I posted last week about instability in the state of Texas’ pre-paid tuition plan. But it isn’t only Texans who have to worry about tax-deferred savings plans for college. As last year’s financial crash has proven, planning on high returns from market-invested college funds is far from a sure thing. With the volatile market continuing to batter college savings plans, a number of savings & loans have begun rolling out incentives to save the “old fashioned way”, according to USA Today. The article points to a number of examples, including a $1,000 bonus that Citizens Bank is offering to those who open a college savings account before their child turns six. It’s a sweet deal: If customers deposit at least $25 per month every year, then the $1,000 bon...

A recent article from the Dallas News alerted me to a problem with the Prepaid Tuition 529 Plan in Texas. Originally, the plan let investors withdraw their funds, plus earnings, even if the designated beneficiary wasn’t going to college in Texas. Now, however, the state of Texas is amending that benefit: If investors don’t use their plan to pay for school in Texas, they get only the value of their original investment, without any of the interest. What gives? Apparently, the longhorn plan is running in the red, to the tune of almost $2 billion by 2030. The Texas Legislature deregulated tuition rates in 2003, and that’s when tuition started to skyrocket — much faster than the fund could keep up with. Anticipating this problem, the pre-paid tuition fund was closed...

The Obama Administration is proposing a series of changes to 529 Plans, reports the LA Times, in order to encourage more middle class Americans to save money for college. 529 Plans allow you to contribute after-tax dollars, which then grow tax-free until withdrawal, as long as they are used for qualified education purposes. (To learn more about 529 Plans, see Financial Aid Finder’s extensive section on College Savings and Prepaid Plans.) According to the Treasury Department, only 5% of middle-income Americans take advantage of these plans, despite their lucrative tax benefits. Among high-income filers, however, one in three have a 529 account. The College Savings Plan Network reports that there are some 11 million 529 accounts to date, with more than $100 billion in assets. The Oba...

A number of important changes are looming for federal student aid, which may save you some serious cash. Here’s a quick look at the most significant developments: Interest rates on subsidized Stafford loans are dropping — This year, they will go from a 6% to 5.6% (fixed). Under the College Cost Reduction and Access Act of ‘07, the rate will continue to drop until 2011-2012, when it will reach an all-time low of 3.4%. Unfortunately, the lower rate only applies to loans taken out — or consolidated — in that academic year. Remember, with a subsidized loan, the federal government pays your interest while you are in school. Income-based loan repayment — I won’t bother rehashing the details, since I’ve covered them extensively in earlier posts. ...

This story about creative financing for college ran over the weekend in my local paper. The article does a great job of outlining some of the financial challenges families are facing in the midst of this country’s economic crisis. It was good to see that staying in school is still a priority for the two families featured in the piece, but rather heart-wrenching to read the real life stats. For example, did you know that, across the board, the value of savings in 529 Plans has dropped 21% over the past year? And the market drop isn’t just hitting parents who were saving for their kids’ future. It is also hitting universities and their endowment plans, which are a major source of funding for university-based aid like scholarships and tuition reductions. The article cites ...

I recently read this older piece on Kiplinger.com, entitled “Who should pay for college?” and it got me thinking: Assuming money is not an issue, do you think parents should be responsible for paying for their kids’ college education? There’s a whole range of responses to this question, from: Absolutely not! I paid my own way through school and my kids will do the same! It builds character. to 100% yes! That’s part of a parent’s responsibility to his or her kids! Of course, if you ask the students, you will get another range of responses. And truthfully, I think it’s probably impossible to completely take money out of the equation. After all, it’s one thing for a family of millionaires to pay for college costs. It’s another thing for ...

Consumer Reports recently published its May edition of Consumer Reports Money in which it ranked the 88 different 529 College Savings Plans. If you aren’t familiar with College Savings Plans, I recently reviewed them in our “Best Ways to Save for College” series — check it out here. Or you can read a more in-depth analysis of 529 Plans in our section on College Savings. While the past year was abysmal, at best, for mutual funds, there were still a few super stars — and a few super flops — among the 529 Plans, according to Consumer Reports. The magazine compared the plans based on three factors: investment flexibility, low expenses and fees, and 2008 performance. They also looked for plans that were appropriately tracked to decrease the level of investm...

Last week, we launched a four-part series about the best tax-preferred college savings vehicles. So far we have covered three out of the four: 529 College Savings Plans, 529 Prepaid Tuition Plans, and the Coverdell Educational Savings Account. Be sure to review those posts, if you didn’t get a chance to read them yet. Today we are rounding out the series with the least well known of your tax-preferred college savings options, the Uniform Gift to Minor/Uniform Transfer to Minor Act.  In short, UGMA and UTMA are custodial accounts that allow you to save a substantial amount of money in your child’s name for the purpose of college… or anything else… while benefiting from your child’s lower tax bracket. (By the way, I keep emphasizing “tax preferred” because, o...

Last week, we launched a new series here about the best vehicles for saving for college. The first two posts covered 529 Plans, both College Savings Plans and Prepaid Tuition Plans. If you didn’t catch them last week, start there. Today we are looking at a lesser known college savings vehicle: the Coverdell Educational Savings Account, also referred to as the Educational IRA. Once the way to save for college, the ESA fell out of favor in 2002 when the 529 Plan came to the fore. The ESA still has a lot of advantages, however, and you should definitely consider it when making your college savings plan. What is it: An Education IRA — like the Roth IRA, but for college instead of retirement. Allows you to invest up to $2,000 per year per child with tax-free earnings and withdraw...

On Monday, I launched a new series on the best ways to save for college. We explored 529 college savings plans, concluding that when you carefully compare fees and state benefits, you can really score with a college savings plan. Today we are looking at the other type of 529 Plan — the prepaid tuition plan. (By the way, if you want to know why there are two different plans, both called 529s, check out this article on the difference between College Savings and Prepaid Plans.) 529 Prepaid Tuition Plans What is it: A savings vehicle that allows you to lock in future tuition payments at today’s in-state rates. Pros: “Guaranteed” return on your investment; money can be applied to tuition at out-of-state schools (although it obviously won’t cover as much); many st...