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Saving for College

Saving for College

Saving for College

Young adults with a college degree earn 50% more than high school graduates.* With this in mind, saving for your child's college education can be one of your best investments. One rule of thumb:  Save as much as you can — whatever your budget allows, as soon as you can — start when your child is born. A few dollars a week can grow to a significant amount by the time your child goes to college.

How Much Will You Need to Save?

The cost of attending a typical public or private college may seem overwhelming, especially when you consider college costs are generally increasing faster than the rate of inflation. How much should you save for your child’s college education? Our college cost calculator can help.

Financial Aid

Another way to help cover the cost for college is financial aid. Scholarships, loans and grants are available from federal and state programs, university sponsored programs and financial institutions. Your school's guidance counselor or your college's financial aid office can be good sources for this information.

Tax Incentives

Tax incentives can reduce the financial strain of higher education:

  • American Opportunity Tax Credit – Taxpayers who qualify can claim this credit for tuition costs and related expenses. A Lifetime Learning Credit is also available. You should be aware that the same student cannot claim both credits in the same year – it’s one or the other.
  • Student Loan Interest Deduction – A limited deduction, available to non-itemizers, is allowed for interest paid on qualified education loans. The maximum deduction is $2,500.
  • Coverdell Education Savings Account – Each year, parents and students can contribute up to $2,000 into a Coverdell ESA. Contributions into the account are not deductible, but the account grows tax free. As long as distributions are less than qualifying education expenses, the beneficiary will not owe tax on the distributions.

Further Reading

The following sources can provide more detail on financial aid:

http://www.finaid.org

http://www.schoolguides.com

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Notes: 

* Effective in 2011. Source http://nces.ed.gov/fastfacts/display.asp?id=77 retrieved on Feb. 6, 2014.

This information is provided for overview or general educational purposes only. This is not to be considered, or intended to be legal or tax advice. Changes in the tax law may affect the information provided. For personalized assistance, including any specific state law requirements consult a legal or tax advisor.

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