Here's how to help beat increasing costs of college tuition
By Sandra Block
USA Today
You know college costs have gotten out of control when a 6 percent increase in tuition is considered good news.
This year's 6.3 percent rise in public four-year university prices was the smallest increase in three years, according to the College Board, a nonprofit that represents colleges and universities. But over the past five years, the cost of college, after adjustment for inflation, has risen 35 percent.
College Board officials point out that most families don't pay the full sticker price for college, once financial aid and tax benefits are included. Yet the report shows that financial aid is shrinking. The amount of money awarded through the Pell Grant program, the largest source of federal aid for low-income students, fell for the first time in six years.
When the cost of beef goes up, you can switch to chicken or become a vegetarian. But figuring out how to cope with tuition inflation is more complicated. Some pitfalls to avoid:
The truth is that money saved in the parents' name has very little impact on the amount of financial aid a student gets, says Mark Kantrowitz, co-author of "College Gold: The Step-by-Step Guide to Paying for College."
Money saved in retirement accounts isn't counted at all. Money in non-retirement accounts doesn't have much of an effect on aid, either, Kantrowitz says. Up to $50,000 of parents' savings may be excluded from the aid calculation, depending on your age. Out of any money left after that, parents are expected to contribute 5.64 percent toward college costs.
This isn't a problem if you have money in a 529 college savings plan, a prepaid tuition plan or a Coverdell savings account. For financial aid purposes, those accounts are treated as the parents' assets. But custodial accounts, such as Uniform Gift to Minors Act accounts, are considered the child's assets.
That's not the only downside to custodial accounts. Once the child reaches the age of majority — which is 18 in most states —the child gets control of the money, says June Walbert, a financial planner at USAA. A 529 plan, Walbert says, "is a much better deal, for a multitude of reasons."
If you still come up short when it's time for your child to start college, it's time to take a hard look at prices. Some factors to consider:
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