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By Julia Noreen Adams for LIFElines
(Last Reviewed Tuesday, December 26, 2006)



Statistics indicate that a person with a college degree will earn 40 to 50 percent more over time and be less likely to be unemployed. A college education will pay for itself in the long run, but with no single, complete source of information, figuring out how to fund a college education is like navigating the ocean without a gyroscope. Successful planning requires hours of research on the Internet or at the library. Start soon, because the amount of time you have left before tuition bills start rolling in will determine how many options you have.

Saving For College
With 529 plans,
investments are managed to help ensure maximum benefit when it is needed with as little as $25 per month contribution or more, and interest is tax-free. There are some cases in which you can use the funds tax-free for non-educational purposes: i.e., if your child goes to a military academy or receives another type of full scholarship, you can withdraw an amount equal to the scholarship, so that you are not penalized for saving for your child's education. Unused funds from one child’s account may also be transferred to another 529 account without penalty. Additionally, there are Coverdell Education Savings Accounts (ESAs) (formerly called Education IRAs) that limit your annual investment amount, and prepaid tuition, in which you pay for a specific number of semester hours.

Pros and Cons
Tax and use benefits are similar for all three plans. 529s offer more flexibility and control, but there are possible state income-tax liabilities after the year 2010. Prepaid tuition offers a defined number of classes, while other plans don't guarantee how much education they will buy. Coverdell ESAs offer the option of using funds for elementary and secondary private school, as well as college. The downside of prepaid tuition and Coverdell ESAs is that their dollar amount is counted as the child’s assets for financial aid, whereas 529s are counted as the parent’s assets and therefore have significantly less impact on the child’s eligibility for financial aid.

Financial Aid
The difference between the cost of school and the expected family contribution (EFC) is the amount of aid for which you are eligible. The EFC is determined by an equation established by law that considers income, assets, a list of other factors and any special circumstances. To determine your estimated EFC use the FinAid calculator

There are four main sources of financial aid: private, institutional, state, and federal. The process begins with meeting the annual deadline for the Free Application For Federal Student Aid (FASFA). To apply, you will need the parents' and student's tax returns and W-2s for the previous year, a current bank statement, business records, and investment records.

Free Money
are available from numerous and often surprising sources, including local businesses. Beware of any source that requires payment for information or applications — a sure sign of fraud.

You might consider Upromise and Babymint, which rebate a portion of credit and debit card purchases into an investment account. There's no catch, provided you shop wisely.

Reduce Costs
Community college is a great way to save. The associate degree curriculum is practically the same as the first two years of a university, but costs far less and may even improve university acceptance chances. Explore creative solutions to reduce costs, such as discounted textbooks, on-campus programs to offset room and board, and work-study opportunities.

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