There are several reasons why saving is a smart way to pay for college:
Common college savings plans include:
Here are five key things to know before you choose a savings plan:
1. College costs have been steadily increasing
Due to inflation and other factors, the costs of college will likely continue to rise.
Including increases while in college
Today's 4-Year Cost of Attendance
Cost of Attendance The total cost to attend a school for a specified period of enrollment. This figure is determined by the school's financial aid office, and includes tuition, room and board, books, transportation, and other related expenses.
All costs - tuition, room & board, books, etc.
|Cost in 5 years||Cost in 10 years||Cost in 17 years|
2. The Cost of Attendance is not the actual amount you will likely pay.
The Cost of Attendance is the total price of college, not just the tuition and fees. It includes room and board, books and other expenses, and it can be steep. In fact, the four-year Cost of Attendance at many schools today is in excess of $100,000 – and even $300,000 at the “most competitive” schools. With prices like that, raising the money for college may seem like a nearly impossible task.
Fortunately in some cases, the Cost of Attendance isn’t the actual cost you’ll likely pay. That’s because some students receive “free” money like grants and scholarships, which greatly reduce the final college price tag, so you ultimately pay much less. The College Board recommends the families of college-bound students look at the actual price, or “net” price, when choosing a school.
3. One-third of college funding should come from savings.
When planning how to pay for college, the rule of thumb is that one-third of college funding should come from savings. So, if the Cost of Attendance for college is $240,000, you should try to save $80,000, if you can.
4. The interest earned on college savings plans may increase over time.
Make sure you pay attention to market conditions and consult with an advisor to understand how these types of plans work.
5. Investment and savings plans for college may have tax benefits.
Common college savings options like a 529 plan or a Coverdell Educational Savings Account have tax-benefits.
One of the most popular college savings options is the 529 plan. A 529 plan is an investment plan administered by state governments that is designed to help people save for higher education. One of the main benefits of a 529 plan is that earnings are not taxed by the federal government and withdrawals are tax-free when used for qualified higher education expenses. Many states also provide tax advantages for 529 plans. A 529 plan may be purchased through an investment broker, or in some cases, residents of a state may open up an account directly with the state, potentially saving on broker fees.
Although a 529 plan has a savings function, it is not a savings account, but rather an investment. As such, it may have more risk than a standard savings account. Here's some information about the two main types of 529 plans – the 529 college savings plan and the 529 prepaid tuition plan:
Coverdell Educational Savings Account (ESA)
An educational trust account, a Coverdell ESA is set up to pay the expenses of a designated student beneficiary, including college, elementary and secondary students.
Key features of the Coverdell ESA:
For more information on 529 plans, please contact a SunTrust Investment Services, Inc. Financial Advisor.
This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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1 Source: calculated using The College Board’s College Cost Calculator on 11/16/17; assumptions: annual college costs, in today’s dollars, 5% college cost inflation rate, 4 expected years of attendance 1% of costs to cover from savings and 5, 10 or 17 years until college starts.
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* The Summer Savings discount has been extended and the offer is now valid for new Custom Choice Loans for which applications are submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on September 30, 2019. A 0.50% interest rate reduction will be included in the loan options presented to an applicant during the online application process, upon passing the initial credit review. The interest rate reduction will be applied as of the first disbursement date and will be effective for the life of the loan.
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