Expect to pay anywhere from $42,000 to $107,000 for a four year college or university education, according to The College Board. Does paying for college seem unattainable? Think again. Never before have there been so many possibilities when it comes to saving for college. There are federal and state funded programs, as well as privately funded savings plans, available to accommodate every tax bracket and level of contribution. Read on to learn about some of the major college savings plans. Regardless of your financial status, it’s important to take advantage of at least one of these programs the benefits of a college education are truly priceless.
STATE SAVINGS 529 PLANS
529 Plans are so named after Internal Revenue Code Section 529, which allows each state to create its own college savings plan or prepaid tuition plan. The purpose of each plan is to help families save money for future college expenses tax-free during its accumulation period.
College Savings Plans
More than 30 institutional providers offer some type of state 529 College Savings Plan, with each one managed by a participating investment firm. Some well known firms include Fidelity Investments, Putnam, Alliance Capital, and T. Rowe Price. Firms act as plan managers for the account, meaning they have control over how the funds are invested and managed. College savings accounts are given different names according to each plan manager. Some well known accounts include Tomorrow’s Scholar, NextGen College Investing Plan, and College Save.
The person opening the account is considered the owner, and has control over the management of the funds, as well as the power to withdraw funds. The owner may also choose to change management, or firm, if they are not satisfied with the return of the investment. By law, accounts may not move from one manager to another more than one time per year. The owner may name or change beneficiaries for the account. Relation to the owner does not matter when naming a beneficiary, but does when changing beneficiary status.
Plans differ by state. For example, some state plans are available only to those claiming state residency. Other plans are open to out of state residents, but charge a broker’s commission to such accounts. Some states have rules concerning taxable withdrawals, while others do not. Enrollment fees, advisor and management fees, and fund expenses are other details that vary by state. While each state has its own level of maximum funding, most average about $225,000 per account; sufficient estimates to fund a five year college education at even the most expensive private college. Check with your state to determine your particular cap and tax rules.
529 College Savings Plans may only receive cash contributions; physical assets, stocks and bonds, or other investments may not be included. Also, account funds may only be used toward education expenses at qualified institutions in order for withdrawals to remain tax-free. Schools two-year, four-year, and trade or vocational schools are deemed eligible if they participate in federal student aid programs. Besides tuition, expenses include room and board, school or athletic fees, books, and other supplies. If the beneficiary chooses not to pursue a college degree, the owner may name a new beneficiary to the account. The owner may also request an account refund; but doing so will result in a sizable tax penalty of about 10 percent.
For more information on this type of plan, visit http:// www.collegesavings.org/faq/529savings.htm.
Prepaid Tuition Plans
The 529 Prepaid Tuition Plan allows for the purchase of tuition credit or certificates often through monthly contributions at today’s prices to be presented when the beneficiary is ready to enter college. This plan is linked to participating state-funded schools, but some states allow credits to be used at select in-state private schools or out-of-state public schools. The individual purchasing the account is designated as owner, and has power to control the funds including withdrawals and refunds, and naming the beneficiary. Anyone can make contributions to a prepaid tuition plan.
Many people choose a prepaid plan to lock in a tuition price. If a one-year tuition credit is purchased at today’s prices for a newborn, that beneficiary is entitled to one year of college at that cost regardless of the school’s tuition price 18 years later. Drawbacks to this plan? Only tuition costs are covered; expenses for room and board, fees, or supplies must be met by other means. Many schools also enforce a time limit for students to finish their degrees. Keep in mind the value of each credit or certificate will vary from school to school. For example, a 10 percent tuition credit may be worth more at one institution or less at another, depending on the school’s final tuition amount. More importantly, investing in a prepaid tuition plan does not guarantee school acceptance. Despite these obstacles, many families are drawn to this type of program. In fact, its popularity has forced some states to put a hold on new enrollees.
For more information on this type of plan, visit http:// www.collegesavings.org/faq/529prepaid.htm.
FEDERAL SAVINGS PLANS
The federal government offers the Coverdell Education Savings Account and the Education Savings Bond Program.
Coverdell Education Savings Account
The Coverdell Education Savings Account (ESA) is a federal savings program to help parents and students save for all education related expenses. This program was originally referred to as Education IRA, but renamed to honor one of its congressional advocates, Senator Paul Coverdell of Georgia. The owner of the account is referred to as the “custodian”; the “beneficiary” is the future recipient of the funds. Beneficiaries must be under the age of 18, or have a special need. The custodian cannot be named as a beneficiary of the same account.
Funds are distributed once the beneficiary becomes of age. If applied towards tuition at an eligible educational institution, or for related expenses, money is tax-free. However, if a balance remains in the fund after tuition is paid, then the amount is taxable to the beneficiary, including an additional 10 percent penalty tax. Exceptions to the penalty tax include receipt of a scholarship, or the beneficiary’s death or disablement. Any balance in the fund must be disbursed within one month of the beneficiary’s 30th birthday. Any earnings from the fund will be taxable, including an additional 10 percent tax. This tax can be avoided if the balance is rolled over to another family member’s Coverdell ESA.
There are limitations to the Coverdell ESA. The account does not have a maximum cap, but can receive no more than $2,000 a year in contributions. Anyone can contribute to this account, including the beneficiary, but must meet income limitations. According to the Internal Revenue Service, a contributor’s income should be less than $110,000 (modified adjusted gross income), or $220,000 if filing jointly.
What if the designated beneficiary decides not to pursue a college education, or chooses a noneligible school, such as a beauty school or nail academy? The custodian could then choose to roll over the account’s balance into another family member’s ESA, or use the funds to pay for another beneficiary’s private elementary or high school tuition and expenses.
For more information on Coverdell Education Savings Accounts, visit http://www.irs.gov/taxtopics/tc310.html orhttp://www.irs.gov/newsroom/article/0„id=107636,00. html.
Education Savings Bond Program
The Education Savings Bond Program, also known as the Tax-Free Interest for Education Program, comes in the form of U.S. Savings bonds. These bonds are a very safe form of investment because the U.S. federal government backs them. Bonds must be a Series EE or I and can be purchased from any bank, savings and loan, or through employer programs.
Series EE bonds purchased before May 2005 earn an adjustable interest rate; those purchased in May 2005 and after earn a fixed interest rate. Paper EE Bonds are sold at half the face value; electronic EE Bonds are sold at face value. Series I Bonds earn a flexible interest rate and are sold at face value. The interest-earning period for both types of bonds is 30 years. The bonds must be owned for at least one year before redemption. Penalties exist for bonds that are cashed in within five years of ownership.
The purchaser is considered the owner of the bond. There is no need to name the beneficiary, or the reason for purchase, at the time of purchase. In fact, mature bonds can be used for purposes other than education, but the interest will be subject to tax. To avoid this tax, the bond must be used to pay for all educational expenses tuition and fees at approved colleges and universities or vocational schools. Room and board, books, and such expenses are not covered. Eligible institutions are those that participate in federally assisted programs.
Be sure to purchase bonds in small denominations, as any funds not used for educational purposes are taxable. Visit http://savingsbonds.gov/indiv/products/eebonds_ glance.htm and http://savingsbonds.gov/indiv/products/ ibonds_glance.htm for more information.
Private or Custodial Accounts
UGMA/UTMA Accounts (accounts created under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts) are examples of custodial accounts. The greatest incentive to this type of program is its tax savings. UGMAs and UTMAs unearned incomes are taxed at the child’s income tax bracket usually at 5 to 10 percent once the child reaches 14. Until then, a portion of the account’s income is taxed according to the parent’s tax bracket, the remaining at the lower minor’s bracket. The limit of tax-free contribution is pretty high up to $11,000 annually for a single tax payer, and up to $22,000 for couples.
The true owner of a UGMA or UTMA is the designated child on the account. While the child is a minor, the custodian (usually a parent) maintains control of the account, and can choose the direction and type of investment. However, once the child reaches majority (as mandated by the state of residence) the funds are made available. This may, at times, cause potential problems. For example, the child’s goal may differ from the parent’s. Even if the parent planned the account to pay for a child’s college education, the child may choose to use the money to open a business, travel, invest, or use it for less desirable purposes. Visit the Web sites of private financial aid providers, such as Franklin Templeton Investments (http:// www.franklintempleton.com), for more information on UGMA/UTMA accounts.
A Roth IRA is another example of a custodial account. While considered a retirement plan, many Roth IRAs are earmarked for future college expenses. Contributions are made with after-tax income, freeing any growth earnings and fund distributions as taxable income. Annual contributions must not exceed $4,000 (or $5,000 for those over age 50) as of 2006. It also has annual income caps on eligibility $110,000 for single tax filers, $160,000 for married joint filers. Visit http://www.rothira.com or http://www. fairmark.com/rothira/rothl01.htm for more details.
AFFINITY PROGRAMS
Consumers are urged to make purchases from affiliated vendors in order to receive monthly rebates. These rebates can be deposited into 529 Plans managed by the program, or an existing college savings plan. Affinity programs should not be used as a primary savings plan; the rebate percentages are just too small. Rather, they should be used as a way to accelerate your savings fund.
The BabyMint (http://www.babymint.com) and Upromise (http://www.upromise.com) programs offer college savings plans for serious shoppers. The strategy here is simple: shop at participating merchants and get a percentage (up to 50 percent) of your total purchase back to apply to a 529 or ESA of your choice. Earn an additional 1 percent of your total purchase if you use the BabyMint credit card or Upromise Citicard. This credit will be applied by the affinity programs directly to their 529 Plan, your designated college savings plan, or be sent to you on a monthly basis. Upromise is the larger of the two programs, with more than 30,000 participating vendors including nationwide retail chains and restaurants, grocery stores, gas stations, vacation vendors, and magazines. Purchase can be made in the stores themselves, through catalogs, or online. Family members and friends can also contribute their Upromise credits or BabyMint dollars to your savings plan. Referrals resulting in memberships can also add to your plan up to 1 percent of your referrals monthly account total.
BabyMint also offers a Tuition Rewards Program where your rebates are matched by participating private colleges and universities. For example, if your rebate account holds $1,000, it would be worth $2,000 at a BabyMint-affiliated college. Money accrued through this program can only be applied to tuition; room and board, fees, books, and miscellaneous expenses must be paid via other means. Currently, 150 institutions are on board. Even if your school of choice is not on the list, you can still use your BabyMint money as planned, though less the matching funds.
THE INS AND OUTS OF ATHLETIC SCHOLARSHIPS
Students who excel in sports have another way to fund their college education athletic scholarships. In addition to the traditional forms of financial options such as federal, state, and private loans, grants, and scholarships, they are eligible for scholarships earmarked for athletic ability. Top student-athletes are offered financial assistance to attend school and compete in athletics from well-known sports such as football and basketball, to less mainstream sports such as fencing and sailing.
WHO FUNDS ATHLETIC SCHOLARSHIPS?
Athletic, or sports, scholarships are funded by private organizations and colleges and universities under the guidance of various athletic associations of which the schools belong.
Athletic scholarships provided by private organizations are funded by private companies and are not governed by any athletic associations. These scholarships reward students who excel in a variety of sports, and some are specific to gender or disability.
Colleges and universities offer athletic scholarships to talented high school athletes in a variety of sports. Most colleges and universities with a sports program belong to an athletic association whose purpose is to govern competition between schools and to advocate for the best interests of student athletes.
College Athletic Associations
The three main college athletic associations that provide scholarships to students are the National Collegiate Athletic Association, the National Association of Intercollegiate Athletics, and the National Junior College Athletic Association.
National Collegiate Athletic Association
The National Collegiate Athletic Association (NCAA) is by far the largest athletic association with member schools throughout the United States. The NCAA sets up recruiting guidelines and schedules, and stipulates the number and amount of scholarships each school may offer. Participating schools are grouped into three divisions according to the size of their sports program. Divisions I and II schools offer athletic scholarships; Division III schools do not.
– Division I. Schools within this division have huge athletic programs, many of which receive national television coverage. Division I schools are further categorized into I-A or I-AA schools with requirements for the number of home games, scheduling criteria, and stadium attendance. Division I schools offer sports scholarship amounts as set by the NCAA; they offer a number of full scholarships. Division I-A schools are required to offer full tuition scholarships for a number of roster spots for football, men’s basketball, and women’s basketball. Other sports do not have this stipulation. Some examples of Division I schools? The University of Illinois, the University of Southern California, the University of Notre Dame, and Pennsylvania State University.
– Division II. Division II schools athletic programs work within a set budget similar to other college departments. This budget is awarded to students according to need and/or performance. Although the NCAA allows a specific amount of scholarship funding, many colleges choose not to give out the maximum amount, or divide the money among several team members. Students must often subsidize their scholarship money with a combination of other funding student loans, grants, and other scholarships. Examples of Division II schools include Northern Kentucky University, Central Missouri State University, and North Dakota State University.
– Division III. Schools participating at this level do not offer athletic scholarships, only those based on merit.
National Association of Intercollegiate Athletics
The National Association of Intercollegiate Athletics is the governing body for many smaller colleges in the United States, about 350 in all. Sports budgets at such schools tend to be smaller as compared to those with NCAA Division I, which translates to fewer or smaller athletic scholarships. Member schools include Aquinas College, Eastern Oregon University, Fresno Pacific University, and Ursuline College.
National Junior College Athletic Association
The National Junior College Athletic Association (NJCAA) is the organizing body of more than 500 member junior college schools nationwide. NJCAA schools offer full or partial tuition in 23 sports. Some students playing for NJCAA level teams often try out for NCAA level teams once they have earned their two year degrees. Member schools include Atlantic Cape Community College, Bismarck State College, and Lewis & Clark Community College.
CREATING AN ATHLETIC RESUME
Elite student athletes are often strongly courted by college recruiters to participate in their programs. What should you do if representatives from Big Ten schools aren’t attending your home games or visiting you at home? Take action and put yourself in the spotlight! Put together an athletic resume package to highlight your talents on the court, as well as off. Here are some key points to hit:
– Your cover letter should be addressed to the head coach of your desired sport program and the school by name. This will show you’ve actually done your research instead of simply putting together a mass mailing.
– Include information regarding your academic history. Besides your GPA, and ACT or SAT scores, list all Advanced Placement classes you’ve taken. Show the coach you’ll be able to survive the school’s curriculum as well as the workouts.
– List all of your extracurricular activities that means honor societies, social or special interest clubs, community service, and part time jobs. Do you have other talents besides an overpowering fastball? If you play an instrument, paint, or sing in the choir, include this information on your resume. Let the coach know you are talented in more ways than on the field.
– List all high school sports teams in which you’ve participated. Put together a game tape or DVD highlighting games and key plays. Your game tape can also include practice sessions or scrimmages anything that will show you in action.
– Give your personal and athletic statistics such as age, height and weight, and team position, as well as season statistics. Also, an athletic resume is probably the only type of resume that allows inclusion of aphoto without appearing tacky. Really, the coaches want to know what you look like.
– Include newspaper clippings from your school or local paper that make mention of your ability. List any sports awards or honors you have received, be it a Scholar-Athlete award or MVP of the state championship game.
– Ask your high school coach for a letter of recommendation.
– If possible, include a sports schedule of upcoming games and their locations. If the school is highly interested in you, it may send a representative to see you in action.
Since many sports programs need to have their early intent choices in place by the end of September or October for the following year, industry veterans recommend that you send resume packages out by the end of your sophomore or the beginning of your junior year in high school. University and college coaches receive thousands of resumes annually, which far outnumber the available positions on a team. Give yourself the advantage by sending out as many copies of your resume as possible at least 25, but more is better. Send resume packages to every school you are interested in attending, and keep your eyes peeled for new schools that might fit the bill.
THE ATHLETIC TIMELINE
Like anything worthwhile, vying for an athletic scholarship takes time, effort, and precision planning. A year by year preparation timeline will keep you from fumbling your scholarship prospects.
Freshman Year
Build your academic muscles by enrolling in core classes, as well as a college-bound curriculum. Play your favorite sport or join a high school team.
Sophomore Year
Continue to concentrate on your classes, and perhaps begin to take elective classes. If you are eligible for honors classes, take them. They will help boost your total GPA, and they’ll look impressive on your athletic resume. Now is the time to begin your college research. Find out which schools are appealing not only for their sports program, but for what they can offer academically. If possible, attend a college game or two. It’s a great way to get a feel for the atmosphere of collegiate-level competition.
The summer between sophomore and junior year is a good time to start sending out your athletic resumes. Some students choose to use the services of a professional athletic recruiter, though the fee they charge won’t necessarily improve your chances of obtaining a scholarship. Your efforts, coupled with the help of your guidance counselor and high school coach can yield the same results.
Junior Year
This is going to be a busy year! If you haven’t already done so, you should send out any remaining athletic resumes and register with the NCAA Initial-Eligibility Clearinghouse. The Clearinghouse is important because it will make your statistics, both academic and athletic, known to prospective schools nationwide. (Visit http://www. ncaaclearinghouse.net/ncaa/NCAA/common/index. html for more information.) Academically, keep up with your studies and prepare to take your college entrance exams. Research colleges and make on-campus visits. Be sure to apply for scholarships that are not sports related . Chances are, even with an athletic scholarship, you will need extra financial to help meet the cost of college. Apply for every scholarship, grant, and student loan you possibly can. Athletically, you will want to play your best every game you’ll never know who’s watching!
On July 1, after you complete your junior year of high school, you can begin formal contact with college coaches and members of college athletics departments. Any contact before this date must be made by correspondence or via phone.
Senior Year
Send out your senior sports fall schedule to your short list of colleges as soon as possible. You’ll want to give recruiters every opportunity to see you play. You may be given a verbal agreement for scholarship funding, or asked to give a verbal agreement to play for a particular college team, or. It’s important to note that such agreements are just that verbal. Unless it’s in writing, it can be rescinded at any time.
Find out the National Letter of Intent (NLI) deadline foryourparticularsport. (Visithttp://www.national-letter. org for more information on the NLI). The NLI is a binding agreement between the student athlete and college; if you sign an NLI, you commit to playing on a college’s team for one year. As a result, other schools must respect this agreement, and cease all recruitment. The NLI was originally designed to prevent strong recruitment tactics by schools vying for the same student athlete. It also protects the student by ensuring, once the NLI is signed, a spot on the team’s roster. In the past, a student’s sports scholarship could be legally given to another player with superior skills. All NCAA Division I and most Division II schools participate in the NLI. Check the NLI Web site for all details of the agreement, and signing requirements. Study hard it’s almost graduation time!
DIFFERENT LOCKER ROOMS, SAME RULES OF THE GAME
Title IX of the Education Amendments Act of 1972 brought about equality in the way men and women received federally funded educational resources and changed the world of women’s collegiate sports. Title IX gives women more choices in individual and team sports, locker rooms and facilities that are equal in quality to those used by male athletes, and more opportunities to receive athletic scholarships. Visit http://wwwl.ncaa.org/ membership/ed_outreach/gender_equity/faq.html#apply for more information on this important federal law.
IS PURSUING A SPORTS SCHOLARSHIP THE BEST WAY TO PAY FOR COLLEGE?
If this is your only hope for college money, then the answer is no. Most student athletes lucky enough to receive a sports scholarship still find themselves in need financially and must turn to traditional forms of financial aid.
If you are lucky enough to be offered a sports scholarship, be ready to work hard. College sports are played on a much higher level than what you may have been used to in high school. If you were the team star, be prepared to relinquish the title. You will most likely be just one of many of the biggest, fastest, and strongest student athletes from the nation vying for a spot on the starting team. Along with your studies, you’ll be expected to participate in team practices, meetings, and conditioning exercises. Travel to away games (if your performance warrants a seat on the bus or plane) will certainly add to the pressure of completing schoolwork or studying for exams. Students who can’t meet the expectations of making a passing grade or stellar athletic performance may risk losing their scholarship. However, if you are able to handle the pressures of college and excel in your sport, then the answer is an absolute yes.
