What makes more sense financially for you, a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage? Both loan types come with their positives and negatives. So how do you determine which loan type is best for you and your family? It is all about taking a close look at your finances.

The Differences

As their names suggest, the main difference between a 15-year and 30-year fixed-rate mortgage is its duration. If you make your regular monthly loan payments on time every month, you will pay off a 15-year fixed-rate mortgage loan in 15 years. You will pay off a 30-year fixed-rate loan in 30.

Another big difference comes with these loans: The average mortgage interest rate on a 15-year loan is smaller than it is on a 30-year loan. According to Mortgage News Daily, the average interest rate on a 15-year fixed-rate mortgage loan stood at 6.06 percent in December 2023. The average rate on a 30-year fixed-rate mortgage loan stood at 6.66 percent during the same period. Both rates faced large increases this year compared to the year prior due to inflation. However, you’ll note the rate on the 15-year loan is lower than the 30-year rate.

Does that mean that a 15-year fixed-rate loan is the best financial choice? Not necessarily.

Pros And Cons

The main benefit of a 15-year mortgage loan is that you will pay far less interest during the life of the mortgage. That can save you hundreds of thousands of dollars if you pay off your loan.

For example, if you take out a 30-year fixed-rate $200,000 mortgage with an interest rate of 6.66 percent, you will pay $262,691 during the life of your loan in interest. If you take out the same loan at the same rate, but for just 15 years, you will pay only $104,957 in interest over the life of the loan.

That saves $157,734 if you would have taken out the 15-year fixed-rate loan.

Again, though, that does not mean that the 15-year loan is necessarily the best choice for you and your family. Even though a 15-year mortgage comes with a lower interest rate, your monthly payment for such a loan will be higher than it would be with a 30-year fixed-rate loan. The reason? In a 30-year loan, the monthly payments are for an extended period.

Here’s an example: For that 15-year fixed-rate loan of $200,000 at an interest rate of 6.06 percent, you would face a monthly mortgage payment of $2,064 If you instead took out a 30-year fixed-rate mortgage loan of $200,000 at an interest rate of 6.66 percent, you would pay $1,655 a month.

The question, then, comes down to this: Can you comfortably afford the monthly payment that comes with a 15-year fixed-rate loan? If so, taking out one of these loans might be a better choice because you will waste less money on interest. However, if you cannot stretch your household budget to cover that 15-year monthly payment, a 30-year fixed-rate mortgage loan might be a better choice.

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15-Year vs 30-Year Mortgages

View Resource 15-Year vs 30-Year Mortgages

You are ready to apply for a mortgage. Your question? Should you take out a fixed-rate loan or an adjustable rate?

As with most mortgage questions, there is no one correct answer. Instead, the right loan for you depends upon many factors, everything from how low or high average mortgage rates are when you are ready to apply for a loan to your family’s financial situation.

What is the best way to decide whether you should aim for a fixed-rate or adjustable-rate loan? Do the research.

The Basics

Before deciding whether a fixed-rate or adjustable-rate mortgage is right for you, you need to learn the fundamental differences between the two.

As the name suggests, the interest rate does not change with a fixed-rate mortgage over the loan term. So no matter whether your loan extends for 30 years, 15 years, or some other length of time, your interest rate will remain unchanged throughout the loan.

An adjustable-rate mortgage works oppositely. Your interest rate will change after a set number of years, often five or seven. Usually, the rate starts lower for the first few years and then adjusts to a new rate based on economic factors. The rate does not have to go higher after the adjustment period, but it usually does.

Benefits Of A Fixed-Rate Mortgage

Each loan type comes with its benefits. For fixed-rate mortgage loans, the advantage is obvious: There are no surprises with this kind of loan. You will know each month exactly what your mortgage payment will be. It will not rise or fall.

A fixed-rate mortgage loan is especially attractive when low average mortgage interest rates. That has indeed been the case over the last several years. Average interest rates on 30-year fixed-rate mortgage loans averaged about 6.66% percent in December 2023, which is a 0.38 percent increase from the year prior. Rates have increased exponentially due to inflation.

Fixed-rate loans currently make good economic sense for homeowners who want the lowest possible mortgage payment each month. However, taking out an adjustable-rate loan in such a rate climate might be a risk. After all, when an adjustable-rate mortgage loan adjusts in five or seven years, there’s no guarantee that interest rates will not be higher than they were this past year.

Benefits Of Adjustable-Rate Mortgages

Adjustable-rate mortgage loans make the most sense when average mortgage interest rates are high. Lenders can usually provide borrowers with a lower initial interest rate. After all, they can raise the rate later if rates rise to a higher level during the mortgage term.

If rates are high, then borrowers who take out an adjustable-rate mortgage loan will enjoy a lower interest rate for a set period, again, usually five to seven years. That can result in significantly lower monthly mortgage payments during this time.

However, there is a risk. After the adjustment period, your interest rate might jump by a fairly significant amount. Before taking out an adjustable-rate mortgage, ensure that you can afford whatever the adjusted monthly payment would be. You might be able to factor in future pay raises to help you make those higher payments if you believe that your income will grow over time.

Like all mortgage products, adjustable-rate and fixed-rate mortgage loans come with their pros and cons. Your best bet is to study both products carefully before making your choice.

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Fixed Rate vs Adjustable Rate Mortgages

View Resource Fixed Rate vs Adjustable Rate Mortgages
You have found your dream home in the perfect neighborhood for you and your family. You have even determined that you will be able to afford the monthly mortgage payments that will come with this home. However, have you factored in the other costs of owning a home? Your monthly mortgage payment is just the start of the costs of owning a home. Property taxes, homeowners insurance, utility bills, home repairs, and, depending on where you live, homeowner’s association fees can all drive up the monthly costs of living in a home. Here is a look at these costs and what impact you can expect them to make on your monthly budget. Property Taxes When considering a home, be sure to review the property taxes. These taxes can add significantly to the cost of that house. Property taxes vary widely by state and county. According to data from the Census Bureau’s 2021 5-Year Estimates, New Jersey residents paid, on average, $8,796 in property taxes in 2023 on a home worth $355,700. Hawaii homeowners would pay $1,017 in median real estate taxes for the same home value. The national median average stood at $2,690. Many homeowners take out an escrow account with their mortgage lenders to cover their property tax payments. Under such an arrangement, lenders pay homeowners’ property taxes. Homeowners cover this by paying more each month when they write out their mortgage loan payments. That means if you have to pay $3,000 each year in property taxes that your monthly mortgage payment will include an additional escrow payment of $250 to cover them. In considering property taxes, it is best to remember that the 2017 Tax Cuts and Jobs Act put a $10,000 cap on the State and Local Taxes (SALT) deduction for federal taxes. Property taxes are part of that equation, along with income and sales taxes. Homeowners Insurance If you take out a mortgage to finance your home, you will also have to pay for a homeowner’s insurance policy. No mortgage lender will lend you money without one. It is a good idea to have homeowner’s insurance regardless. These policies can provide you with financial protection should your home be damaged or destroyed. It will also protect you financially from cases of theft or robbery. However, homeowner’s insurance also adds to the bottom-line costs of owning a home. The national average for your homeowner’s insurance policy is roughly around $1,383. The cost depends on several factors: If you own a larger home, you will pay more for homeowner’s insurance. If your home rests in an area prone to tornadoes, earthquakes, or other natural disasters, you will pay more, too. Utility Bills Depending on your lease when you rented, you might not have been responsible for paying utility bills. When you own a home, though, these bills — for everything from electricity and water to weekly garbage pick-up and gas — become one more monthly cost. These costs are not insignificant. For instance, according to the Energy Information Administration’s “Winter Fuels Outlook,” U.S. homeowners who use natural gas for heating will pay about $931 on average. An additional expense is what you will pay for electricity. The U.S. Energy Information Administration reports that the average home spends $146 per month on electricity. Of course, that amount varies by the size and location of your home. Hawaiians pay the most for electricity at $214 per month. Utah residents pay the least at $93. Before buying a home, ask what the average utility costs have been for the last two to three years. Sellers are under no obligation to share this information with you. Most, though, will. Don’t forget, then, to add these fees to your monthly cost of owning a home. Homeowner’s Association Fees If you buy a condominium, the odds are good that you will have to pay monthly homeowner’s association fees. You might also have to pay these fees if you live in a gated community or other housing subdivision where the HOA performs maintenance tasks. These monthly fees cover the costs of mowing lawns, shoveling snow, repairing cracking driveways, maintaining common areas, and other maintenance issues. Again, these expenses can be significant. Fees can range from $100 to $700 per month with roughly $200 on average, adding a high cost of owning a condo, townhouse, or single-family home. Home Maintenance The last big bite on your monthly budget is home maintenance. Ask anyone who’s purchased a home. Maintaining it costs money. One year the hot-water heater might go. The next, the roof might start leaking. Another year? You might need to reseal the driveway. Real estate giant Coldwell Banker advises homeowners to be prepared to spend from 1 to 4 percent of a home’s original cost on annual home maintenance. A house that costs $200,000 comes out to $2,000 to $8,000 a year. Again, that can be a significant drain on your monthly budget. Owning a home can be a wise financial decision. Try not to disregard the intangible benefits that come from ownership, however. Therefore, it is essential to understand the costs before you invest in homeownership fully.

Additional Financial Home Buying Obligations

View Resource Additional Financial Home Buying Obligations
According to EducationData.org, as of August 2024, Americans owe $1.773 trillion in student loan debt. That is how profound the student debt problem in the U.S. has become. To put it in even more perspective, that is about $611 billion more than the total credit card debt in the U.S. of $1.42 trillion. The average student borrower has, on average, roughly $37,853 in debt, which affects 46.2 million Americans. Benefits of Community College Community college provides students with several options for career training and degrees. Here are some benefits of community college: Lower Fees and Tuition Regardless of your major or the college you attend, your first couple of years will primarily consist of the same type of classes. For instance, each freshman and sophomore will take: Attending a two-year community college allows you to take your basic classes and get them out of the way. At the same time, you will save a substantial amount of money. For example, Cuyahoga Community College’s website shows they have an in-state tuition of $17,322* for the 2023-24 academic year. That compares to $32,043* for Cleveland State University and $31,818* for Kent State University, the two largest state colleges, and $86,073* for tuition at Case Western Reserve University, a private university. *Tuition amount without financial aid. Going down the community college path will decrease how much money you will need to borrow when transferring to a four-year college. In addition, you will still be able to apply for financial aid and scholarships for community college, further lowering your attendance cost. Lower Living Costs After heading off to college, the costs you will need to consider will not be just tuition. You will also need to think about the additional costs of things like: If your school is in a different state, you will need to pay for a dorm room or apartment. However, if you attend a community college for two years, that means you may be able to live home and save yourself hundreds of dollars every month in utilities and rent expenses. While it might not be as exciting as living in a dorm room away from home, graduating with over $40,000 in debt is not that exciting either. Greater Flexibility Imagine paying a high price at a university and then realizing the major you initially chose does not prepare you for what you wish to do. Even though you can still change your major, it could turn out that many of the classes you have taken will not count towards your new major. This is a great deal of money down the drain. Going to a community college allows you to see how it goes for a little bit at a much lower expense than going to a four-year university. Explore various fields or classes to decide if your chosen major is the one you want to pursue after all. How Do You Save Money? College is costly, and not all families can save for a four-year college. Learn how a community college could help you bring costs down so you can save money: Transferring to a University An associate’s degree from a community college may be sufficient for you to pursue your chosen career. However, in many cases, you will need to further your education and obtain a bachelor’s and maybe even a master’s degree. Going to a community college for a couple of years and then transferring to a university has benefits for any education plan. Tuition and other fees are substantially lower for community colleges than private and public universities. If you have a target university in mind, make sure to research course requirements and whether the course work you take at the community college level is transferrable to that University. Most state higher education systems offer clearly defined transfer routes from a community college to a state university. Make sure your community college coursework meets their transfer criteria. Takeaway Community college can be the ideal choice to save money and decrease your dependence on a student loan. It is also a great way of easing you into college life and building successful learning strategies before transferring to a more costly university.

How Community Colleges Save You Money

View Resource How Community Colleges Save You Money
You look at your paycheck, and then you look at the tuition and fees that even the most “affordable” state colleges and universities charge. You cannot help but panic. How, you wonder, will you ever sock away enough money to help pay for your children’s college education? The bad news? College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1994-95 and 2024-25), in-state tuition and fees at public four-year institutions increased by $8,579, while private four-year institutions increased by $30,059. The good news? There are several financial tools available to parents who want to help cover the costs of their children’s college educations. Depending upon how early parents start investing in these tools — these savings accounts and trusts can help parents steadily build a nest egg that their children can tap once it is time to head off to college. The range of savings vehicles is excellent. However, it also represents a challenge: Parents will have to research their savings options carefully to find the right tool for them and their children. 529 Savings Plans One of the more popular college savings vehicles is the 529 savings plan that states across the country offer. These programs allow parents to invest after-tax dollars today that can grow on a tax-deferred basis over time. Also, withdrawals that pay for qualified education expenses can be tax-free in most cases. Even better, some states provide state income tax deductions for residents who invest in their 529 plans. One of the more popular forms of these plans is the Section 529 Prepaid Tuition Plan. Such plans let you buy tuition in today’s dollars. The state running the program then agrees to give you the equivalent amount of tuition in the future. Such plans are a way to give parents some control over rising tuition costs. Most of these plans come with lifetime investment limits. The limits, though, are high enough so that most parents will not have to worry about soaring past them: Many state 529 plans, for instance, allow parents to invest a maximum of $200,000. But, again, that is a level few will have to worry about hitting. There are some concerns with 529 plans, however. First, parents researching them should pay particularly close attention to fees. Many plans charge hefty administrative costs that can eat away at parents’ investments. Instead, parents should find a 529 savings plan that charges administrative fees of 1 percent or less of the assets they hold. Fortunately, because many states offer more than one version of the 529 plan, finding an affordable plan should not be overly challenging. The other challenge? Some 529 plans place strict limits on where children can attend college. If the child decides on attending school out-of-state, the parents could receive less money than they have saved because the school isn’t in the state that serves as the home base for the 529 plan. Again, research is the key. Parents need to ensure that any 529 plan they invest in provides flexibility. Children can change their minds about their preferred college several times. Parents do not want to see their college savings dwindle because of this. Coverdell ESA The Coverdell ESA plan offers parents another option for building college savings. These savings vehicles are often used as supplements to 529 plans or other savings vehicles because they only allow parents to invest a maximum of $2,000 in them each year. Still, there are plenty of positives with these plans. First, there is more freedom associated with Coverdell ESA plans. The funds in them can cover any cost associated with attending college. Parents can even use the money in a Coverdell account to pay the tuition costs for children attending kindergarten through 12th grade. Parents with more than one child preparing for college can transfer any unused funds from one Coverdell ESA to another. They can also use these remaining funds to start a new Coverdell account for another child. Coverdell accounts are helpful for tax purposes, too. After-tax dollars can be deposited in a Coverdell account and grow on a tax-deferred basis. In most cases, as long as you withdraw the money for a qualified education expense, withdrawals will also be tax-free. However, there are some limits. Single parents must have a modified adjusted gross income of $110,000 or less to contribute the full $2,000 in a Coverdell. Married parents must make a combined gross income of $220,000 or less to make a full contribution each year. Also, parents have to stop making contributions to a Coverdell once their children turn 18. If the child does not go to college, the funds in a Coverdell will eventually go to the child, even if they never go to college. That is a significant difference from 529 savings plans. Under those plans, parents can usually take the money back if their children decide not to attend college. UGMA/UTMA Plans Parents or grandparents can also set up custodial accounts available under the Uniform Transfers to Minors Act (UTMA) or Unified Gift to Minors Act (UGMA). These accounts allow parents or grandparents to invest as much as they would like each year and in total. However, these investments are not tax-free like the Coverdell or 529 plans. There are plenty of investment choices with UTMA or UGMA accounts, giving parents and grandparents more investment control over their dollars. The drawback? At either age 18 or 21, children take control of the money in these UTMA or UGMA accounts. Beneficiaries do not have to use the money to pay for college tuition or living expenses. They can instead use it to buy a new car or motorcycle. The money is theirs to do with as they want. It is easy for parents to let the sheer number of college savings choices overwhelm them. The three main options listed in this story, though, should provide at least a rough blueprint for how parents can sock away dollars for their children’s college education. The best way to handle college savings, though, is for parents to speak with a licensed financial advisor. Such a pro can help steer them through Coverdells, UTMA accounts, and 529 plans. With some guidance and research, saving for college does not need you to lose sleep.

College Savings Plan Options

View Resource College Savings Plan Options
According to EducationData.org, for 2024, Americans owe $1.753 trillion in student loan debt. That is how profound the student debt problem in the U.S. has become. To put it in even more perspective, that is about $611 billion more than the total credit card debt in the U.S. of $1.142 trillion. The arguments have traditionally been that a college education is essential – that it is invaluable. But, unfortunately, people are graduating college with a debt burden that is just too big to shoulder and leaves them financially crippled. So what are the solutions students can consider to get the educations they need without taking on so much debt to receive it? The Growth of Student Loan Debt It is important to note how much student debt has grown over the last decade. EducationData.org reported that student loan balances average at $37,853, and overall, total student loan debt has significantly increased from $1.054 trillion to $1.753 trillion in the past decade. The rapid growth of college debt leaves you as a student or parent with few choices if you believe a college education is necessary. You can bite the bullet and take on the crippling debt, which will only grow even more over the next ten years. You can find ways to make college more affordable for you. Alternatively, you can go the slow and steady route to earning a degree by paying for your education as you go. Improving College Affordability Affordability is critical. It is important to note that some colleges cost more than others. The difference between private and state colleges is staggering for tuition alone. Even among state colleges, you can reduce costs, and your debt load, by choosing wisely and comparing prices ahead of time. There are other steps you can take, though, to reduce your total debt burden for college, including considering attending two years of community college before transferring to a university. You can save thousands, if not tens of thousands, throughout your education by starting at a community college for two years before transferring to a university to continue your education. You must work with both institutions from the start, though, to make sure your courses and credit hours are transferable to the university you intend to attend next. Tips on Avoiding Student Loan Debt These are a few additional steps you can take to reduce your need to take on student loan debt when attending college. It may feel like a sacrifice at the moment, but sparing yourself the burden of crippling debt while continuing to earn your degree may be one of the best gifts you give your adult self. Unfortunately, many of your friends, classmates, and coworkers are overwhelmed by the college debts they are shouldering.

Graduating from College Debt-Free

View Resource Graduating from College Debt-Free
The cost of a college education is not going down. According to US News, tuition and fees at an in-state public college averaged $11,011 for the 2024-25 academic year. That cost rose to $43,505 a year for a private college. Numbers like these are enough to send parents into shock. However, there is some good news: Parents can help offset the cost of tuition and fees by helping their children find scholarships. Scholarships are preferable to student loans for one apparent reason: Scholarship money is gift money. Students do not have to repay scholarships after they graduate. There are plenty of scholarships out there. Students do not have to be straight-A students or sports stars to qualify for them. Students and their parents just need to know where to find this money. Finding Scholarships How do parents find scholarships? Thanks to the Internet, the search for scholarship dollars is pretty straightforward. An excellent place to start is scholarship search engines such as Scholarships.com, CollegeBoard.com, and FastWeb.com. Parents and their children will have to enter relevant information to use these search engines, everything from students’ grade point averages to their extracurricular activities and interests. The search engines will then return possible scholarship opportunities. The more information parents and their children provide, the more scholarship opportunities these search engines will return. Using these types of search engines is just the start. It is also possible to find scholarship opportunities in a more old-fashioned way. For example, high school guidance counselors should have access to plenty of potential scholarships. In addition, guidance counselors might represent the best way for students to find smaller, locally-based scholarships. These scholarships, often offered by private companies or charitable organizations, rarely have large advertising budgets. Because of this, they can be challenging to find. However, guidance counselors will know about them, and these school professionals can help parents and their children see the right scholarship opportunities. Incoming first-year students might also find scholarships directly from the colleges they wish to attend. Many colleges offer scholarships. The best place to find out about them is at these colleges’ financial aid offices. The professionals working in these positions can fill students in on a wide range of scholarship and aid opportunities unique to their universities. Targeting Your Search Does your son or daughter already have a career in mind? If so, that can help you narrow down your search for a scholarship. Most professions boast a trade association. Moreover, these organizations often provide scholarships to students to bring talented youngsters into the careers they represent. For instance, your local realtor’s association might offer a scholarship for students interested in pursuing a career in real estate. Likewise, your state’s banking association might provide scholarship opportunities for students interested in working in finance. Search out these associations, call them and ask about the scholarships they offer. Unfortunately, local and state associations do not always provide the most lucrative scholarships — some provide gifts of just $500. However, every little bit helps when you are trying to help your child cover the costs of a college education. You can also uncover scholarships through good detective work. Go to your local library and scour community newspapers. These smaller newspapers often run stories highlighting local youngsters who have won scholarships. Look at the scholarships that these students are winning and the organizations awarding them. You might find an organization offering a scholarship opportunity that’s perfect for your son or daughter. Applying for Scholarships What if your children are not sports stars? What if they have never racked up straight-As? Don’t despair. There are plenty of scholarships out there for a wide range of students. The truth is organizations award scholarships based on a broad set of criteria. Some organizations award scholarships based on a student’s community involvement. Students who volunteer at local nursing homes, food banks, or homeless shelters have a good chance of qualifying for these scholarships even if they do not have a perfect academic record. Other organizations award scholarships based on religious affiliation or ethnicity. Moreover, the organizations passing out these scholarships vary widely, too. Businesses, colleges, churches, civic groups, and professional organizations award scholarships. Applying for these scholarships can take time and creativity. Many organizations will focus mainly on the student’s grade point average or extracurricular activities. Others, though, will require students to write essays, provide a resume listing their activities or provide recommendations from influential community members. Avoiding Scams Unfortunately, not every organization offering scholarship money is legit. Scammers have found new college students and their parents to be tempting targets for cons. Scam artists might entice parents and students with a lucrative scholarship offer. But, to start the process, all these parents and students have to do first is send an application fee — sometimes hefty — to them. What happens next? The organization behind the scholarship disappears, along with that application fee. Other scammers use the lure of scholarship money to harvest students’ and parents’ financial information, the first step to identity theft. Here’s a rule of thumb: Never apply for a scholarship that requires you to come up with an application, processing, or redemption fee. Legitimate scholarship opportunities do not expect students to pay for their awards. Students and parents should be wary, too, of organizations that suddenly contact them with scholarship offers. Most legitimate organizations offering scholarships do not have to search out students. The students come looking for them. If you unexpectedly receive a call or email message that seems too good to be true, the odds are a scammer is targeting you. The world of scholarships can be a daunting one for students and parents new to it. However, with a bit of research and much patience, parents and their children can often dramatically reduce the number of student loans their income college freshmen will need. That is something that will benefit children long after they graduate.

Finding Scholarships

View Resource Finding Scholarships
There might come a time where you’ll be helping your children apply for financial aid for their college education. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24), in-state tuition and fees at public four-year institutions increased by $5,880 and $18,240 for private four-year universities. The College Board estimates that students who enrolled in a private university for 2023-24 can expect to pay $56,190 in tuition, fees, and room and board for that school year. Those who enrolled in an in-state public university for 2023-24 can expect to pay $24,030. Those are sobering costs. The good news? There is a wide variety of financial aid available to help incoming students pay for the escalating cost of a college education. Parents will want to take any legal means necessary to help boost the amount of financial aid available to their children. That often involves sheltering assets and saving money in the right way. Fortunately, there are several steps that parents can take to maximize the financial aid that their children will receive. Arranging Finances The key is for parents to arrange their finances in such a way as to take advantage of the formula that goes into figuring how much aid is available to every incoming college student. It is essential here for parents to remain honest. Those who try to hide their income may face penalties from the federal government. The government wants to disburse money to those students who genuinely need it. Families that lie about their finances skew this process. However, parents can take plenty of perfectly legal steps to boost the odds that their children will receive a healthy amount of federal financial aid. First, parents should always save money in their names, not in the names of their children. That is because the federal financial aid formula uses a smaller percentage of parents’ savings in determining how financially well-off students are. As a result, parents who make the mistake of saving money for college in their children’s names can cost their sons and daughters a significant amount of aid. Parents can solve this problem by investing in prepaid or college savings plans in their names. They can do the same by investing their money in a Coverdell Education Savings Account. Next, parents should pay off as much of their consumer debt as possible, including credit card bills and auto loans. That is because the federal financial aid formula does not include consumer debt. That is unfortunate; many families are struggling with consumer debt. They would undoubtedly qualify for more student financial aid if the formula had this debt. As the formula stands today, though, it makes sense for families to funnel income away from their savings and use it instead to pay down consumer debt. That leaves families with fewer savings and will help them qualify for more student financial aid. It also has the added benefit of reducing consumer debt with potentially high-interest rates. Parents can reduce their income by maxing out their contributions to their employer’s 401(k) plan or by investing as much as possible into their IRAs. Again, this reduces parents’ incomes while increasing the odds that their children qualify for more financial aid. This step also comes with a financial bonus. By investing as much as possible into their retirement accounts, parents, while helping their children qualify for more aid, will also increase their chances of enjoying a financially secure retirement. Filing for Financial Aid When it is time to file for financial aid, parents should help their children fill out the Free Application for Federal Student Aid, better known as FAFSA. The good news? Parents can complete this form online at the home page of Federal Student Aid. The bad news? The form is a bit lengthy. Also, parents might be required to provide documents such as copies of their income tax returns and bank statements to back up their financial claims. Fortunately, any parents who have ever applied for a mortgage loan will be familiar with the drill of documenting their income. The FAFSA application, despite its length, is no more complicated than a typical mortgage application. The FAFSA will tell parents how much federal financial aid is available to their children. However, parents should be careful not to miss the deadlines for filling out these forms. This deadline changes year by year. Parents should fill out the application as early as possible. Doing so will give them more time to prepare if their children do not receive as much financial aid as expected. It will also help their children qualify for a few federal student aid programs that operate on a first-come, first-served basis. Types of Financial Aid The best types of student loans are federal ones. These loans come with the lowest interest rates and the most favorable loan terms. For instance, federal loans often give college graduates the option to delay repayment if they are struggling financially or have not been able to find a job. Some graduates might even be able to waive a portion of their student loan debt. Students who do not qualify for enough federal student loan dollars, though, do have an option: They can apply for private student loans. These loans do not take into account your financial need. They also don’t come with as favorable terms. They come with higher interest rates and may require a quicker repayment. It is why parents should always help their children fill out their FAFSA form: Federal student loans are a far more attractive option than private ones. Some students might also qualify for the federal work-study program. This needs-based program allows students to work part-time jobs to pay for their college education. Often, the work available will be related to students’ fields. Other times, the work comes in the form of community service. Parents struggling with saving for their children’s college education should start learning about federal and private student aid as early as possible. It is the only way to boost their odds of maximizing the amount of financial assistance that their children receive.

Maximizing Your Financial Aid Package

View Resource Maximizing Your Financial Aid Package
From the minute you become a parent, you know how essential it is to start a college fund for your little one. And, indeed, starting a college fund while your child is still in diapers can help you reduce the need for taking student loans out, which can save you thousands in interest. Even if you have saved for tuition, room, and board, you still might encounter expensive surprises in unexpected areas. One of those might be the costs associated with applying to college. What Kind of Application Expenses to Expect Having to shell out for standardized testing and college application fees can take you by surprise. Add in the cost of college visits, and you could end up paying more than you had budgeted. For instance, there are fees such as: Methods to Minimize Expenses Some ways of minimizing your expenses are: Today, most colleges provide online tours so that you can learn the basics of campus life. But you might also want to look at things like campus social life, availability of financial aid, diversity, religious affiliations, and classroom and teacher ratios. Leveraging information that is freely available on the Internet may help you learn things about a school that might cross them off your list. Or it might help you focus on a core set of your most desirable schools. Also, since campus visits can be costly, you might want to hold off on a tour until the school has accepted you. It is an exciting time for students and parents to prepare for college. But, when you are surprised with fees you were unaware of, it can cause added stress. By understanding upcoming costs, it is easier to avoid or reduce some of the expenses. A little knowledge and research of upfront fees will save you money as you help your child get into their dream college.

Minimizing College Application Expenses

View Resource Minimizing College Application Expenses
As families invest their savings in preparation for their children’s future K-12 or college tuition and expenses, 529 college savings plans can provide various tax and financial benefits. These benefits make 529 plans an essential tool for most college savings strategies. Most states offer two types of 529 Plans.
  1. College savings plans
  2. Prepaid tuition plans
Nearly every state in the U.S. offers one or more 529 plan. Further, you can use the funds invested in a 529 at any one of more than 6,000 eligible colleges and universities located throughout the country. Some private universities and colleges also provide prepaid tuition programs to allow parents to pay all or a portion of their child’s tuition at locked-in rates over time and in advance. However, these plan types do not enjoy the same tax benefits as 529 plans. Fees and Expenses According to the United States Securities and Exchange Commission (SEC), fees vary widely from one 529 plan to the next. Therefore, it is best to research these plans as those fees will impact the returns on your investment and, ultimately, the amount of money that will be available for your child to attend college when the time comes. Prepaid Tuition Plans Most prepaid tuition plans charge an enrollment or application fee with ongoing administrative expenses. The better you understand the terms and costs, the better you can determine whether it will be the right choice for your needs. Education Savings Plans There are plenty of fees you might need to pay with your 529 saving plan. They may include any of the following: These fees will vary according to your state’s regulations and the type of account you choose for your 529 saving plan. Work closely with a trusted advisor to better know the fees associated with 529 plans in your state and how those fees may impact the final amount you have to contribute to your child’s education. Restrictions The funds you contribute to 529 plans are not eligible for federal income tax deductions. However, interest is tax-free, so long as withdrawals pay for qualifying educational expenses. Most states, though—30 of them at the time of writing—offer state income tax deductions or tax credits for contributions on 529 plans. While the money you invest in a 529 plan is yours, and you can remove it at any time, you may have to pay income taxes on the earnings gained as well as additional penalties, some up to 10%. Currently, only 9 states offer prepaid tuition plans. They include: All 50 states offer a 529 savings plan. Interestingly, there are no income restrictions for participating in these plans. Individuals can make annual contributions of $18,000 to a 529 program in 2024 without incurring any gift tax repercussions from the IRS. The IRS evaluates and adjusts this limit each year. Limits are individually based, meaning both you and your spouse may make contributions of $18,000 each year. You can give more provided that you pay the appropriate taxes on the gift. An IRS ‘five-year’ rule does allow individuals to make a lump-sum gift of up to $85,000 without incurring gift taxes. However, you must spread that contribution over five years. 529 plans can be a helpful estate tax planning tool for a grandparent. They allow you to gift funds to grandchildren, sheltering them from estate taxes while ensuring that the funds go towards their grandchild’s education. The 529 savings plan offers greater flexibility and may be spent on a variety of things, including: The last two require students to attend school on a half-time basis, at least, and attend schools eligible for participation in the 529 programs. Prepaid tuition plans have rules that vary by state and program but typically cover tuition and mandatory fees for education (and exclude things like housing, food, and other room and board items). Impact on Financial Aid Each state has its own rules for treating funds held in 529 accounts when determining assets and financial aid eligibility. In most cases, however, participation in a 529 plan does affect your child’s eligibility for specific need-based financial aid. Also, having funds in a 529 account may impact the fitness of your younger children to receive tuition assistance for private school tuition. Now that you know more about 529 plans and the options available to you, you can make informed decisions about which, if any, of these programs best meet the financial and educational needs of your family.

An Overview of 529 Plans

View Resource An Overview of 529 Plans