College Costs 2013/2014: Increases Slow, but So Does Growth in Grant Aid
Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases for the current academic year along with trends in the world of higher education. While costs can vary significantly depending on the region and individual college, the College Board publishes average cost figures, which are based on its survey of nearly 4,000 colleges across the country.
In its report, the College Board noted that even though this year's increases in tuition and fees were the smallest in many years, the growth in student grant aid from previous years has not kept pace. As a result, many students will be facing higher costs, even in the face of smaller price increases.
To read the full Trends in College Pricing 2013 report, go to trends.collegeboard.org.
Following are cost highlights. Note that total cost figures include tuition and fees, room and board, books and supplies, and a sum for transportation and personal expenses. Together, these items are officially referred to as the "total cost of attendance."
Public colleges (in-state students)
- Tuition and fees increased an average of 2.9% this year to $8,893
- Room-and-board costs increased an average of 3.6% this year to $9,498
- Total cost of attendance for 2013/2014 is $22,826 (up from $22,261 last year)
Public colleges (out-of-state students)
- Tuition and fees increased an average of 3.1% this year to $22,203
- Room-and-board costs increased an average of 3.6% this year to $9,498
- Total cost of attendance for 2013/2014 is $36,136 (up from $35,312 last year)
Private colleges
- Tuition and fees increased an average of 3.8% this year to $30,094
- Room-and-board costs increased an average of 3.5% this year to $10,823
- Total cost of attendance for 2013/2014 is $44,750 (up from $43,289 last year)
Cost trends
In itsTrends in College Pricing 2013 report, the College Board noted that college prices have been rising more rapidly than the prices of other goods and services over the last three decades and that "the increasing economic inequality in the United States over recent decades has exacerbated the difficulty in paying for college for many students, in addition to straining federal, state, and institutional budgets."
Are 529 college savings plans a good way to save for college?
Answer:
Yes, they can be an excellent way to save for college. College savings plans are established by states and typically managed by an experienced financial institution designated by the state. Each plan has slightly different features.
A 529 college savings plan lets you save money for college in an individual investment account that offers federal tax advantages. You (or anyone else) open an account in your child's name and thereafter contribute as much money as you wish, subject to the plan's limit.
The state's selected money manager takes your contribution and invests it in one or more of the plan's pre-established investment portfolios, which typically consist of mutual funds. Some plans automatically place your contribution in a portfolio that's tailored to the age of your child. (The younger your child, the more aggressive the percentage of stocks. As your child grows older, the portfolio gradually shifts to more conservative investments.) Other plans let you choose the portfolio you want at the time you join the plan, without regard to your child's age. This lets you take into account your risk tolerance and other factors that may be important to you.
College savings plans are popular because they combine many desirable tax features with the ability to use the money at any accredited college in the country or abroad. Your contributions grow tax deferred, and if withdrawals are used to pay the beneficiary's qualified education expenses, the earnings are completely free from income tax at the federal level. Many states also add their own tax benefits, such as tax deductions for contributions and exemption of the earnings from state income tax. However, if a withdrawal isn't used to pay the beneficiary's qualified education expenses (known as a nonqualified withdrawal), the earnings portion is subject to a 10 percent federal penalty and is taxed as income at the rate of the person who receives the withdrawal (a state penalty may also apply).
There are no income limits that determine whether you are eligible to open a college savings plan account--everyone is eligible. And if your child decides not to go to college or gets a full scholarship, the money in the plan can be transferred to a qualified family member without penalty.
But investment returns aren't guaranteed. If your investment portfolio performs poorly, you're still bound by the investment decisions of the plan's money manager, unless the plan lets you change the investment strategy for your existing contributions, which it may do once per calendar year. College savings plans are also free to let you change your investment option for future contributions. If your plan doesn't provide this flexibility, then you are allowed by federal law to roll over your college savings plan account to a different 529 plan (college savings plan or prepaid tuition plan) without penalty once every 12 months.
You are not limited to your own state's college savings plan. Most states allow anyone to participate in their plan. You may also participate in the college savings plan of more than one state.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.
What's the difference between college savings plans and prepaid tuition plans?
Answer:
Although both college savings plans and prepaid tuition plans are 529 plans (assuming they meet the statutory requirements), there are important differences between them.
The main difference is that with a college savings plan, you contribute to an individual investment account to pay for a child's future education. Your money is invested in a particular investment portfolio at the time you join the plan, and you take your chances on what your rate of return will be--there are no guarantees. If your portfolio performs well, you reap the benefits. If it doesn't, you suffer the losses.
By contrast, with a prepaid tuition plan, you prepay all or part of a child's future tuition by investing in units or contracts (depending on how the particular plan is structured), and you're guaranteed a minimum rate of return. However, you aren't necessarily entitled to any extra money that the plan may earn.
There are other important differences, too. A college savings plan lets you use the funds at any college home or abroad that's accredited by the U.S. Department of Education, while funds in a prepaid tuition plan may typically be used only for undergraduate tuition at public colleges in your state. Also, there is generally no time limit on when withdrawals from a college savings plan must be made, though tuition credits in a prepaid plan must generally be used by the time the beneficiary reaches age 30. And while you can generally contribute to a college savings plan at any time, prepaid tuition plans typically have select open enrollment periods, which are the only times you can open an account or contribute money.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.
What is the Private College 529 Plan?
Answer:
The Private College 529 Plan (formerly the Independent 529 Plan) is the country's first college-sponsored prepaid tuition plan. College-sponsored prepaid tuition plans (also referred to as private prepaid tuition plans) are an alternative to traditional state-run prepaid plans.
Both types of plans receive favorable federal tax treatment under Section 529 of the Internal Revenue Code (assuming they're structured properly) and both allow you to prepay tuition now for use in the future. The difference between them is that state-run prepaid tuition plans allow you to prepay tuition at one or more public state colleges, while college-sponsored prepaid plans allow you to prepay tuition at the private colleges in the plan.
How does the Private College 529 Plan work? Parents, grandparents, or other relatives or friends can open an account for a beneficiary and purchase certificates that buy a percentage of future tuition at any of the colleges across the nation that participate in the plan. The percentage varies, depending on the school's current tuition rate and the discount it offers.
You aren't required to choose a specific college when you purchase a certificate, but you may choose to have up to five colleges that you are considering displayed hypothetically on your quarterly statements. Your statements will show how much tuition your current certificates would cover at each of these institutions. At college time, certificates can be redeemed at the participating college the beneficiary actually chooses to attend.
A major benefit of the Private College 529 Plan is that it consists of a network of hundreds of private colleges, so the beneficiary isn't locked into attending only state colleges. Another advantage is that the participating colleges have promised to make up any financial shortfall if the plan's investment returns don't keep pace with tuition increases--they won't leave you holding the bag. Plus, the plan doesn't charge sales, application, or maintenance fees.
But despite the benefits, there are some drawbacks to consider. If the beneficiary doesn't attend one of the participating colleges, you'll get your original contributions back, but your refund will be adjusted by the actual investment return the program trust has earned (a cap of 2 percent applies, however, to either a gain or a loss). Keep in mind, too, that you'll pay a 10 percent federal penalty, as well as income tax, on the earnings part of any refund that is not used for college expenses (a state penalty may also apply). And although the plan lets you prepay only tuition and mandatory fees (those required as a condition of enrollment), you can't prepay room and board, books, or nonmandatory fees. In addition, your account must be open for at least 36 months before you can redeem any certificates.
For more information and a list of participating colleges, visit the Private College 529 Plan's website at www.privatecollege529.com.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.