As a parent, deciding how to pay for your child’s college education can be challenging. Luckily, there are several options at your disposal. To help you make an informed decision, here is a quick guide to saving or borrowing to finance your child’s education:
Saving for Your Child’s Education
Education Savings Plan
If your goal is to use savings to pay for college, it is best to start as soon as your child is born. Starting a Section 529 Education Savings Plan can help you save money while reaping valuable tax benefits. If you decide to go this route, the first decision you will need to make is to determine what type of 529 plan you would like: savings or prepaid. The savings plan allows you to regularly contribute your own money to the account. When your child is ready to go to college, they can use this money to cover eligible expenses.
Pre-Paid Tuition Program
Since the college costs tend to change from year to year, a college savings plan can help you guard your savings against inflation. There are several colleges and universities that offer pre-paid tuition programs. Through these programs, parents are able to lock in a tuition rate and save in preparation for your child’s attendance. Participating in a pre-paid tuition program may offer added benefits like tax savings.
Savings Bonds
While savings bonds tend to earn lower interest rates than other types of investments, their security is guaranteed. The interest earned on bonds included in the Education Bond Program are protected from federal income tax as long as they are used to pay for qualifying educational expenses.
Borrowing for College
PLUS Loan
Even if your child takes out loans to finance their education, they may not be able to borrow enough. If this happens, you may be able to fund their education through loans like the Parent Loan for Undergraduate Students or PLUS loan. This loan is disbursed directly through the Department of Education. After filling out a brief application, your credit history will be reviewed. In cases where your credit history alone does not meet the minimum criteria for a PLUS loan, you may need to find an endorser.
Second Mortgage
Taking out a second mortgage can be a great way to help you get access to the funds you need. Companies like Tribecca Finance Corporation specialize in offering some of the lowest rates available. These funds can be used to finance your child’s education or for other expenses like debt consolidation.
As you can see, there are lots of pays to pay for your child’s college education. The information in this guide can help you ensure that you make an informed decision.
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