During the month of February, the higher education community celebrates Financial Aid Awareness Month. This is useful in navigating student aid across federal, state, and institutional platforms, providing crucial information to students and families. This is also a great time for you to think about your goal of providing quality educational opportunities to children and grandchildren. This article is going to highlight some of the investment vehicles utilized by people to help achieve their educational goals as well as touch on the financial aid process.
When thinking about the goals of providing education to family members, we think about what it may cost to send that person to school, where they may choose to go to school, and for how long. These possibilities help lead people to a decision on which type of educational plan may be best for the student.
There are three various types of investment vehicles that most people use when planning for education:
The State Program
Most states offer a variety of platforms, from prepaid college plans to savings plans to investment plans. It’s recommended to check with the state in which the custodian lives to confirm which plans are offered and which may be best for your situation. For example: a prepaid program generally purchases credit hours at current rates for future use. So, for a younger child, purchasing the prepaid program buys credit hours at the current price which is usually less than what the actual cost may be in the future when the person goes to school. Think of inflation!
529 College Savings Plan
These are investment vehicles that are not offered by every state but are a great way to invest for the future. Most 529 plans offer an array of investment options as well as various contribution plans. There may also be a state tax deduction for the custodian contributing to the 529 plan so you may consider asking your trusted tax professional if a deduction applies to you. Dollars are contributed and are to be used strictly for educational purposes, or there may be adverse tax consequences. 529 accounts are owned by the custodian and tend to have minimal impact on financial aid calculations.
Uniform Transfers to Minors Act (UTMA)
UTMAs allow minors to receive gifts, other than only dollars, for future use. Such gifts could be real estate, fine art, or cash. UTMAs are custodial brokerage accounts that help donors save and invest on behalf of a minor and offer a greater range of investments, such as stocks, mutual funds, exchange-traded funds, and bonds. UTMA assets are considered owned by the child and could adversely affect the financial aid calculation.
When navigating the financial aid process, it is important to understand FAFSA, Free Application for Federal Student Aid. This is the largest provider of financial aid in the United States. The sooner the better when filing for the FASFA, it does not hurt to apply so everyone should complete it. The application is free. The FAFSA is used to determine a multitude of aid options as well as federal student loan eligibility. The biggest mistake students make is not filling out the FAFSA.
Besides grants and loans, there are Pell Grants, Direct Loans, and other Federal Work-Study Programs that students can receive aid from. The student should also check with their local state agencies and community organizations to see about other aid that is offered and can be applied for. The student should be proactive, get the applications in as soon as possible, and ask others who have been there before for help.
If you have questions about your goals, seek the help of a fiduciary, someone who places your best interest ahead of your own. Planning is important, so give us a call or come in to review your personal financial plan.
