investments such as EE bonds and Series 1 bonds. You can buy these bonds in amounts ranging from $50 to $10,000. Don't expect big returns, but consider this option if you want to keep your college planning as safe as possible. To not pay taxes, you have to meet income guidelines when you redeem the bonds, so check into those carefully.

College Planning Tip #7: Research available federal aid. Fill out a FAFSA form to see if you qualify for federal grants or loans, which range from Pell grants and Federal Supplemental Educational Opportunity Grants (FSEOGs) to federal work-study programs, Perkins loans, Stafford loans and the Parent Loan for Undergraduate Students (PLUS). For more information on how to make federal aid part of your college planning, go to FAFSA or Student Aid.

College Planning Tip #8: Tap into state aid. More states lately are giving less to state colleges and more directly to the parents and students in the form of aid. So when college planning, look into whether your state offers tuition aid for in-state education, home-tuition pricing (in-state tuition for out-of-state students), tuition waivers (reduced tuition) for out-of-state students, reciprocity agreements (reduced tuition or in-state tuition in neighboring states), merit scholarships, portable grants (for residents who go to college out of state), conditional grants (for those who meet certain obligations), interest free loans, special purpose programs (for occupations with an employee shortage) and higher education vouchers. FAFSA will forward your information to your state aid agency, but keep state deadlines in mind. For more information on state aid for your college planning, go to FinAid

College Planning Tip #9: Apply for private scholarships. Companies, nonprofit organizations, clubs, unions and societies all offer thousands of private scholarships annually. Don't overlook this aspect of college planning if your kid isn't supremely academically gifted and/or a minority -- scholarships are available for all kinds of students. And don't just go for one huge scholarship -- piecing together many smaller scholarships can also help a great deal with your college planning. Apply for a lot of scholarships, particularly local and regional scholarships. And use part of your college planning time to find these scholarships, by having your kid work with his or her college counselor, and researching via books (such as Peterson's Scholarships, Grants and Prizes, "The College Board's Scholarship Handbook or The Scholarship Book), scholarship management services and the Internet (FastWeb.com, BrokeScholar.com, CollegeBoard.com, CollegeNet.com, CollegeAnswer.com and Petersons.com).

College Planning Tip #10: Peer to peer loans. Person to person lending, or P2P is another option for college planning, cash strapped parents. You request a loan on a P2P site, and an individual lender or a group of lenders may provide the loan at an interest rate set by the site. Some P2P sites have student loan niches, while other sites focus solely on student loans. Some top student loan P2P sites are Virgin Money, GreenNote, People-Capital and Lending Club.

Finally, when doing your college planning, always keep an eye out for fraud. Be wary of anyone who offers a money-back guarantee for scholarships, or says you've been selected as a finalist or to receive money from something you've never applied to. Don't give any information to someone who says their company needs to charge you a fee for a scholarship or needs your credit card or bank account number to hold a scholarship for you. You want your careful college planning to benefit your kid, not some scam artist.


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