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Educational Planning

May 15, 2023

The cost of traditional four-year college has continued to rise above inflation rates in recent years, leaving many students and/or parents unable to afford it without assistance. Since COVID, more students are looking for alternative paths to Degrees including lower-cost community college and Degree-Completion Programs in their chosen profession or pursuit. Financial aid is available, but it can be confusing for those new to investing. In this email, we will go over the basics of education financing for beginner investors, including 529 plans, scholarships, grants, and student loans.

A 529 plan is the first option many beginner investors consider. A 529 plan is a tax-advantaged investment account designed to cover the cost of college. Contributions to a 529 plan grow tax-free, and withdrawals used for qualified education expenses are also tax-free. Additionally, many states offer a state tax deduction. 529 plans can be started years before scholarships, grants, and loans come into play, thus reducing the need for utilizing them. While 529 plans can be a great way to save for college, they aren't the best option for everyone. One downside to a 529 plan is that the distribution could result in taxes and penalties if the funds aren’t used for education expenses.

If you haven’t saved enough for ALL of college's expenses, you might want to rely on other types of aid. In that case, you will want to submit your FAFSA (There is a whole article on FAFSA from last year and you can re-visit that at our Financial Literacy site.

The deadline isn’t until June 30, but many universities have started making decisions already, so I recommend completing your FAFSA as soon as possible since applications opened on October 1st.

Grants are a type of financial aid that doesn't have to be repaid. However, you MUST have a FAFSA to qualify for grants and school-based scholarships. While grants are based on financial need, School-based Scholarships have different criteria, mostly test scores, and grades, but there are also scholarships available from other sources that show academic, athletic, or other successes. It's important to research grants and scholarships and submit applications on time, as funding is often limited.

Another option for financing education is student loans. Student loans are loans specifically designed to cover the cost of education, and they can be obtained from the federal government or private lenders. Federal student loans often have lower interest rates and more lenient repayment terms than private loans, so they should be considered first. It's important to carefully read and understand the terms of any loan before borrowing, as some loans may require repayment to begin immediately after graduation, while others may allow a grace period. It's important to budget accordingly and not take on more debt than can be comfortably repaid.

When considering education financing options, it's important to consider the long-term financial impact. Using a 529 plan to save for education can help reduce the need for student loans, which can be a burden on recent graduates. Conversely, taking out too many loans or not budgeting appropriately can lead to significant debt that can affect future financial goals. It's important to strike a balance and make informed decisions when financing education.

Financing education can be overwhelming, but various options are available to help make it more manageable. Consider a 529 plan for tax-advantaged savings starting today. Apply for FAFSA early every year to avoid the need for grants or loans. Student loans should be the last source of additional financing. Be sure to carefully consider the long-term impact of each option to make informed decisions. With a little research and planning, financing education can be achievable for even the newest investors.

For any questions or assistance setting up your 529, contact 

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.