Seeking creative ways to pay high college costs

Jul 22, 2012 @ 12:01 am

By Liz Skinner

Parents are fed up with the escalating cost of college, and even some who can afford to pay are balking at the price tag.

“I have clients who went to Ivy League schools themselves who believe it's just not worth it to make the financial trade-offs it would take to send their kids to $50,000-a-year schools,” said Thomas Conway, a financial adviser at Connemara Fee Only Planning LLC.

The average amount that families spent on college fell 5% in the 2011-12 school year from the previous year, according to a survey released last week by Sallie Mae. That fall followed a 9% drop in college spending during the 2010-11 academic year.

The share of families who decided against a certain school because of cost rose to 69% this year, the highest level since the Sallie Mae survey began five years ago.

Additionally, nearly all families — 97% — took cost-saving measures this year. The most common savings strategy was for students to live at home, the survey of 1,601 college undergraduates and parents showed.


Beyond those common-sense suggestions — another is for students to pitch in by holding down a job while going to college — savvy advisers have found Section 529 college savings plans and other college tuition programs that offer incentives to help reduce college costs for clients of any income level.

In addition to the federal tax benefits of 529 college plans, accounts in certain states offer other benefits.

For instance, New Hampshire's plan offers a credit card that pays 2% back on purchases. That sum is contributed to the college savings plan as long as the account holder makes minimum monthly contributions. 

Adviser Wayne Zussman of Triton Wealth Management LLC has a client who owns a delivery business and provides each of his drivers with a credit card linked to his daughter's 529 plan.

“They use the cards to fill up the company trucks with gasoline every day,” he said. “His daughter's college will most likely be fully paid for just from receiving the 2% rebates.”  

Other 529 plans offer different features, including five that give their residents a state tax deduction for contributions that they make to any of the nation's 529 plans.

About a dozen states offer matching contributions, though the matches mostly are limited to lower-income families. Maine, however, is especially generous with its matches.

That state offers a match when an account is opened, another after the first two years and another one-time grant for choosing automated funding. In addition, Maine families that start an account before their child's first birthday can get a $500 one-time grant, regardless of family income.

Indiana offers residents a 20% tax credit on up to $5,000 a year in contributions to one of Indiana's three college savings plans. The credit can be claimed against the state's income tax, up to $1,000 per year.

Another way to save on a degree from a public college is to move to Washington, D.C.

The District of Columbia pays for the children of residents to attend any public college in the country at the in-state tuition rate — usually half the out-of-state rate — as long as the child moves into the district before their senior year of high school. The city caps the difference that it will pay between in-state and out-of-state tuition at $10,000.

The capital also offers its residents a $2,500-a-year break if the student chooses a private school in the Washington, D.C., metro area or if he or she attends one of the nation's historically black colleges, according to Laurent Ross, college savings plan manager at Calvert Investment Distributors Inc., which manages the district's 529 plan.


Clients who live in one of 15 states included in the Academic Common Market can get in-state tuition rates for certain academic programs if their own state college system doesn't offer such a program of study. Nothing is stopping the student from switching majors later.

“If the student later changes to a different major, most institutions do not require you to pay back the tuition,” said Brock Jolly, a financial adviser at Capitol Financial Partners and a college-funding specialist. 

Of course, one of the best ways to save money on college is to get students into the right school and out of that school with a degree in four years, according to college consultants. That doesn't always happen.

The four-year graduation rate for public colleges is just 31.3%, and at private schools, it is just 52.5%, according to Shelley Levine, an educational consultant.

After six years, the rate rises to 56% for public schools and about 65% for private schools, she said.

“The key is to find the right match so students can stay there four years and get a degree,” Ms. Levine said. Twitter: @skinnerliz


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