College planning is a process that helps you to connect with
the right educational options. Saving for college gets easier the earlier you
plan. The first and foremost thing of consideration is college cost. College cost
includes:
- Tuition
Fee: These are the costs of your child's education. They may vary based on
academic program and number of credit hours. You may have to calculate your
child's own tuition based on the charge per credit hour if the tuition is
not the same for all full-time students.
- Accommodation:
These are cost on your child's food and living. Depending on the room and
meal plan chosen the charges will differ. It will be necessary
to make an estimate of these expenses if you plan to live off
campus.
- Books:
This expense covers your books, course materials, etc.
- Personal
expenses: The costs for things like laundry and telephone fall under
personal expenses.
- Traveling
expenses: Travel is generally not added to the budget, unless the student
lives more than a few hundred miles away from campus. If a figure has not
been provided, make your own estimate based on how and how often your
child plans to travel.
College Planning: Paying for College
You can borrow student loans to pay for college. Various
types of available student loan plans are broadly classified into:
- Federal
Student Loans made to students directly
- Federal
Student Loans made to parents
- Private
Student Loans made to students or parents
Stafford loans and Perkins loans are
the two major federal student loans that are made directly to students. PLUS loans
are federal student loans made directly to parents.
Stafford Loans:
A Stafford loan is a federal student
loan that allows students to borrow to pay for college. Loans are made by
either a private lender or directly from the federal government.
An eligible
student can receive a subsidized loan, which means that the interest is paid by
the government until the grace period ends. Unsubsidized loans are available to
all students, who can elect to pay interest before or after the loan repayment
period begins.
Perkins Loans
Perkins Loans carry a fixed interest rate of 5% for the
period of the 10 year repayment period. The Perkins Loan Program has a 9 months
grace period, in order that borrowers begin repayment in the tenth month after
graduation or withdrawal from their college or university.
Interest does not
begin to accrue until the borrower begins to repay the loan because the Perkins
Loan is subsidized by the government.
PLUS Loans
PLUS means Parent loan for undergraduate students. Plus
loans are the federal student loans made to parents to help them pay for a
child's college expenses. PLUS loans have a 10-year repayment period and
require monthly payments beginning two months after the loan is disbursed.
Private Student Loans
These are loans which are not guaranteed by any governmental
agency, and are made to students by banks or finance companies.
College Planning with Section 529 plans
A Section 529 plan is a tax advantaged account designed to
encourage saving for the future higher education expenses of a child,
grandchild or other dependent. It is named after section 529 of the Internal
Revenue Code.
Section 529 plans are run by state governments and include
college savings plans and prepaid-tuition plans. Investors contribute to an
account that is managed by the investment board or treasury of the state in
which the account is opened.
Section 529 plans are offered in the form of college savings
plans in 41 states and as prepaid tuition plans in 20 states. Tax laws for
contributions and distributions differ from state to state. Both plan types
allow for tax-deferred growth in the account.
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