Paying for college education is one of the best investments a family can make.
College education is affordable for anyone who wants to attend college, and paying for college becomes a lot easier with planning. For many families, paying for college can be either the largest or the second-largest investment (next to buying a home). Here is why saving for college is important:
- The more you save in advance to cover college expenses, the more flexibility you will have when college time arrives.
- Savings reduce the amount of loan money that will have to be repaid. Less indebtedness frees graduates to pursue further study or career dreams after college.
- Savings also reduce the amount of college expense you will have to cover from current income each year.
- Of course, you will want to maximize the impact of your savings as well as take advantage of tax deferral opportunities offered by the government to encourage college savings.
Listed below are a number of different resources to help you save money for college:
PAIS
If the student is a freshman or above in high school, you should estimate how much money the parent will be responsible to pay for college (called the EFC or Expected Family Contribution) by going to CSUMentor's Preliminary Aid Information System (PAIS). Once you have an approximate dollar figure for EFC, you can then determine how much you need to start saving now.
College Savings Calculator
To quickly determine the savings needed to pay for college, go to CSUMentor's College Savings Calculator.
ScholarShare
A newer state-run plan for college savings in California is called the Golden State ScholarShare plan. This plan is also referred to as the "California 529 Plan." In this plan, you do not pay taxes on the earnings from your contributions until the money is withdrawn. With other types of investments, like savings accounts or mutual funds, you must pay tax on earnings every year. When money from the ScholarShare account is withdrawn to pay for qualified higher education expenses, the taxes are based on the beneficiary's tax bracket, which is usually much lower than the account owner's.
The California 529 plan offers you the option to choose from several investment options, including an investment allocation that automatically changes as your child grows up. For further information and an application, please visit the Golden State ScholarShare program's website.
Other Options
Two other options for investing for college include the Education IRA and Tuition Prepayment Plans. A parent should seek the advice of a financial planner to figure out the best investment options for the family.
