Money: Financing a College Education
It happens in the blink of an eye … your baby bird is about to leave the nest, ready to embark on the next phase of life: college. The average cost of this next phase, as of 2011, is $100,000. As proud as you may be — and as ready as your young adult may be — how can you be financially prepared?
One strategy in prepping for college is to save as much money as you can, as early as you can. “We encourage families to start saving as early as possible — regardless of the dollar amount,” said Cheryl Lyons, director of Financial Aid, University of Central Arkansas. Lyons said $20 per month may seem like a small amount compared with the overall cost, but anything you can put back helps. Eighteen years at $20 a month will net a principal of $4,320; by investing aggressively, you can turn that into a much bigger chunk of the total you’ll need. At a 6.5 percent annual return rate, your investment of $20 per month over 18 years compounds to more than $8,000.
Another available savings plan is the 529 Plan, a vehicle many people choose for college funding. Legally known as “qualified tuition plans,” 529 Plans are tax-advantaged savings programs designed to encourage saving for higher education. The earnings on these plans are not subject to federal taxes, provided the funds are used toward higher education. According to Dale Ellis, director of Arkansas College Savings Plans, Arkansas Secretary of State, “a child who knows that there is a fund for them to go to college is seven times more likely to go to college and be successful than a student who has no college fund.” The plan’s website, arkansas529.org, has more resources and information on 529s.
Suppose you already have kids; suppose they are 8 or 10 years old; suppose you didn’t get an early start on an investment plan as outlined above. All isn’t lost, but you will either have to save more money in less time, incur debt or both.
“Student loans are great,” Lyons said, “They help you reach your educational goals — but students have to borrow wisely.”
You can also use a line of credit against one of your assets, like your house, to help defray the impending cost of college. It’s prudent to work with a financial advisor to focus on a good strategy for you.
If you’re an adult who’s been in the workplace a while, a career change, layoff or other job shift often gives incentive to go after secondary education. It’s ironic that at a time when it’s needed most, money for a degree is usually at its scarcest … ironic — but not impossible. One place to look for information on grants, loans and other financial assistance is the U.S. Department of Education’s (DOE) Federal Student Aid website studentaid.ed.gov. This website outlines DOE resources including grants, work-study programs and student loans and has online application forms for prospective students. You don’t have to be a four-year college student; aid is available for technical-vocational schools, community colleges and online degree programs.
The Arkansas Scholarship Lottery has impacted the higher education landscape as well. “We have funding at the state level that we didn’t have prior to the Scholarship Lottery,” said Tammy Harrison, director of Financial Aid, University of Arkansas at Little Rock. “Students who have just finished high school have maximum financial resources available from the state of Arkansas right now.” Harrison noted an emerging trend with financial aid for higher education. “We seem to be shifting toward a focus on outcome — not just a student receiving financial assistance, but the student and the institution being accountable for that investment,” she said. “The student has to make progress toward degree completion to maintain financial aid.”
At Arkansas State University (ASU) in Jonesboro, Director of Financial Aid & Scholarships Terry Finney estimates that some 3,000 ASU students have benefited from Arkansas Scholarship Lottery funding in the past few years. “It’s given more people the opportunity to attend college,” Finney said, noting that the program has helped fill gaps where traditional higher education funding has been cut back or eliminated. Finney also pointed out that the university has merit-based scholarships available to students who maintain good grades.