Financial Literacy

Experts recommend that you complete the Free Application for Federal Student Aid on the web at studentaid.gov to learn about the types of aid available. You can also get free information from high school and college counselors.

Job scams also affect students. Don’t be tempted by lures of easy money or claims of high-paying jobs, especially if there is a fee to apply, if you’re required to buy supplies, or if someone sends you a check for no reason and asks you to put it in your account.

Experts advise that you should be wary of any unsolicited offer, so don’t share personal information unless you’re sure of the source. Also, if you feel you’re the victim of a scam, be sure to report it to the proper authorities.

It’s important to protect your personal data. That means:

• Don’t share financial account information, Social Security numbers or other sensitive data unless you’re sure it’s necessary.
• Don’t over-share on social media because scammers can use that information to trick you or others.
• Be wary of unsolicited offers and don’t click on links in email or download files unless you’re absolutely sure of the source.
• Don’t store sensitive information such as account numbers or passwords on your phone or computer. If a thief steals those devices or somehow gains access they can use the information in a variety of fraudulent ways.
• Use online or mobile banking to monitor your financial accounts and be sure to set up text or email alerts to warn you of possible problems

Be on the lookout for possible problems, and don’t hesitate to ask someone you trust for advice. Guarding your personal information and money can keep you from learning about scams the hard way.

The biggest benefits of these state- or school-operated ‘qualified tuition programs’ are:

• The earnings are tax free if used for qualified higher education expenses.
• The funds are controlled by the person who opened the account until they are withdrawn.
• Significant contributions can be made by you, family members or friends.
• And these plans can be set up for your children, grandchildren … even for yourself.

So what’s the difference between a savings and prepaid tuition plan?

Savings plan:

Think of the savings plan as an investment, with your earnings based on the performance of the stock market. The 529 savings options are a lot like mutual funds, with the offerings usually being a mix of stocks and bonds, and they are likely to be offered with choices at various levels of risk – from aggressive to conservative.

These plans – which generally earn more money than traditional savings accounts like money markets or CD’s - are offered by most states. The money and its earnings can be used for both undergraduate and graduate costs - including tuition, room and board, even computers and peripheral equipment – at any accredited college or university.

A benefit of this type of plan is that you can invest one state’s plan and send your child to a school in a different state. And, if you like, you can move your money once a year into a plan that might be more attractive in another state.

You can invest in any state’s 529 savings plan and your earnings are not subject to federal income taxes when used for qualified education costs. While the actual contributions are not deductible on your federal taxes, some states do allow this type of deduction.

Prepaid Plan:

These plans allow you to pay money now to lock in future college costs, but they are less widely available than the 529 savings plans.

Depending on the type of prepaid plan, the money you pay usually allows you to cover in-state tuition costs, although some plans might cover other expenses as well. And most prepaid plans have age or grade limits for the beneficiary.

Since these plans are usually targeted at the schools offering them, make sure you check to see what your money-transfer options would be if your child or beneficiary chooses a different school to attend.

An advantage of this type of plan is that your payments lock in future college costs and the plan must make good on its promise.

Things to keep in mind:

While 529 college plans are attractive because their earnings are tax-free when the money is used for qualified education expenses, another big benefit is that large amounts of money can be deposited for the beneficiary – in excess of $300,000 for some plans.

Contributions under $14,000 annually fall under the federal gift tax exclusion and a lump-sum deposit of up to $70,000 can be spread out over five years and still qualify. To make saving easier, automatic transfers can also be set up from your checking or savings accounts.

The plans are also professionally managed, but you’ll want to check on any fees associated with the plan you choose.

There also are other considerations to be aware of.

If the money in the plan isn’t used for qualified education expenses, you face a 10% withdrawal penalty on the earnings (not the principal), and the withdrawn earnings will also be taxed at your regular income tax rate.

However, if your child decides not to attend school, the person who controls the account could name another beneficiary for the money and it could be used for that new person’s qualified educational costs.

The money in a 529 account will have some effect on financial aid applications. Be sure to check with an advisor on how this is affected by federal or school rules.

And as part of any financial planning, make sure to do your research on the options you have, and check with a trusted financial advisor on the various plans’ options and risk levels. 

With a federal student loan, you have several options for repayment. Plans range from repayment of the loan over 10 years to payments that are based on your income.

With federal loans, you’ll also be able to switch payment plans, but you will need to work with your loan servicer on where to make payments and how much you’ll be paying.

Some amounts owed for federal student loans may also be forgiven based on your profession, such as teaching or public service. For more information about repaying federal student loans, loan forgiveness, and the types of loans available, visit studentaid.gov. 

If you take out a private loan from a financial institution, it’s important to understand the loan terms and repayment requirements. Be sure to know when your payments begin and to make all payments on time.

Evaluating all of your student loan options is the first step to ensuring you select a payment option that fits your financial situation.

Federal options include subsidized and unsubsidized loans. These loans help cover the costs of tuition, books, supplies, and room and board. There are borrowing limits based on the loan type and whether you are an undergraduate or graduate student.

The advantages of federal loans include flexibility in repayment plans and possibly even some loan forgiveness based upon your job. You can apply for federal student loans for free at fafsa.gov.

For detailed information about federal student loans and your options, visit studentaid.gov.

Another option is to take out a private loan through your financial institution. These loans can either help cover education costs or expenses that exceed federal student loan amounts.

No matter which type of student loan you choose, you are borrowing money, with interest, that needs to be repaid.

It’s important that you know what your repayment responsibilities are and when your payments begin. Remember to make your payments on time and in full.

Evaluating all of your savings and loan options based on your individual needs is the first step to safeguarding your financial future.