Written by Emily Sanders Wednesday, October 07 2009As students across the country enter their final year of high school this fall, many families are being forced to make serious and difficult choices about college education. Acceptance into schools is not getting any easier, and the costs associated with higher education are still rising rapidly. Add to this, lost jobs, diminished investment portfolios, and more competition for scholarships and grants, and the result is an assortment of challenges for families trying to figure out how to afford higher education.
The good news is that there are many alternatives and ways to reduce costs and to take advantage of some new tax breaks, making a college degree more affordable.
For students heading to college for the first time, the most powerful way to save money is to spend the first two years either at a community college or a lower cost state school. With careful planning, they can matriculate to their college of choice two years later with their credits intact and more money in their pockets. Local students also have the option of living at home for a few semesters to save money. While this may not be the ideal choice for teenagers looking to spread their wings, it can dramatically cut costs.
Once in school, students should consider taking a heavier course load and a few classes over the summer. At many schools the incremental cost of a few extra classes is small, so the additional credits are very cost effective. Using this approach, students can graduate in three years, saving 20 to 25 percent on the total cost of their degree.
Several states offer prepaid tuition programs, providing a low-risk, smart way for families to put money aside for college tuition. Other states, such as Georgia, offer scholarship programs that provide excellent subsidies for local students attending state schools.
The 529 college savings plans were once thought to be strong investments for college, but with the current state of the stock market, and due to age-based investment options, these plans have been tremendous disappointments.
The College Cost Reduction and Access Act of 2007 made it easier and cheaper to qualify for government grants and loans like the Pell Grant and Stafford Loan. If governmental loans and scholarships are unavailable, parents and students should scour the private market for options by using websites such as StudentScholarshipSearch, GreenNote, or Virgin Money. Whether public or private, interest paid on student loans is now deductible for most taxpayers. This further reduces the true cost of college loans, and the best investments families can make is in the diploma, so they shouldn’t shy away from this option.
A new tax break looms on the horizon for 2009 and 2010: the American Opportunity Credit, which replaces the old Hope Credit (not to be confused with Georgia’s HOPE Scholarship). With the American Opportunity Credit, many more students will receive a $2,500 annual credit for four years of college expenses, rather than the two years that were available under the Hope Credit. This new credit also expands the income ranges permitted in order to claim the credit, so it will benefit many more students. Speaking of taxes, parents should always check to see if it is better for students to file a tax return on their own or remain on the parent’s return as a dependent. There are many times when the tax benefits are greater for students to file their own tax return.
Financing a college education can be a daunting task, especially in today’s economic climate. But with some creativity and diligence, most families can come up with creative alternatives to obtain that all-important diploma.
Emily Sanders is president and CEO of Norcross-based Sanders Financial Management. She is a locally and nationally recognized investment adviser who is quoted often in the Atlanta Journal-Constitution and on CNBC, Bloomberg News, and CNN Radio.