college savings

How These 6 Assets Might Affect Student Financial Aid Eligibility

Emily Guy Birken — Thu, 14 Jun 2018 08:30:36 +0000

Once your child reaches high school, figuring out how to pay for college starts to loom large in your mind. An important step in getting ready for the costs of college is filling out the FAFSA (Free Application for Federal Student Aid). This paperwork helps determine how much need-based financial aid your student qualifies for. And before you assume that you make too much money to get any such assistance, remember that families earning as much as $180,000 per year can qualify for some form of financial aid.

Whether you have been diligently saving money in a 529 account since your (now 6-foot tall) baby was born, or you have only just now started thinking about college costs, you do need to understand exactly how your various assets might affect your student's financial aid eligibility. (See also: 5 Reasons Why Every Student Should Fill Out the FAFSA)

Here's what you need to know about the asset and income calculations for need-based financial aid.

Understanding the expected family contribution (EFC)

To determine your student's financial aid package, the college financial aid office starts by determining the cost of attendance and the expected family contribution, or EFC. The EFC amount is calculated based upon the information you provide on the FAFSA.

In general, assets and income held by the dependent college student count for more in the EFC formula, while parents' assets and income count for less — and some parental assets are not included in the calculation whatsoever.

The formula for calculating EFC specifically counts the following assets and resources:

20 percent of the student's assets, which includes savings, investments, business interests, and real estate.
2.6 to 5.64 percent of the parents' same types of assets (based on a sliding income scale).
50 percent of student income above $6,570.
22 to 47 percent of parent income above $25,040 (also based on the sliding scale).

The more money that is included in the EFC calculation, the lower the need-based financial aid offer will be. (See also: The 10 Most Common Financial Aid Mistakes — And How To Avoid Them)

How your assets are counted

Depending on what kind of assets you have, you may or may not have that money included in your student's EFC calculation. The following assets can affect financial aid offers:

1. Income

As of 2017, the FAFSA began requesting the prior-prior year's tax return from filers. This is called the "base year."

Before the change, families had to provide the prior year's tax return (that is, the immediate previous year) as their base year information. For instance, for the 2011–2012 school year, FAFSA filers had to provide their 2010 tax return, but filers filling out the FAFSA for the 2018–2019 school year will provide their 2016 tax return.

There are a couple of reasons why this is an important change. First, it means that families are less crunched to complete their previous year's taxes and a FAFSA form in the same year. Secondly, it also means that families who are actively trying to make income-related plans to lower their EFC need to do such things no later than their child's freshman spring/sophomore fall year.

What kinds of income-related plans? For instance, you might max out your retirement savings in the years leading up to the base year, because you are not asked to declare the value of tax-deferred retirement accounts (such as 401(k), 403(b), or IRA accounts) on the FAFSA. However, money that you contribute to your retirement account during the base year is still considered part of your income for the EFC calculation, even though it is pretax income that you have invested.

Another important thing to remember about income is how your child's income is counted on the FAFSA. Fifty percent of the dependent student's income over $6,570 is counted in the EFC calculation, and financial gifts are also considered income. For example, if Grandma and Grandpa give your child $10,000 toward college in 2018, 50 percent of the amount over the threshold ($3,430) would have to be counted as income on the FAFSA filed for the 2020–2021 school year, and it could increase the EFC amount (and reduce the aid) by about $1,715.

2. 529 accounts and Coverdell ESAs

The good news about these accounts is that whether they are in your name or your child's, they are considered parental assets. That means no more than 5.64 percent of the assets in a 529 account or Coverdell ESA will be included in the EFC calculation. So if you have saved $25,000 in your daughter's 529 account, her aid would only be reduced by roughly $1,400.

If other relatives — such as grandparents — have been saving money for your child in a 529 or Coverdell account under their own names, their gift can come with some expensive (and unanticipated) strings attached. That's because such assets are not counted at all on the FAFSA form, but when the money is withdrawn to pay for educational expenses, you must claim the amount withdrawn as untaxed income to the student. Since 50 percent of student income is counted in the EFC calculations, this situation can reduce aid by half the amount of the withdrawal. (See also: 5 Smart Places to Stash Your Kid's College Savings)

3. Retirement accounts

As mentioned above, the value of parental retirement accounts are not included in EFC calculations. However, the money that you contribute to your retirement account during years you fill out the FAFSA is included as parental income, even though you don't actually get to bring that money home with you. Some parents front load their retirement contributions in the years leading up to their child's base year just in case they need to reduce their retirement savings during the college years.

In addition, parents need to know that withdrawals from Roth IRA accounts are penalty-free if they are used for qualified college expenses. However, this distribution will count as parental income on the FAFSA for the year of the distribution and potentially reduce financial aid by as much as 47 percent of the amount withdrawn.

One way to circumvent this problem is to wait to take a Roth IRA distribution until your child has reached at least the spring semester of his or her sophomore year, since it will be after the final year of income you will need to report on a FAFSA. (Remember, since the FAFSA is based upon the prior-prior year's tax returns, you will not need to provide income information for the last two years of your child's four years in college.)

4. Home equity

The FAFSA does not consider the amount of equity in your home when calculating the EFC — although the CSS PROFILE, which is the form required by many private colleges and universities for determining financial aid eligibility, does request this information. This means that federal financial aid does not need to know how much equity you have in your home, but many private institutions will consider it when evaluating your financial aid needs.

Since home equity is not part of the EFC calculation, some families with large non-retirement savings may consider paying down (or paying off) their mortgage in the years before the base year. This will reduce your expected family contribution, but it could hurt you if Junior or Sis decide to go to a private college or university instead of InState U.

5. UGMA or UTMA accounts

These sorts of custodial accounts are in your child's name, which means that 20 percent of any assets in these accounts are counted toward the EFC. In addition, any interest, dividends, or capital gains earned from these types of accounts (or any accounts in your child's name) are counted as income for your child — which means that 50 percent of that money is counted toward the EFC.

Parents who opened a UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfer to Minors Act) account for their child's education would probably be better served by rolling the assets over into a 529 account so that less of the money will be considered part of the EFC.

6. Taxable investment accounts

If you have additional investments on top of your tax-advantaged retirement accounts, these will also need to be claimed on the FAFSA form. These accounts are counted as assets, meaning up to 5.64 percent of their value will be counted in the EFC calculation. However, any dividends and capital gains earned are counted as income, and any distributions you take from these sorts of accounts are also counted as income.

If you need to take distributions from taxable investment accounts to help pay for your child's education, you will also want to wait to do this until at least the spring semester of his or her sophomore year, to keep the distribution from dinging you on the FAFSA.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Money Moves You're Never Too Old to Make

Tim Lemke — Wed, 09 May 2018 09:00:13 +0000

We often assume as we get older that money matters become more simple, and in many cases, this is true. You may be done worrying about saving for the future, and may be free of many of the expenses you had when you were younger. But this doesn't mean you're too old to make financial decisions that will still benefit you.

There are many money moves that you made when you were younger that still apply. Not all of these actions below will make sense for everyone. But age, by itself, shouldn't rule them out.

1. Buying a home

You may think that by a certain age, it makes no sense to purchase a home because you may not live long enough to pay it off in full. But there are some great financial advantages to homeownership, even for older people.

For one thing, if you want your retirement nest egg to last, you are better off putting money into something that builds equity and may increase in value. That's money that can be used in the future for your long-term care, or passed on to your heirs. Some older citizens even fund their retirement using a reverse mortgage, which allows you to draw equity from your home to pay expenses.

Additionally, when you own a home, you can make adjustments to the design and features to accommodate any health needs. For example, you could install a chairlift or add a bedroom on a lower floor so you won't have to go up steps. These are things you may not be able to do if you live in a rental property. (See also: 5 Benefits of Carrying a Mortgage Into Retirement)

2. Getting life insurance

Many older people don't bother with life insurance past a certain age, because the premiums do get more costly. But there are many cases where it makes sense.

If you are still working and your spouse relies on that income, term life insurance can come in handy. You may also have some debt — mortgage debt, for example — and want to ensure there is enough money to pay it off if you pass away. Guaranteed Universal Life policies can be good for seniors who want to ensure there's money to pay for final expenses or estate taxes.

There are many different insurance products; be sure to closely examine the costs and benefits of each to see if they make sense for your situation. (See also: 5 Kinds of Insurance Every Retiree Should Consider)

3. Shopping for health insurance

We assume that older Americans are simply covered by Medicare and that there's nothing more they need to know. But the reality is that Medicare doesn't cover everything, and it's often important to get supplemental insurance to protect yourself.

You are never too old to shop around to find the lowest premiums and out-of-pocket expenses. No matter your age, it's smart to re-evaluate your insurance periodically to ensure you have the right coverage at the right cost. This is especially true if your health situation changes. (See also: How to Make Sense of the Different Parts of Medicare)

4. Investing

If you are retired, you may be of the mindset that you already have all the money you need to live comfortably. But are you sure this is true? People are living longer these days, and you can spend as much time in retirement as you did working. Thus, it may be necessary to continue to accumulate money as you get older.

Even if you think stocks are not right for you at this stage of your life, continuing to buy bonds, real estate, and other investments can help bolster your nest egg and ensure that you can cover all of your life expenses as you age. (See also: 7 Reasons to Invest in Stocks Past Age 50)

5. Rebalancing your portfolio

At a certain age, you may feel like your investments don't need much baby-sitting. If you've shifted to a lot of fixed-income investments, it may be true that your portfolio doesn't need much maintenance. But that doesn't mean you should ignore it.

Even the oldest investors need to check in to see if they are on track to hit their savings goals. All investment portfolios can get out of whack if they are not monitored properly. An older investor may find, for example, that stocks make up too much of a percentage of their portfolio and represent a risk if the market goes down. (See also: Think Outside the Index When You Rebalance Your Investment Portfolio)

6. Building an emergency fund

You may have accumulated enough money to retire on, but did you take into account the cost of a new roof for your home? Did you count on thousands of dollars in unreimbursed medical expenses? It helps to have a separate account to cover these types of expenses, separate from the money you use to cover everyday costs.

If you are no longer working, you may still be able to fund your emergency account through income from stock dividends, interest, or capital gains. Just be sure you're not tapping into money you may need in the future for living expenses. (See also: Yes, You Still Need an Emergency Fund in Retirement)

7. Crafting a will

You are certainly never too old to outline your final wishes. If you haven't done this yet, don't delay. A will offers family members guidance on how you want to spend your last days, freeing them from making difficult choices. You can assign an executor to help carry out your wishes, and a clearly written will can help avoid fights over how to divide your assets. Many families have been broken apart due to spats regarding their inheritance.

It helps to have a will in place while you are still relatively young, but it's never too late to change a will as long as you are of sound mind. If you have a will already, it may be worth reviewing it periodically to make sure the information is accurate and up to date. (See also: 6 Times You Need to Update Your Will)

8. Saving for college

You can go back to school at any age. But you can also save money for your children, grandchildren, or anyone else who you'd like to see get a degree.

Most states offer college investment plans, known as 529 plans, that allow you to invest money for the purposes of education. You can designate a beneficiary of the funds and that money can be withdrawn tax-free as long as the money is used for qualifying education expenses. Depending on where you live, your contributions may also be tax deductible. The new tax law allows these funds to be used for K-12 schooling as well. (See also: The 9 Best State 529 College Savings Plans)

9. Starting a business

If you have skills and knowledge built up over a long life, why not make it work for you? Who says retirement has to involve sitting at home and doing crossword puzzles? Maybe you can start a quilting business. Perhaps you can launch a new career investing in real estate. Heck, you can build your own tech startup. At this point in your life you probably have the money, time, and experience to give it a go.

If you have your wits about you, you're never too old to start a new venture. Obviously, you need to be realistic about how much time and energy you want to devote to a new company, and you should avoid putting your retirement savings at risk. It's also important to have a clear succession plan in place to ensure the organization will keep running after you are gone. (See also: 5 Questions Retirees Should Ask Before Starting a Small Business)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Personal Finance Rules to Live By in Your 40s

Dan Rafter — Thu, 22 Mar 2018 10:00:06 +0000

Your 40s can be a stressful time. Your children might be moving on to college, changing the dynamics of your household. Your own parents are aging and might need to move into a nursing home or assisted living facility. And you might be feeling extra pressure at work to move up to higher-paying positions as a way to maximize your earning potential.

But your 40s can also be a time to secure your financial health and pave the way toward a brighter retirement. You can increase your odds of achieving this goal by following the personal finance rules below.

1. Focus on building your retirement savings

The main goal in your 40s should be to boost your retirement savings as much as possible. Retirement might still seem a long way away, but it's closer than you think.

If you are saving money in your company's 401(k) plan, be sure to maximize your regular contributions and take advantage of any company match. Do the same with any investments you make in a traditional IRA or Roth IRA. The more you save today, the brighter your retirement years will be. (See also: 7 Retirement Planning Steps Late Starters Must Make)

2. Don't let college costs derail your retirement savings

You want to help your kids pay for their college educations. That's understandable, but don't let your desire to help your children derail your retirement savings.

If you spend too much money helping your kids pay for college, you'll struggle to build your retirement savings. In your 40s, saving for retirement should be your top priority, outweighing even your goals of chipping in to pay for your children's college education.

Remember, your children have options for paying for college. They can borrow money. They can choose less expensive schools. They can seek out scholarships or attend a community college for two years. You don't have nearly as many options when it comes to your retirement savings. (See also: How to Keep Student Loans From Wrecking Your Retirement)

3. Reduce your debts

Nothing ruins your plans to save money quicker than debt. And no other is as costly as credit card debt. Do everything you can in your 40s to eliminate it.

Some debt is better than others. Auto loans and mortgages, for instance, generally come with lower interest rates. And you are receiving a benefit — a house to live in, a car to drive — while making those monthly payments. But credit card debt is another story. This debt comes with sky-high interest rates that can snowball by hundreds of dollars every month. That's why it's so important to pay it off as quickly as possible. (See also: The Fastest Method to Eliminate Credit Card Debt)

Remember that your primary goal in your 40s is to build your retirement savings. Think of how many additional dollars you could save if you weren't sending so much money each month to your credit card providers.

4. Grow your emergency fund

Another thing that can quickly derail your efforts to save for retirement is an unexpected emergency. Say your roof springs a leak or your furnace conks out in the middle of January. You must fix these problems, and that won't be cheap.

That's where an emergency fund comes in. As the name suggests, this type of fund is filled with dollars that you only tap when an unexpected financial emergency pops up. By having a well-stocked emergency fund, you won't have to resort to credit cards to pay for unexpected home or auto repairs, or even a surprise medical bill.

Financial experts recommend that you have enough in your emergency fund to cover at least six months' to a year's worth of daily living expenses. That might seem daunting, but even starting an emergency fund with small payments every month can build up. Say you deposit $200 every month in an emergency fund. After a year, it will grow to $2,400. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

5. Avoid the co-signing temptation

When you're in your 40s, your children might be ready to apply for auto loans or credit cards of their own. It can be challenging for young adults with limited credit histories to earn approval for these loans. It's not unusual for them to ask their parents to co-sign on an application.

While it might be tempting to want to help your kid, be careful: If your son or daughter makes their payments late, your credit score will take a fall, too. That's because when you co-sign, you become equally responsible for a debt. If your children default on a loan, you're on the hook for making those missed payments — putting you in a dangerous financial predicament that could completely derail your retirement savings.

Don't co-sign unless you're positive your children won't miss any payments. Even then, it's probably not in your best interest to be a co-signer. (See also: Should You Co-sign Your Teenager's Credit Card Application?)

6. Make sure you have enough life insurance

What would happen to your children or spouse if you suddenly died? Would your spouse be able to pay the monthly mortgage? Would your family have to move to a new, less expensive home?

Life insurance can prevent financial stress for your family if you should die unexpectedly. Make sure that you have enough life insurance coverage to protect your loved ones. Your 40s is a good time to review your life insurance coverage and make changes if necessary. (See also: Why Your Group Life Insurance Is Not Enough)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

12 Surprising Ways to Get More College Financial Aid

Carrie Kirby — Tue, 22 Aug 2017 08:30:10 +0000

The cost of college has risen so high that even middle and higher-income parents may qualify for some financial aid. Beyond how much money you earn, how a family structures college savings and general finances in the years leading up to and during college can have an impact on how much aid you're offered.

It wasn't always like this. Once upon a time, students could pay their tuition at a public university with the money they earned working during summer. Now, students would have to work full-time all year to pay the average public school tuition, which has skyrocketed to $10,000 for in-state students and $25,000 for out-of-state students for the 2016-2017 school year, according to the College Board. Private colleges and universities are charging an average of more than $33,000 per year. And don't forget, you still need to set aside money for room, board, books, and Albert Einstein posters.

All this means that most American families have a gap between what they can pay toward college and what college costs. Fortunately, a university's published "sticker price" is not what most families pay, especially for private colleges. According to the National Center for Education Statistics, even students with household incomes of $110,000 or more received an average of $15,240 in the 2013-14 school year to defray the cost of private nonprofit colleges, and $1,860 for public schools.

And that's just the federal grants, loans, and work study jobs. Many schools also offer institutional aid consisting of grants, scholarships, and loans. Some well-endowed schools even promise to cover the entire difference between the family's resources and the price (usually incorporating a combination of loans and other aid types). These financial aid packages can be so large that some families pay less for the most expensive colleges than they would have paid for their local state school.

How much aid a student is offered depends on a lot of things. Much of it has to do with how a family's finances are organized and how they fill out the Free Application for Federal Student Aid (FAFSA) from the year before their kid starts college. Let's look at strategies for students to maximize available college funds.

1. Be strategic with college savings accounts

First of all, parents should make retirement their top savings priority, not education, because you can get loans for education, but there are no loans to fund retirement.

"It's just like being on an airplane: Help yourself first before assisting others," says Carol Stack, author of The Financial Aid Handbook: Getting the Education You Want for the Price You Can Afford.

Second, parents should keep any money they do save in their own names, not in a joint account or a Uniform Transfers to Minors Act (UTMA) account in the student's name. Your assets count against you even more than your parents' assets do. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

For the same reason, grandparents or other well-wishers outside the immediate household should avoid directly giving students money for college. If your grandma wants to help with college, great! She should hold onto that money in her own account, not gift it to you. As long as it's in grandma's name, those assets don't get reported on the FAFSA.

Some college-savvy financial planners even advise against taking out 529 accounts, those state plans that allow money to grow tax-free but can only be spent on qualified educational expenses, because 529s opened by parents will count on the FAFSA as parental assets and increase the expected family contribution (EFC). Gary Sipos, founder of College Cash Solutions, a for-profit company that offers advice on choosing a college and getting financial aid, always warns clients against them.

"In no case in the decade or so I've been doing this, have I ever seen a case where a 529 plan was a good idea," Sipos says.

In Sipos' experience, even though these plans offer tax benefits, the harm to students' chances of getting financial aid can cost the family as much or more than they saved in taxes.

However, most college savings experts stand by 529 plans.

"The 529 is probably going to be one of your best options," says Joseph Orsolini, a certified financial planner with Illinois' College Aid Planners.

If a grandparent wants to save for college in a 529 plan, they should open their own account, not contribute to one set up by the parents. This way, it's not counted as a parental or child asset. Even then, Orsolini warns, caution is needed to avoid having the account hurt the student's aid chances. If your grandma owns the plan and pays the first year tuition out of it, that payment is counted as your income, and could decrease the amount of aid you qualify for the next year.

"You want to withdraw starting the second half of sophomore year," Orsolini advised. Because the FAFSA looks backward to past years' tax returns, at this point, you'll be in the clear and the student income from Grandma's 529 plan won't affect financial aid.

If you're a student who already has money in your own name, you might consider spending that on things you'll need for college — like test prep classes, or a new computer — before the period reported on the FAFSA. Once you start paying tuition, spend your own money before your parents spend any of theirs. If your parents want to pay your tuition, they can instead make up for it with a gift later or by helping you pay off any loans you take out.

2. Fill out the FAFSA, even if you think your family makes too much money

The FAFSA is the first step in getting need-based aid, and it's a pain in the butt to fill out. Among other things, it asks for tax returns, your household income, and assets. High income, say over $200,000 a year, lowers your odds of receiving grants and loans, so if your household falls in that category, you may think there's no point in going through the agony. Fill it out anyway.

There are so many factors affecting whether you will get aid — like how many people are in your family and whether any of them will be in college at the same time as you — that you might qualify for at least subsidized loans, despite high income. (See also: The 10 Most Common Financial Aid Mistakes — And How To Avoid Them)

3. File early, and accurately

The opening date for turning in the FAFSA has been moved up, and it's important to get that thing in within about a month of opening day. If you plan to start college in the fall of 2018, that means turning in the FAFSA starting Oct. 1, 2017.

Financial aid is first come, first served, Sipos explains. If you wait until spring, financial aid officers may be running low on funds to distribute. "They might give you half the award they would have given you if you had applied a few months earlier," he says.

In addition, if your FAFSA has errors, it can get kicked back to you for corrections and then you have to go to the back of the line.

4. Spend more time with your poorer parent

If your parents are divorced and live separately, you only have to put the income and assets from one of those households on your FAFSA. So do you put down your mother's income or your father's income? The rules simply say that you submit the information about the household you spent the most time in during the preceding year — even if it was only one day more.

For example, say your parents are divorced and you split your time evenly between their houses. Your mother and her new husband make $300,000 a year and have a million bucks in the bank. Your father is on disability, and has no assets beyond his house and car. If you are presented as his child, your chances of getting financial aid are greater. While you're in high school, make sure you spend more than half the year living with your dad.

5. If you work, watch your earnings

If you, the high school or college student, earn more than $6,400 in a year, colleges will consider that as money you could be paying in tuition, and reduce need-based awards accordingly. Of course, most student jobs don't pay much, but even at minimum wage, working 20 hours a week all year would put you over the threshold. There are many reasons you may want to work, including wanting to be self-sufficient or gaining valuable job experience. Just remember that once you pass the $6,400 per year threshold, increased tuition costs may eat up 50 cents of every dollar you earn.

Instead of working more than 15 hours a week for pay during the last year of high school, when your income must be reported on the FAFSA for your first year of college, consider spending your time doing something that will boost your college application, from studying for the SAT or ACT to doing volunteer work.

This is also a warning to parents: Paying your kids a good salary to work for you might help you taxwise, but the penalty in the financial aid application could eclipse any tax savings.

6. Don't dismiss more expensive colleges

School aid offers can vary, based both on how much the school wants you and also how much the institution is. Once you have the financial aid promises in hand, you may be surprised at how much you're expected to pay differs from the sticker price.

"[D]epending on a family's income and a college's available aid funds, the cost paid by the family for attending even the most expensive Ivy League schools may be less than the cost of attending an in-state public university," reads Paying for College Without Going Broke by Kalman Chany, a popular primer on navigating the financial aid process.

Don't make a final decision until you have all the aid letters in hand, because the sticker price is not an apples-to-apples comparison.

7. Don't automatically choose the best college you got into

Many schools reserve their best merit aid offers for the top 25 percent of applicants, based on test scores, Sipos explains. That means if you barely squeak into a great school, but would be one of the top students at a good school, you'll probably get a better aid offer from the good school. Sipos counsels families on this strategy when applying for colleges, using information schools publish about their students' median college entrance test scores.

8. Look into whether you have to report your family's small business income

Sipos used to be a general financial planner, but he was inspired to specialize in college financial planning when he met a couple who was drowning in debt despite having run a successful business for years. They'd sent three daughters to Ivy League schools, and because they earned a good income, and their business was worth a lot, they'd never bothered to fill out a FAFSA.

What the family didn't know was their business met the legal description of a small business that does not count against students for financial aid purposes. Family farms fall into this category, as well. The family would have qualified for financial aid if they'd applied, Sipos says, leaving them ready to retire after their kids graduated, instead of running double time to dig out of debt.

"They could have saved $30,000 a year if they had exempted their business. The financial aid officer didn't mention anything," he says.

9. Put money into non-reportable assets

If your parents have car loans, credit card debt, or a mortgage, it makes good sense to pay them off as much as possible, not only to reduce their debt but also to increase the amount of aid you might be eligible for. You have to report how much money and other liquid investments your family has on the FAFSA. That means your parents' bank accounts are considered money they could be putting toward your education. But the value of your family's primary home and personal possessions such as cars don't count against you in assessing your need. (See also: 5 Smart Places to Stash Your Kid's College Savings)

10. Make sure the school knows about all special circumstances

Besides the volumes of information the FAFSA asks for, you can also include a letter explaining the family's circumstances — and in many cases, you should. For instance, if you have a disabled sibling who needs expensive care, or another challenging circumstance, let the school know so it can take that into account when calculating your family's ability to pay.

11. Negotiate with the financial aid office

When you get your aid letter, it's not necessarily a "take it or leave it" proposition. You can let the school know if other schools offered you a better deal, and urge them to take another look.

If you haven't already written a letter about special circumstances, now is the time to do that. Finally, if the year reported on the FAFSA was an unusually good year financially for your family — your mother got a huge bonus, for example, or your parents sold an investment property — you can provide previous and subsequent tax returns to support your case, Sipos advises.

12. Join the military or a public service program

Two members of my family became the first in their respective lines to go to college, thanks to the GI Bill, a program that helps service members and veterans cover education costs. That's just one of the college benefits available to veterans and service members. It's worth looking into.

Outside of the military, AmeriCorps, Teach for America, the Peace Corps, and the Public Service Loan Forgiveness program are all avenues for paying off student loans or financing college.

Some people might look at the above tactics as gaming the system. It's certainly possible to pass beyond optimizing into the shady territory of trying to hide income and assets.

"I lose my patience with people who are affluent — and they want to hide that affluence? Come on," Stack says.

While it's up to the individual to decide which legal financial aid optimization tactics are appropriate, reputable college financial planners see no problem in making a financial plan that maximizes the chance of getting aid.

"You're just following the rules," Orsolini says "It's no different from putting money in a 401(k) to minimize your tax burden."

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 9 Best State 529 College Savings Plans

Tim Lemke — Fri, 09 Oct 2015 13:00:39 +0000

College is a pricey proposition for most families, and saving enough to send a kid off to school can seem daunting. Fortunately, 529 plans can be a great help. They allow anyone to invest money into an account, with the gains growing tax free as long as the money is used to pay for educational expenses. In many cases, contributors also get a tax break based on the money they put in. But which plan should you pick?

You may instinctively sign up for the plan offered by your own state, but many 529 plans are open to anyone in the United States. The key to finding a good 529 plan is the amount of tax benefit offered to the person contributing to the account. It's also important to look at the quality and variety of funds offered, management fees, and other factors.

Here are the nine best 529 plans based on these criteria.

1. New York

The 529 plan offered by the Empire State is one of the best-performers, according to SavingforCollege.com. And it has generous tax breaks, including deductions of up to $5,000 per year for an individual, and up to $10,000 per year for married couples.

2. Maine

The state's NextGen College Investing Plan has a nice mix of offerings, including Blackrock Funds and iShares ETFs, which have super-low expense ratios. There are also matching grants of up to $300 per year, and a tax break of $250 annually.

3. Tennessee

The best thing about the TNStars College Savings 529 Program may be its variety of options. There's an age-based option, which allows you to enter into a fund that adjusts its holdings according to when the beneficiary plans to attend college. Then there's a "static" option with 13 different individual selections. Tennessee also offers up to $1,500 in total matching contributions. (There are no additional tax breaks because Tennessee has no personal income tax.)

4. South Carolina

Open only to South Carolina residents, the Future Scholar 529 Plan has no minimum contributions. It has an option of age-based portfolios with three different risk levels, or seven target allocation portfolios. It has a super low expense ratio of less than .25%, and all contributions are fully tax deductible.

5. Louisiana

The START Saving Program is for Louisiana residents only, but it has a nice array of options, including age-based funds or any of six Vanguard mutual funds. There are no program, enrollment, or management fees, and fees of the underlying investments are low. Account holders can get an annual tax break of $2,400 per individual and $4,800 for married couples.

6. California

The ScholarShare College Savings Plan has a ton of options. There are two age-based options, and a whopping 17 static options, including a socially responsible investment option. Fees are very low, but there are no tax breaks.

7. West Virginia

The SMART529 WV College Savings Plan is powered largely by Vanguard index funds, so fees are low. The Bright Babies program offers a $100 one-time contribution from the state. Contributions are fully tax deductible.

8. Colorado

Another Vanguard-driven plan, the Direct Portfolio College Savings Plan offers a $400 match for low and middle income residents, and many students would be eligible for up to $8,000 in scholarship money through the plan. Contributions are tax deductible.

9. Ohio

Another plan with a lot of good variety, the Ohio CollegeAdvantage 529 Plan has two age-based options and 16 static options. Up to $2,000 in contributions is tax deductible. Fees are low, with some investments offering expense ratios of as little as .02%.

Do you contribute to a 529 college savings account?

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Times It's Okay to Raid Your 529 Plan

Tim Lemke — Wed, 16 Sep 2015 17:00:13 +0000

A 529 plan is a great way to save for college. Money can grow tax-free if it's used for qualified education expenses, and many states offer great tax deductions on contributions.

Generally speaking, it's best to avoid tapping into your 529 plan until the beneficiary goes off to school, because otherwise you'll end up paying a 10% penalty and taxes on any gains. Plus, you'll lose out on any future gains that money might have produced.

But that doesn't mean there aren't cases when it's okay to make a nonqualified withdrawal. Consider these seven situations.

1. Most of the Money Is Contributions, Not Gains

If you opened a 529 account recently, or if the fund hasn't performed well, it's possible that the money in the account is made up mostly of the cash you put in. In this case, you might avoid paying tax on any withdrawal, because you're only obligated to pay taxes on the gains. You may even avoid the 10% penalty. It won't hurt you too much to take money out under this scenario if you need it, but you should still consider trying to replenish those funds as soon as you can.

2. It's Performing Poorly and You Think You Can Do Better Elsewhere

In most cases, the tax advantages of using a 529 plan make it worthwhile to use for college savings. But they aren't perfect. Often, account holders are very limited in their investment choices, and may pay high management fees. If you've done an analysis and think you can do better overall using a Roth IRA, ESA Coverdell, or a taxable brokerage account, give it a shot. Just be aware of the tax implications and other possible restrictions if you do.

3. Your Only Other Option Is Raiding Your Retirement

It's often said that you can borrow for college, but you can't borrow for retirement. If you're faced with a financial hardship and are considering dipping into your retirement money, turn to the 529 plan first. We all want to save for retirement and our kids' college educations, but retirement should be the first priority.

4. You're Confident You'll Replenish the Funds in Short Order

Sometimes it's okay to make a withdrawal if you find yourself in a short-term cash crunch. If you were laid off from a job, but have one lined up to start within a month, for example. Under this scenario, if you can take money from the account but put it back relatively quickly, the financial harm is relatively minimal — especially if you didn't take out too much to begin with.

5. You Know Your Kid Isn't Going to College

You may come to the conclusion that the beneficiary of the 529 account is going straight to the workforce, or perhaps joining the military. In this case, it might be worth it to withdraw money now rather than later, when your taxes and penalties may be higher. Before you take the money out, just remember that it's possible to change the beneficiary to another person, such as a younger child, who might be able to use the funds for education in the future.

6. The Beneficiary Lands a Scholarship

Hey, this is a good problem to have. You may be forced to withdraw the money and pay a 10% penalty and taxes on the gains, but otherwise the money is then yours to use as you wish. Congratulate your youngster on his or her hard work.

7. You're at the Maximum Balance

This is another good problem to have, though probably a rare one. If you've been contributing aggressively and the investments have performed well, you may be prevented from adding any more funds to the account. This maximum ranges from $235,000 to $450,000, depending on the state. There's nothing wrong with letting the money sit and grow, but since you're no longer getting a tax advantage on contributions, you may consider taking some funds out and placing it in different investments that will perform even better. Just remember to take penalties and fees into account before making any withdrawals.

Do you contribute to a 529 plan? Have you ever considered borrowing from it?

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Creative Uses for a 529 Plan

Qiana Chavaia — Wed, 07 Jan 2015 14:00:10 +0000

The cost of college tuition has risen at an average rate of roughly 8% per year over the last several decades. Case in point: The average cost of private undergraduate tuition at the University of Pennsylvania (an Ivy league institution), including room and board, fees, books, and other expenses was $2,770 in 1960. Adjusted for inflation, that's $22,219.24 in today's dollars. A mere half a century later it costs nearly three times that — $61,800.

Thankfully, 529 Plans, or Qualified Tuition Programs (QTPs), offer families a pathway to save for higher education expenses. In many ways they resemble retirement plans, offering significant tax benefits for savers. There are no federal taxes on your contributions' earnings and often no state taxes if you're a local resident and the plan's beneficiary attends college in-state.

But the benefits don't end there. Check out these creative uses for your 529 plan.

1. Pay for Your Own College Expenses

Did junior get a scholarship or decide not to attend college? Then consider using any 529 funds toward our own educational expenses. Most plans allow you to change beneficiaries once per year, enabling you to transfer the funds into your own name. If you'd waited to further your education until later in life, this can be a lower-cost way of paying for that long-awaited degree.

2. Think Outside the College Box

A traditional college is not the only place to get an education, and 529 plan assets can be used to pay for two-year associate degree programs, technical schools, trade schools, vocational schools, and for study abroad — as long as it's with an accredited institution.

3. Split Beneficiaries

Since you can change beneficiaries on a yearly basis, you could technically fund two (or more) beneficiaries' educations with a single plan. For example, if there's a gap in your children's ages and you prefer to only have one plan, you can do so — and still contribute to both their educations.

4. Fund Future Generations

The plan's beneficiary can be anyone you choose — including grandkids or great-grand children. It's a great way to ensure your legacy is put to good use — and by funding a 529 plan early, the monies can benefit from compounding over a longer period of time.

5. Pay for Non-Qualified Expenses With a Poorly Performing 529

While we usually don't recommend raiding tax-advantaged accounts early (you're usually stealing from your future and subjecting yourself to penalties), in cases of real financial need, withdrawals from a plan may become necessary. If your plan is in the red, you can withdraw from the plan without penalty in order to pay for non-educational expenses, if needed.

How Much to Save

How much you should save depends on whether or not your child intends to remain in-state or attend an out-of-state university. Will your child be attending a two or four year college?

Perhaps you want them to attend an in-state program and transfer into a more expensive out-of-state private school. Will he or she require room and board or participate in the school health plan? Will your student work to cover a portion of the costs?

These are all questions to ask yourself. But, also take into consideration college price inflation, which is outpacing regular inflation and at a much higher rate. Today's average cost of $45,000 per year to obtain a four year degree may cost as much as $209,743.07 in 20 years, unless something is done about the astronomical rate at which costs are rising.

At this rate you would need to save $3,000–$4,000 a year assuming your earnings grow at 10%. The maximum annual contribution for 2014 and 2015 is $14,000. So, get saving!

Are you funding a 529 plan? How do you intend to use it?

This article is from Qiana Chavaia of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Freedom of a Debt-Free Life

David Ning — Tue, 17 Jul 2012 10:00:17 +0000

For some people, living a debt-free life is just a dream, but for others, it's a reality.

It takes commitment, self-control, and discipline to move from a life full of debts to one free of them. Although the process of becoming debt-free may not be luxurious, its end results are worth all the pain and sacrifice it may require.

Debt-free individuals experience financial freedom that allows them to live life more fully, since they do not have to be held back or stressed by burdensome debts. This is definitely a nice place to be at, and all it requires is personal commitment and determination. (See also: 6 False Assumptions About Debt-Free Living)

Why Debt Is Bad for You

One of the biggest problems with debts, especially large ones, is that they prohibit you from spending your earned money the way you want to. For example, your may want to save money for retirement or invest to secure your children's future. However, your obligations to pay back your mortgage, a personal loan, or any other loan may hamper your efforts to reach these life goals.

When you accumulate many debts and are unable to pay them, it can also greatly affect your credit rating. Such a situation may occur due to late payments or defaulting on your monthly obligations. In addition, you may also have to pay hefty fees and penalties, which can further destabilize your financial status.

Getting Rid of Debt

When your money is unable to work to your advantage because of debts, it means you need to take the necessary action to eradicate the debts. Failure to address the issue will only slow your efforts towards achieving your goals.

Creating a budget is one of the simplest, yet most effective means of getting out of debt. Cut down unnecessary expenses in order to create a surplus in your finances. Direct the extra savings towards loan repayment. Remember that sacrifice is necessary when trying to get rid of debt. Once you have the budget in place, stick to it to the best of your ability and strive to make your loan repayments in time every month. In time, this budget should help you pay back your debt and meet all other financial obligations while giving you a clearer picture of how you use your money.

Benefits of Living a Debt Free Life

A debt free life means more money. Since you will have less monthly expenses, your cash flow will definitely increase.

More cash flow will enable you to have greater financial freedom. You might even be able to go on that vacation you have always desired or comfortably pay for your child's tuition in a good school.

Not having to deal with debt will also allow you to invest your money for greater returns. You will therefore be able to generate more wealth and increase your financial status. You can also effectively fund your retirement to secure your future.

What are your reasons for getting out of debt?

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This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Smart Things to Do With $25

Paul Michael — Mon, 06 Feb 2012 11:36:26 +0000

So, you’ve got $25 burning a hole in your pocket. Or, you just found it in an old pair of jeans. Maybe it represents the contents of your piggy bank, or a check you got from an aunt in another state for your birthday. However you came by this $25, you’re trying to figure out how to spend it without blowing it.

Here then are 10 ideas, some fun, some serious, that will help you make the most of your 25 buckaroos. (See also: 15 Fun Things to Buy for Under $5)

1. Go on a Goodwill Shopping Spree

The bargains I find at Goodwill never cease to amaze me. I recently purchased a mint-condition, sealed Sopranos jigsaw puzzle for $2. I sold it for $10 just a few days later. OK, not a lot in the grand scheme of things, but if you could do that with $25 worth of Goodwill stuff, you turn it unto $125. Rummage through the collectibles and glassware, and check out all the pictures, CDs, and garments. Every Goodwill store holds gems, you just have to know where to look. And remember, the money you spend in there goes to a very good cause. It’s win-win.

2. Adopt an Animal That Needs a Good Home

We recently adopted two kittens from our local animal shelter. We were shocked at how cheap it was to do this. They had so many cats, dogs, and other animals to care for that they were almost giving them away. It was sad to see a sign like “buy a kitten, get a grown up cat free,” but I guess tough times call for new ideas. The price for the adoption of the two kittens, plus inoculations and spaying/neutering, came in at less than $25. We gave the shelter double that because we know how much they rely on donations. But, if you want to do some good with your $25 and make a friend, spending it on a new pet could be just for you. As always, don’t do it on a whim, and don’t buy a pet as a gift for someone else (unless they come with you). Animals need loving homes. If you can provide one, get down to your local shelter.

3. Buy Previously Viewed Movies and Games

DVD rental stores have hit on hard times. It doesn’t bother me too much, because I remember being charged ridiculous prices for new releases and having to pay horrendous late fees. The rental stores had to adapt, and they also had to find a way to make extra money. By selling off previously viewed DVDs and pre-played games, they’re recouping some of their losses; and you get yourself some sweet bargains. I picked up movies including A Serious Man and A Nightmare on Elm Street for just 99 cents. I also recently bought Blu Ray copies of Inception, Horrible Bosses, Machete, and Predators for around $7 a piece. That’s way below the price of a new copy, and they play just as well. Some discs look untouched. These stores have dozens of copies of the popular movies, so many of the discs are played just a few times. And they all come with at least a seven-day guarantee. Bring it back if it’s scratched or doesn’t play, they’ll replace it for you. Now that’s smart.

4. Start a College Savings Plan

With $25? Well, it’s $25 dollars more than if you don’t have a plan right now. And if you have young children, the price of college by the time they reach 18 will demand every penny you can amass. By investing $25 a month for 18 years with a 7% rate of return, you’ll have over $11,000 in that account. True, it’s probably not going to cover a lot by then, but it’s better than nothing at all.

5. Hit the Sales at the Grocery Stores

If you want to grab yourself some real bargains, go and buy the food that is “going off” in the stores. It’s often heavily discounted because it has reached its sell-by date. But that’s an arbitrary date set to protect stores from lawsuits and ensure you get the freshest food. So much of that food is still very good, and you can get it really cheap just before it hits the dumpster. Your $25 could easily get you $75-$100 worth of food. Pop whatever you can in your freezer, and bring it out when you need it.

6. Loan It to a Farmer or Entrepreneur in a Third-World Country

One of the best non-profit ideas I’ve seen in a while is Kiva.org. It’s based on the principles of “microfinancing,” which basically means you can donate a sum as small as $25 to the fund. The borrower will make a request for funds, and if successful, he or she will get a loan funded by the more than 500,000 lenders around the world. The borrower then makes repayments, so if you put your money in, you will get it back at a later date. But in the process, you have helped someone realize a dream who normally wouldn’t have a chance to.

7. Hop the Farmers Markets

An article I wrote in the past warned of things to avoid at farmers markets, and that resulted in a lot of angry letters and comments wondering why I was against them. That, I am happy to tell you, is not true at all. I love farmer’s markets; I simply wanted to point out a few pitfalls. But when it comes to fresh fruit and vegetables, these markets can’t be beat. So take your $25 to a local farmers market, get some good quality food for less than supermarket prices, and support a local farmer.

8. Buy Some Original Art

You may think $25 will not buy you much of a work of art, but you’d be mistaken. Yes, granted, if you’re looking for a 6 ft. canvas by a well-known painter, you’ll be out of luck. But if you are willing to look around local art shows, search on Craigslist, or even peruse the walls of local eateries and record shops, you will find amazing prices on original works. These are from artists who want to be discovered and also want to cover the costs of materials. Who knows, in the future that piece you buy for $25 could be worth six figures.

9. Get a Free Massage or Haircut, and Tip $25

Students who are enrolled in massage or haircutting courses will often give away their services for free (or very cheap) to practice. You’ll find ads for free massages or haircuts on Craigslist and in newspaper classified ads. But while they are free, or very cheap, these people do deserve a tip. So, for the complete price of $25, you help a student with their studies and get a service for at least half of what you’d regularly pay.

10. Take a Music Lesson

So many of us have guitars, old pianos, or other instruments just lying around. Maybe we bought them decades ago and gave up on them, or they were gifts. They could be hand-me-downs. Either way, why not see if it’s really something you want to do. Playing an instrument is a great way to release stress, and it’s a wonderful hobby. For $25, you can usually get a 30-minute to 1-hour lesson for a variety of instruments. Some charge as little as $10 for a 30-minute lesson.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Receiving Your Tax Refund in Savings Bonds

Thursday Bram — Fri, 04 Mar 2011 12:00:30 +0000

As you prepare your tax return this year, you have an interesting option. You can opt to receive part of your tax refund as U.S. Savings Bonds. The process is relatively simple. Form 8888 (PDF) from the IRS allows you to allocate how you will receive your refund. You can have your refund directly deposited into a bank account, mailed to you as a check, or invested directly into savings bonds. You can also divide your refund between these options however you'd like. It's an easy process. The real question is should you invest part of your refund into savings bonds.

The bonds in question are Series I Savings Bonds, which the U.S. Treasury sells for face value. You can redeem such a bond, plus the accumulated interest on it, after twelve months have passed — although if you redeem a bond you've held less than five years, you'll give up three months worth of interest. Series I Bonds earn a combination of a fixed rate and an inflation rate. The fixed rate stays the same for the life of the bond, while the inflation rate changes every six months. New rates are set every November and May. The last fixed rate set (November 2010) is 0.00 percent, which means bonds bought before next May will be relying entirely on their inflation rate for income. You can see a list of recent rates on the U.S. Treasury's website. (See also: While Waiting for Rates: I-Bonds)

The Benefit of Automatic Savings with Bonds

Sarika Abbi, who works with the D2D Fund to encourage savings for low-income consumers, points out that this approach provides a way to automatically save money.

The nice thing is a taxpayer can consider saving just a portion of their refund with bonds, allowing them to use the remainder to pay bills, meet spending needs, or save in other saving or investment vehicles. For individuals who don’t have access to savings, it’s a great way to begin setting some aside for the future, without the requirement of a bank account. They also offer a competitive rate in comparison to comparable savings products (traditional savings account and one-year CDs). There are no fees associated with buying or redeeming bonds and they have a low entry point: only $50. This makes them a very accessible product for many households.

Tax-time saving bonds are Series I Savings Bonds, which are inflation-protected. This means your savings bond never lose value. They are also very safe investments — your principal is protected and when you redeem them you will receive your entire principal as well as any interest earned. They are a nice long-term vehicle (mature in 30 years) but are accessible one year after purchase if a family faces an emergency or need for the vehicle. It is also a good savings vehicle for individuals who want to set money aside for their children, grandchildren, or other loved ones. And there is a tax break if used for education purposes.

It's truly an easy way to build up savings, and the fact that it takes a little more work to cash in a bond than it takes to just transfer money out of a checking account means that there's an additional barrier to using your savings for purchases that aren't really all that necessary. There is a maximum amount that you can invest in Series I bonds every year — $5,000 — but a taxpayer can request as little as $50 in bonds if that's all someone wants to put aside.

Is Getting Your Refund in Savings Bonds Right for You?

It's true that savings bonds, especially at current interest rates, aren't the ideal investment for everyone. But when you consider that you can use them as a savings vehicle rather than an investment opportunity, you may find that putting part of your income tax refund towards savings bonds makes sense. You may find that you can earn at least as much interest as you can through a savings account at your bank. And if you're starting to plan for college for a little one, a savings bond offers other benefits over the typical bank account.

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Tips from a Financially-Savvy Teen

Julie Rains — Mon, 22 Nov 2010 14:00:07 +0000

A few years ago, teenager Tamara Johnson had no savings and vague plans to attend college. Today she is a freshman at Marquette University, using scholarship dollars for tuition and her personal savings to pay for living expenses.

A financial literacy program — Money Matters: Make It Count created by the Charles Schwab Foundation and taught at Pueblo of Pojoaque Boys & Girls Club — helped Tamara understand and apply the money lessons that her parents had been trying to teach her. Her enthusiasm and grasp of these financial lessons led to her selection as the 2010-2011 National Money Matters Ambassador. More recently, she became the first teen to take the Make Change Count pledge as part of a national campaign sponsored by the Charles Schwab Foundation and the Boys & Girls Clubs of America to make financial literacy more accessible to teens. Through Money Matters and life experiences, here are lessons that Tamara learned.

1. Save money now, because you’ll never know when you’ll need it later.

Now that Tamara is in college, she sees that her savings habit formed in high school is worthwhile. She has enough money to buy essentials, such as a warm winter coat, and pay for holiday travel from college in Milwaukee, Wisconsin to her home in Santa Fe, New Mexico. Tamara told me that some of her friends have just a dollar in their bank accounts, having never considered saving for later. They have to call their parents and ask for money. (See also: 7 Important Lessons Frugal Parents Teach Their Children)

2. Apply for scholarships in your junior year. Don’t wait until the second semester of your senior year.

I heard similar advice from Kimberly Stezala, author of Scholarships 101: The Real-World Guide to Getting Cash for College, who spoke with me about private scholarships. Guidance counselors may not encourage this approach, perhaps because they see so many students who have not taken basic steps to begin the college search process. Nevertheless, middle school students as well as high school freshmen, sophomores, and juniors can compete for scholarship monies. Tamara’s early start helped her to win scholarships that cover tuition payments for the next four years.

3. Learn to budget your money instead of spending whatever you have.

When she was younger, Tamara received an allowance from her parents. At 16, she started earning her own money when she went to work for the Boys & Girls Club. Before she took the financial literacy classes, Tamara was not careful with her allowance and headed to the mall right after getting her paycheck. After completing the program she realized that she should budget her money toward savings and anticipated expenses for things like gas, movies, and clothes.

4. You’ll be surprised at how easy it is to save money and how quickly it builds.

Tamara started setting aside and saving money at 16. Just a couple of years later, she had amassed nearly $4,000. She is using this money to pay living expenses and plans to rebuild and add to her savings by working during holidays and summer breaks.

5. Working together with friends to avoid spending can be fun.

Peer support is a powerful component of the Money Matters program and Make Change Count pledge. Tamara and many of her friends took the financial literacy class together and helped each other learn to put its principles of saving and budgeting into action. Sharing what you know is one part of the four-step pledge.

A few high school friends thought she was crazy for being careful in her spending; Tamara says that many people do not realize the importance of saving until they need money and have none. At college, Tamara talks to her friends about saving because they often notice that she has money to spend when they are broke.

6. Shop for bargains.

When she shopped with her mom’s money at the grocery store as a child, Tamara chose whatever she wanted despite her mom's cautions to spend more carefully. Now that she’s spending her own money for groceries and armed with financial lessons, Tamara is a bargain shopper. She notices specials and uses coupons.

7. Learn to recognize wants and distinguish them from needs.

One of the ways that Tamara identifies what she needs is to consider all of her options. Comparing a premium brand to house brand at the grocery store, for example, can show you that may want a certain (heavily advertised) brand, but you need certain foods.

8. It’s never too late to start saving.

Even if you have made mistakes and have no extra money now, you can become a saver. Though an early start is helpful, saving at any time will put you on the right path to a better financial condition.

9. Take advantage of financial literacy programs.

Sadly, most high schools do not require financial literacy classes for their students. You may need to look at electives, programs offered by outside groups (such as the Boys & Girls Clubs of America, which presents Money Matters), or personal finance websites. Tamara learned not only about saving and budgeting but also how to read a paycheck and how to pay back a loan.

10. Learn to deal with financial decisions face you everyday

Most of us may think of financial decisions in terms of big decisions such as when to buy a house and how to save for retirement. Tamara emphasized that many small decisions have financial consequences. For example, when it’s lunchtime, she needs to choose whether she will eat lunch in the cafeteria or go back to the dorm room to make a sandwich.

Tamara’s parents laid a foundation for financial education by opening a savings account on her behalf and encouraging her to spend wisely. But the financial literacy course provided specific information on topics not discussed elsewhere and gave her new insights. Experiencing success in trying the ideas (such as being able to save money by budgeting and finding alternatives to mall shopping) reinforced these lessons.

Have you taken financial literacy classes? If so, what did you learn, and how did they change your life?

This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Save 20-100% on Textbooks

Stacy Johnson — Wed, 06 Jan 2010 15:00:03 +0000

Since I graduated from college some time ago (I won't embarass myself by saying exactly how long) I had no idea that textbooks had gotten so expensive. How expensive? Well, according to a 2005 study by the General Accounting Office, the average estimated cost of books and supplies per first-time, full-time student for academic year 2003-2004 was $898 at 4-year public institutions, or about 26 percent of the cost of tuition and fees. At 2-year public institutions, the average estimated cost of books and supplies per first-time, full-time student was $886 in academic year 2003-2004, representing almost three-quarters of the cost of tuition and fees. And that was five years ago!

Why is the cost of books and supplies increasing at such a rapid clip? Read all about it in articles like this one from Wikipedia. But as far as this course is concerned, the "why" is academic. This mini-course isn't about finding fault; it's about finding deals. Check out the following TV news story, then join me on the other side for more details.

So the simplest way to get a free textbook is from the school library or your professor. Since supplies will be extremely limited in either case, best you hit these two options the instant you know your schedule. If neither of these ideas work, head for the web. Here are links to the sites I mentioned in this story in order they were mentioned.

Sites where you can download out-of-copyright (old) books:

Sites where you'll find a limited number of free textbooks for online reading or downloading:

Site that offers free, advertiser-supported textbooks in .pdf format: (There's a half-page ad every 3 pages.)

Bookboon

Sites where you can swap textbooks with other students:

Textbook Revolt (Note: this site was a swapping site, but is now apparently morphing into a rental site.)
Bookins
Swaptree

Sites where you can find all manner of free stuff, including textbooks:

These are the sites you might find free textbooks; whether you actually succeed is a function of how hard you look and how common the title you're looking for. And if you're thinking of a swapping site, beware of the pitfall of any online transaction: fraud.

If you can't find what you're looking for on a free site or a swap site, what then? Time to try a rental.

Textbook Rental

There are several sources for textbook rental. The first place to try is your college bookstore. The cost to rent a book should be no more than half the price of buying the book; hopefully less. You might find a better deal online -- two popular rental sites are Chegg and BookRenter. The downside of book renting is the same as with renting anything: you don't own anything when it's over and you've got to keep it in great condition. One way to avoid the wear-and-tear issue is to rent a digital copy. You can find these at CourseSmart -- they claim to have more than 8,000 textbooks available for digital download at savings of up to 50%. You can print out up to 10 pages at a time and the license to use the book expires after six months.

Buying Overseas

As with drugs, some publishers sell cheaper overseas. And some booksellers re-import international-edition textbooks and offer them at prices less than in the US, which means you might find a bargain. One site that features international editions is AbeBooks.

There are two potential problems with international editions of textbooks. First, you've got to be sure that the international edition is the same as the domestic one (your professor might know). Also, be aware that some people aren't happy about the reimportation of international edition textbooks, since pretty much everybody from the author to the campus bookstore makes less money as a result. If you want to read more about the controversy, see the Wikipedia page I mentioned earlier.

Buying Used

Used textbooks can often be found at the campus bookstore, not to mention campus newspaper classifieds and bulletin boards. But you should also check sites like Craigs List, eBay, and Amazon. Just be sure you're buying the edition you need -- textbooks are revised often.

Shopping for Savings

When you shop at the campus bookstore, it's convenient, and they'll have the textbook you're looking for. But like buying your groceries at 7-11, convenience often comes at a cost. So shop for savings on books the same way you (hopefully) do for every other expensive purchase you make: do a quick online search at sites like Amazon, BarnesandNoble, Half, ecampus or others (do a search for textbooks and you'll find tons). Or use a textbook shopping bot like GetTextBooks and DirectTextBook.

Comparison shopping is a fairly simple way to save 20% or more on new book purchases and a way to perhaps find a used version for even greater savings.

Bottom line? The cost of both tuition and textbooks has been outpacing inflation for many years. It's not fair, but don't get mad, get smarter. View the challenge as an opportunity to learn a life lesson. Confront costs by combining creativity and legwork, and you can have the things you want for less.

5 Tips for Easy College Savings

Tisha Tolar — Mon, 30 Nov 2009 14:00:03 +0000

When you have a baby, there are many initial financial concerns, especially when a family is still working hard just to make ends meet. College savings on a tight budget may seem like something you'll do later when the kids start elementary school but time goes by so fast. The reality is by the time today's toddlers are in college, the costs of higher education will be outrageous.

To get a jump start on saving money for college, here are ideas for starting to save when kids are still young and money's still tight. Also check out our 40+ College Resources for Parents and Students to get more information.

Choose the Right Savings Plan for College

You can start the account in your child's name to save on taxes but be warned — if you are later eligible for financial aid, it can be cheaper to have the funds in your own name. Colleges expect contributions toward tuition to be 5-6% of your assets each year. Assets in a child's name are marked considerably higher at 20%. Savings bonds are also affected in this manner.

Balance the Budget

The earlier you start, the smaller increments you can deposit. If your child is still in elementary school, work through your parenting budget to find at least $50 a month to invest into a college account. Make a serious commitment to socking away $50 each month until the college years loom. It may seem like an insufficient amount but in 18 years time at 6% interest a year, that $50 a month can be worth around $20k.

Invest Extra Cash

Any windfalls in money (bonuses, inheritance, etc.) should have an allocation right off the top of at least an additional $50 to invest, if not more, into the college account. It can be easy to find uses for "extra money" but $50 is rather small and you'll feel better making that extra deposit during the month.

Automate Your Savings Plan

Psychologically speaking, you can save more when you see less. Talk to your payroll department about having $25 a check (if you get paid bi-monthly) deposited directly into the college account. After a month or so, you'll likely never even notice it is missing.

Look But Don't Touch

It's great to track your progress and see that $50 start adding up but don't touch it, not even for emergencies. Start a similar plan where you deposit money into an account for emergencies like home or vehicle repairs. Since you have been dedicated to the savings process, a second account should be just as simple. It can be tempting to withdraw the money but consider instead how good it will feel when your child is getting ready to go off to college without additional financial stress on them — or you.

This article is from Tisha Tolar of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: