Mo Vidwans
All parents strive to make sure that their children get the best education with the money that they can afford. This has been the goal for most of the Indian families and the parents are willing, on most occasions, to sacrifice many other pleasures in life to make sure that their children get good education and have the funding to pay for it.
There are many avenues open to us to support our children’s post-secondary education even if we are not able to support them 100% financially.
Tax Credits
The United States Government offers tax credit help for all those who are taking classes for a 4-year University degree or even if your children are taking classes just to find out what area they wish to pursue. There is income limitation and these are credits against the tax liability. Both credits given below are claimed on your 1040 tax returns.
American Opportunity Credit can be claimed for first four years of post-secondary education. Students must take at least half of normal fulltime load and it must be a 4-year course work. Expenses paid from grants and scholarships do not qualify for the credit. Students must have no felony or drug conviction. Taxpayers will receive tax credit based on 100% of the first $2,000 and 25% of the next $2,000 of tuition, fees and course material.
Life Time Learning Credit is based on all expenses paid for all eligible students; no particular student load is required and students are not required to seek a degree. The courses can be for improving job skills. It is good for both graduate and undergrad courses and there is unlimited time limit as long as expenses are incurred. Credit is based on 20% of first $10,000 of qualified tuition and related expenses. Income phase-out is different from the American Opportunity Credit. There is a felony conviction restriction. Expenses include, tuition, fees, books, supplies and equipment but not room and board. This program needs to be coordinated with other savings programs like Coverdale USA.
529 Plans
Named such for the code number of the regulations when the program started. This is one program where there is no income restriction, available across all 50 states and popular with American families. One can put away $14,000 per beneficiary per donor every year. There is no tax credit from Federal Govt. but some States reduce taxable income by the contributions up to a limit. However, North Carolina is not one of them.
Earnings grow tax-free and the money has to be used for the beneficiary’s education, which includes tuition, fees and room and board. These assets are considered owner’s (parent’s) asset and not of the student when applying for the financial aid. There are many websites that have much more information available on this subject.
Grants and Loans
Pell Grant: available for undergrads, only on a need basis. Up to $5,000 can be available.
Perkins Loans: up to $4,000 are available and decision is made by the college.
Stafford Loans: available only after other means are exhausted.
Parent Loan to Undergraduate Students: any one can apply and it is not on need basis. However, parents are co-signers.
Savings Plans
The main benefit here is that these plans can be used for any age, starting with kindergarten, but there are many restrictions on them; that is why they are not very popular or widely used like 529 plans are.
UGMA/UTMA: The Uniform Gift to Minors Act and Uniform Transfer to Minors Act are meant to be used for minors and beyond. The biggest disadvantage is that when the minor becomes an adult (at age of 18 or 21) they can do whatever they like with the money and parents have no control over that.
EE Educational Bonds and Coverdell Education Savings Plans (ESA) also have similar limitations.
Private Scholarships
Just like the public scholarships I mentioned earlier, there are many private scholarships available for the students of specific community, faith or from public organizations. They are all very specific and some go unfilled because they cannot find applicants meeting their requirements. You must seek them out. Examples would be: The National Society of Professional Engineers has scholarships for candidates who wish to be engineers; MATHCOUNT would choose two suitable candidates from each state. Coca Cola has many scholarships and they choose wisely from each high school. And then most students know about scholarships from National Honors Society. Much of this information is available with the Counselors at the school and usually they decide who is qualified to apply. All information is also available on the WEB and from specific corporations.
Personal Favorite
I would like to mention two specific actions that don’t necessarily generate funds but save tuition bills for the students that are motivated and hard working. All students have to go through the 4-year curriculum in the high school. That whole four-year program can be planned in the beginning of 9th grade so that proper classes can be taken at the right time. Some of these classes are not available for all semesters in the school. After that the students should choose as many AP classes as they can manage and pass the tests with high grades. These AP classes fetch real high value at the university because they allow you to be exempted from taking similar classes in the college and hence save the high tuition at the university level. In high school they are virtually free. I have known students who have saved up to 2 semesters worth of tuition fees.
Another clever way of saving during the college years is to go to a community college or a university of lesser standing first, get good grades, and then transfer to a better ranking college for the last two years, thus saving on the tuition fees for the first two years. Needless to emphasize that good grades are necessary to accomplish this task.
For the high income families who may not qualify for any of these income dependent schemes, it is best to get help from certified financial planners to calculate how much money needs to be tucked away during the early years of the child so that enough money will be there when the child goes to the chosen college.
One common thread, if you have noticed, is that hard work and good grades are needed to accomplish any of these dreams; otherwise the dreams remain just that.
