Estimate Your Education Savings Needs
Don't be daunted by the amount you may have to save. Small amounts of money, if invested early, can become sizable investments through smart planning and compounding.
For example, if you save $200 a month at a 6 percent annual rate of return for your newborn child, you will have more than $76,000 for college when she turns 18.
Estimate How Much You’ll Need to Save
Use our College Savings Calculator to see how early and regular saving can make your money grow. When estimating future college costs, remember to factor tuition, room, board and books into your calculation. If you know where you want your child to go to college, but don't know the current costs, you can use the National Center for Education Statistics' school locator to research the costs. If you are unsure where you want your child to go to college, you can get national public and private school averages from The College Board.
Don’t Forget Financial Aid
As part of saving for college, you need to know whether your child will be eligible for financial aid, which reduces what you may need to save for college.
Smart Tip: Be aware that saving for college might impact financial aid. Any investments or savings can affect federal financial aid eligibility. But the impact on financial aid varies depending on whether the savings belong to the parent or the child. Savings in a parent's name may reduce federal financial aid eligibility by at most 5.64 percent, but assets saved in a child's name may reduce aid eligibility by 20 percent. State 529 accounts owned by a child, or set up as custodial 529 accounts, are treated at the lower 5.64 percent rate. States and private colleges may have their own rules for financial aid, and some states give more favorable treatment to pre-paid tuition plans and other college savings options.
Student Aid on the Web provides details on federal student aid programs, including grants, campus-based aid, work-study programs and loans. The Department of Education also streamlined the process for applying for financial aid, enabling parents and students to submit the Free Application for Federal Student Aid (FAFSA) online and monitor results. The FAFSA website also features the FAFSA4caster tool, which estimates in advance how much aid your student could qualify for and how much the family might be expected to pay—referred to as the Expected Family Contribution (EFC). Another helpful website for understanding financial aid and determining eligibility is FinAid! The SmartStudent™ Guide to Financial Aid.
But not all financial aid is a gift—about one-third of aid consists of loans. While savings may decrease financial aid, you and your child will likely be in a much better financial situation on graduation day if you start saving for college now. The more you save, the less you will need to borrow.
Smart Tip: Beware of Scholarship and Financial Aid Scams. According to the Federal Trade Commission (FTC), financial aid fraud is widespread. Unscrupulous companies and individuals promise or claim to guarantee scholarships, grants or enticing financial aid packages. Many use high pressure sales pitches where you're required to pay in advance or risk losing out on the "opportunity." The FTC says that while some legitimate firms require advance payment for services, they do not guarantee scholarships or grants.
Education Benefits for Service Members—Post-9/11 GI Bill
The Post-9/11 GI Bill contains a robust package of educational benefits for eligible service members. The bill authorizes payment for education and housing costs for military servicemembers and veterans who served at least 90 days of aggregate service on or after September 11, 2001, or who were discharged with a service-connected disability after 30 days.
Eligible service members can receive money for tuition, housing and books to attend college or other educational programs and can claim benefits for up to 15 years after leaving the military. Service members who separate on or after January 1, 2013 remain eligible to use their benefits indefinitely—they will never expire. Some can even transfer their benefits to their spouse or children.
In addition to funding graduate and undergraduate studies, this newest version of the GI Bill covers on-the-job training, apprenticeship programs, flight schools and numerous other non-college degree programs. Benefits include:
- Tuition and fee reimbursement.
- All in-state tuition and fee charges are reimbursed at public institutions.
- For private and foreign institutions, benefits are currently capped at $24,476.79 per year.
- If your institution participates in the Yellow Ribbon Program, you could get additional benefits.
- Through the Yellow Ribbon Program, eligible veterans at participating schools may be able to obtain additional funds to help reimburse costs that exceed in-state tuition and fees.
- A stipend for books and supplies.
- A monthly housing allowance based on the Basic Allowance for Housing for an E-5 with dependents at the location of the school.
- Ability to transfer unused educational benefits to spouse and children.
Even if you aren’t sure if you will use your Post-9/11 GI Bill benefits, it’s a good idea to apply and lock in the benefits you are entitled to receive.
The Department of Veterans Affairs has a website devoted to educational benefits under the Post-9/11 GI Bill: https://benefits.va.gov/gibill/. For specific questions related to educational assistance and the Post-9/11 GI Bill, call toll-free: (888) GIBILL-1.
Significant changes have been made to the Free Application for Federal Student Aid (FAFSA) process that impact millions of students.
- Students are able to submit a FAFSA earlier. Students can file a 2018–19 FAFSA as early as Oct. 1, 2017. The earlier submission date is a permanent change and lets students complete and submit a FAFSA as early as October 1 every year.
- Students can use earlier income information. Students are required to report income information from an earlier tax year. For example, on the 2018–19 FAFSA, students (and parents, as appropriate) will report their 2016 income information, rather than their 2017 income information.
Grandparents and Financial Aid
Helping a grandchild through college can be extremely rewarding—but here are a few things to keep in mind related to financial aid.
Assets in a 529 plans owned by a grandparent (a plan that has been opened by a grandparent, in a grandchild’s name) do not count for calculating financial aid of the named grandchild.
However, 529 grandparent distributions can impact—and potentially reduce—a grandchild’s eligibility for financial aid. The good news is new rules potentially ease that impact, if followed properly.
Under the new rules, which went into effect in the 2017–2018 school year, the base-year income on the FAFSA will reflect the student's income from two years prior rather than one. If a student fills out the FAFSA for his or her senior year, base-year income will reflect income received during his or her sophomore—not junior—year.
What this means is that while contributions made to a college-going grandchild during their freshman or sophomore year do impact financial aid (50 percent of the contribution must be reported on the FAFSA), contributions made by a grandparent during a grandchild’s junior or senior year of college do not need to be reported on the FASFA, and as such do not impact financial aid (assuming the student graduates after their senior year).