11 Benefits of a College Saving Plan

Most states offer college saving plans, or 529 plans, that allow families to invest money that can later be used for qualified higher-education expenses. These plans offer savings and tax benefits over other ways of saving for college. Here are 11 reasons you may want to consider a 529 plan, such as a College Savings Iowa plan.

1. You can choose, and change, your investment strategy.
College saving plans offer a variety of investment tracks to allow you to decide how to invest contributions. You may choose from among recommended investment tracks based on the age of the beneficiary and your comfort level with risk. Or you may wish to choose from among individual portfolios of specific bond and stock funds.

After choosing your initial investment strategy, you can make changes over time. You may make changes to existing contributions twice a year.

2. You receive tax benefits.
Your 529 assets grow deferred from federal and state income taxes as long as the money remains in the plan. Many states also offer additional state tax advantages for in-state residents.

3.Qualified withdrawals are not subject to taxes.
Withdrawals used to pay for qualified higher-education expenses are also tax-free. This means any growth from your principal investments in a 529 plan used for qualified expenses will never be included in your income tax.

4. The assets are less impactful on financial aid.
The formula used to calculate financial aid treats 529 plan assets more favorably than it treats savings or investments owned by the student. According to savingforcollege.com, a maximum of 5.64% of all parental assets, including 529 plans owned by a parent or a dependent student, is counted toward the expected family contribution for college by the federal financial aid formula, compared to 20% of student assets.

5. Anyone can start or contribute to a plan.
You don’t need to be related to the student you name as the beneficiary of a 529 plan you open. This means you can be a parent, grandparent or friend of the student who will use the money, or you can be the student. There are no income limits, age limits or annual contribution limits for account owners.

Someone who would like to make a gift to the student can also make one-time contributions to an existing account.

6. Minimum investments are small.
College Savings Iowa allows initial investments or contributions of $25 or more and a minimum of $15 for employers that offer payroll deduction. Investments in 529 plans can be as large or small as comfortable for families.

7. You are not limited to your state’s plan.
You may choose to use any state’s 529 plan even if you don’t live there or the student doesn’t intend to attend college in that state.

8. The money can be used for attendance and other expenses at a wide variety of institutions.
The student beneficiary can use the money to attend any eligible two- or four-year college, postgraduate program, trade or vocational school, online college and university programs and even some international institutions or study-abroad programs.

Besides tuition, money can be applied to other qualified higher-education expenses like fees, books, housing, meals, supplies, computers and printers, software and internet access.

9. Plans are transferable.
If the student beneficiary named on the plan doesn’t need the money, it can be transferred to an eligible family member of the student, like a sibling, child, parent or spouse.

10. You can always withdraw the money if needed.
If the student earns a scholarship or enrolls in a military academy, you can withdraw up to the amount of the scholarship or the value of the education tax-free. If the student passes away or becomes disabled and is unable to attend college, there is also no penalty for withdrawals.

If you withdraw money for any other reason than these circumstances and the withdrawal is not used for a qualified higher-education expense, a 10% federal tax penalty will may apply to any earnings. (You would receive the full value of your contributions minus any administration fees.) A tax adviser can help you understand tax consequences of non-qualified withdrawals from a 529 plan.

11. A 529 plan may encourage college attendance and graduation.
Researchers have found that when money is set aside for college, families save more. Even when budgets are tight, families with even relatively small amounts of money earmarked for college find creative ways to save more. Additionally, the perceived value of higher education increased and a high percentage of parents felt their children would finish college.

By: Iowa Student Loan

What to Do If a Financial Aid Award Is Inaccurate or Incomplete

When that financial aid award notification arrives, check it carefully. Here are some circumstances you may run into and what you can do.

Situation What to Do
Contact information is incorrect. Contact the financial aid office with updated information. The student should also log in to the FAFSA portal to update information.
Financial information has changed since you submitted your FAFSA. Contact the financial aid office about drastic financial changes due to loss of a parent’s job or other circumstances.
The student wants to be considered independent for financial aid purposes due to a severed relationship or abusive situation. Students with extenuating circumstances in regard to their relationship with their parents may contact the financial aid office to clarify the situation and determine the dependency appeal process.
An expected federal or state award is not listed. If the student qualifies for but didn’t receive a federal or state grant or scholarship, first determine if the award is automatically granted to all eligible applicants.

  • If an automatic award wasn’t received, contact the agency responsible for administering it and notify the financial aid office.
  • If the award is not automatic, funds may not be available for all applicants. You may try contacting the agency administering the award to see if any remaining funds will be awarded later.
An expected institutional award is not listed. Not all awards are automatically granted to all eligible students. If the FAFSA was filed by the college’s priority deadline, contact the financial aid office to determine if any institutional awards are still available. If the award was offered by a specific department, ask a financial aid representative if the office has been made aware of the award.
A state or federal award was submitted to the wrong college. Contact the agency responsible for administering the award. Also notify the financial aid office and the financial aid office at the other institution of the mistake.
An unexpected award is listed. Many colleges consider an application for admission to also be an application for other institutional awards. If the student doesn’t meet the qualifications for an award, contact the financial aid office to clarify.
A grant or scholarship awarded by an outside entity isn’t shown. Tell the college about all grants and scholarships received. If an award is missing, contact the financial aid office.
A work-study award is listed. This award may be dependent on the student finding a work-study position and earning a paycheck based on hours actually worked. Start with the financial aid section on the college’s website. If that doesn’t contain information about how to locate and apply for work-study positions, contact the financial aid office.
Not enough aid was awarded to cover costs of attendance. If there is a large difference between aid and costs, some options to consider are:

  • Contacting the financial aid office to inform them of the situation and see if any additional aid is available.
  • Increasing student employment to earn income to cover the shortfall.
  • Asking about monthly payment plans.
  • Exploring less expensive education options, such as a public university or community college.
  • Relying on gifts or federal PLUS Loans for parents to help pay for college.
  • Taking out private student loans to cover the remaining expenses.

By: Iowa Student Loan

How Making Interest Payments Can Save You Big Money Later

If you’re funding part of your college education with student loans, you may occasionally receive statements, even though no payments are due. Ever wonder why?

Those statements are important, and understanding why can save you money in the long run.

They notify you that, even though you don’t have to make payments while you’re in school, interest is adding up on your loans — every single day. If this interest is not paid as it accrues or before your loans enter repayment (usually six months after you leave school), it will be added to your principal balance. If it is added to your principal balance (a process called capitalization), you will then owe more than you originally borrowed. And, the now larger principal balance starts to accrue interest on a daily basis, so you will be paying interest on the accrued interest.

How can you minimize this increase to your loan balance? If you manage to earn or save some money while you’re in school, you can make monthly payments that pay down the interest as it accrues.

Here’s an example of how making small payments every month could save you more than $1,500 over the full life of student loans.

Note: The information below is an example only. Your payment amounts will depend on the types of loans you receive and the interest rates and the repayment terms on those loans.

Making-Interest-Payments-SaveYouMoney-infographic

Download a PDF of this infographic.

Establishing Financial Habits

Making everyday spending decisions—like whether to order pizza or go to the Caribbean for Spring Break—in college, helps you establish the financial habits you’ll use in the future.

Although eating out every Friday night sounds like a good thing, it may be worth it to give up that treat in exchange for savings of thousands on your future student loan payments.

By: Iowa Student Loan

How Changes to the FAFSA Affect You

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Each year, students who plan to attend college the following year file the FAFSA, or Free Application for Federal Student Aid, to qualify for financial aid from colleges and universities and from the state and federal governments.

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Students planning to attend college in 2017–2018 will see two important changes to the FAFSA.

1. The FAFSA is available earlier.
Previously, the FAFSA became available in January preceding the academic year. The 2017–2018 FAFSA opened Oct. 1, 2016.

Incoming freshmen can now fill out the FAFSA while they’re applying to colleges. Because financial aid timelines are set by individual colleges, applicants and their families should be aware of each school’s financial aid deadlines, which should be available on the school website or from the financial aid and admissions offices.

Students who are already enrolled in college and refiling the FAFSA for a new school year should also be aware of any changing financial aid timelines.

In general, the earlier date allows students and families more time to explore financial aid options before the FAFSA needs to be filed to meet state and school priority filing deadlines. Students are encouraged to complete the FAFSA by the priority deadline to have the best chances at the available federal, state and institutional grants, scholarships and awards.

2. You will use “prior prior” year tax information.
Previously, families provided tax and financial information for the tax year preceding the academic year. The 2017–2018 FAFSA will use 2015 tax and financial information.

This change allows families to use actual tax information. Previously, because the FAFSA was open before most families filed and received the preceding year’s tax returns, that information was estimated and had to be corrected or confirmed at a later date.

If a family has experienced a significant change in financial circumstances since the 2015 tax year, such as a loss of income, those circumstances may be considered by the school. Contact your school’s financial aid office for more information on how to proceed.

See more information (PDF) from the U.S. Department of Education.

By: Iowa Student Loan

5 Reasons to Start a 529 Plan

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Saving for your child’s college education can be stressful, but it can also be one the best things you can do to help ensure he or she has a solid financial start in life. If you’re considering different savings options, check out these benefits of a 529 plan.

1. Plans are good nationwide.

Most states, including Iowa, and a number of institutions offer 529 plans, and the plans are not restrictive to the state you live in or where the student attends college. That means parents can take out a College Savings Iowa 529 Plan and the student can use the funds at any eligible school in the country and even some colleges or universities outside the United States.

2. Anyone can open a 529 plan account.

Parents, grandparents and even friends can open a 529 plan for a potential college student. You can even start a 529 plan for your own education.

Parents: Enter to win a $1,500 contribution to a 529 plan.

3. There are tax benefits.

While contributions are not deductible at the federal level, Iowa taxpayers may deduct some contributions from their adjusted gross income. When the plan owners deduct funds to pay eligible college costs, that money is not taxed. For the beneficiary, all earnings on the 529 plan grow tax free.

4. Plans are flexible.

You can choose to change the investment options up to twice per calendar year. Plan owners can make regular contributions, open an account with an initial deposit and never make another contribution, or make deposits whenever it’s convenient. You can even change the beneficiary if the person the account was opened for decides not to attend college.

5. You stay in control of the account.

When you open a 529 account for your child, or anyone else, you maintain control of the account and how the funds are spent. The money is not automatically transferred to the student to spend.

By: Iowa Student Loan

7 Problems with Overborrowing

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Borrowing more money than you need to for college or for non-education expenses can jeopardize your financial future and bring you stress and disappointment. Make smart decisions when it comes to borrowing for college to avoid future pitfalls. Keep these overborrowing problems in mind:

1. You have to pay interest too. Most students delay loan repayment until after college, meaning that interest builds up during school and increases the amount that must be paid back. If you use student loan money for unnecessary things, interest will accrue on that money too before you even start repayment.

2. Repayment can take longer. If your monthly payment is more than you can afford after college, you may have to look at alternative repayment plans. These plans may reduce your monthly payment but extend over more months, which will lead to you paying more interest over time.

3. Missed payments will have consequences. The more you borrow, the more you will have to pay back every month. If you are unable to pay your bills and miss payments, your credit history will be impacted negatively, which may lead to higher interest for future loans and credit of all types.

4. You may have to limit entertainment expenses. The more money you have to pay back on your student loans each month, the less you will have for entertainment. When you look back, will you think using student loan funds for one spring break was worth it when it seems like you can never afford to go out to dinner or a ballgame with friends?

5. You may need a second job. To pay your student loans after college, you may have to find a second part- or full-time job. A second job may help with your bills, but it can impact your personal life, the attention you pay to your primary job and your overall health.

6. You might delay buying a house or starting a family. Numerous reports show that adults with high levels of student loan debt put off traditional adult milestones, such as purchasing a home, getting married or starting a family due to economic distress.

7. You may be unable to save for your future. Saving for your future, especially your retirement years, will be essential once you start your career. But if you’re unable to contribute money to a 401(k) or other retirement fund because you are repaying student loans, you may miss out on a decade’s worth of saving and have to work longer than you would like during your lifetime.

By: Iowa Student Loan

7 Problems with Overborrowing

7-Prob-w-Overborrowing

Borrowing more money than you need to for college or for non-education expenses can jeopardize your financial future and bring you stress and disappointment. Make smart decisions when it comes to borrowing for college to avoid future pitfalls. Keep these overborrowing problems in mind:

1. You have to pay interest too. Most students delay loan repayment until after college, meaning that interest builds up during school and increases the amount that must be paid back. If you use student loan money for unnecessary things, interest will accrue on that money too before you even start repayment.

2. Repayment can take longer. If your monthly payment is more than you can afford after college, you may have to look at alternative repayment plans. These plans may reduce your monthly payment but extend over more months, which will lead to you paying more interest over time.

3. Missed payments will have consequences. The more you borrow, the more you will have to pay back every month. If you are unable to pay your bills and miss payments, your credit history will be impacted negatively, which may lead to higher interest for future loans and credit of all types.

4. You may have to limit entertainment expenses. The more money you have to pay back on your student loans each month, the less you will have for entertainment. When you look back, will you think using student loan funds for one spring break was worth it when it seems like you can never afford to go out to dinner or a ballgame with friends?

5. You may need a second job. To pay your student loans after college, you may have to find a second part- or full-time job. A second job may help with your bills, but it can impact your personal life, the attention you pay to your primary job and your overall health.

6. You might delay buying a house or starting a family. Numerous reports show that adults with high levels of student loan debt put off traditional adult milestones, such as purchasing a home, getting married or starting a family due to economic distress.

7. You may be unable to save for your future. Saving for your future, especially your retirement years, will be essential once you start your career. But if you’re unable to contribute money to a 401(k) or other retirement fund because you are repaying student loans, you may miss out on a decade’s worth of saving and have to work longer than you would like during your lifetime.

By: Iowa Student Loan

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