Funding your child’s college education

J. Abigail Mason Family Business

The approaching graduation season causes many parents to think about funding their own children’s college education. Tuition costs are increasing each year and funding your child’s college education can be one of your largest expenses.  Saving for college while your children are young is the best plan, but putting money aside for tuition is never a bad plan, no matter when you start.   Some options for funding college costs include financial aid, scholarships, and tax-deferred 529 plans.

Financial aid is offered by the federal government, state governments, and different universities.  You can find information on applying for federal financial aid at In addition, the financial aid office at your child’s college of choice is a great resource for help in determining your financial aid options.  High school counseling offices are also a good resource for information on scholarships and local libraries have scholarship guides.  The College Board website offers information about scholarships and has links to scholarship search services.  There should not be a fee for scholarship information:  if you are asked to pay for scholarship information, the scholarship service could be a scam.  If your child decides to attend college in South Carolina, he/she may be eligible to receive the LIFE scholarship program or the Palmetto Fellows Scholarship.

A 529 plan is a great way for parents (and grandparents) to save for college. Assets in a 529 plan can be used to fund education expenses at eligible institutions nationwide. A 529 plan is a college savings vehicle that operates similarly to an Individual Retirement Account or 401(k).  The money in the plan grows tax-deferred, and when the assets are used for qualified education expenses, the money is tax-free.

There are no age or income restrictions for opening a 529 plan. The 529 plan is considered an asset of the account owner which can be beneficial for financial aid eligibility because parent’s assets are less heavily weighted than a child’s assets when determining financial aid eligibility.  Also, if the account owner is a grandparent, the account value is not  included in determining financial aid eligibility.

Because the assets in a 529 plan are the account owner’s and not the child’s, the plan remains in the owner’s control and the owner can designate the beneficiary. For example, if your child receives enough scholarship money to pay for college or decides not to attend college, you as the owner of the plan can change the beneficiary as long as the new beneficiary is a family member of the original beneficiary.

Account owners can control the investments in a 529 plan through limited investment choices.  The 529 plan also offers a few different auto-pilot investment choices.  One option, known as the age-based choice, chooses investments based on the beneficiary’s age.  As the beneficiary ages and gets closer to enrolling in college, the investments shift from aggressive growth oriented investments to safe, income producing investments.

Money in a 529 plan that is not used for college expenses can be left in the account for graduate school or other higher education expenses. If the funds are not used for higher education expenses, there is a 10% penalty on the investment growth and income taxes will need to be paid.

In South Carolina, the plan is known as a Future Scholar 529 Plan and can opened with as little as $250.  South Carolina offers a state income tax deduction for contributions to a Future Scholar 529 plan.  So, if you contribute to the South Carolina 529 plan to pay for tuition you may be able to deduct contributions to the Future Scholar plan on your South Carolina income tax return.

The key to funding your child’s college education is to be proactive.  You want to start saving for college early by saving small amounts over a long period of time, allowing the assets to grow.  A great resource when looking for ways to fund a college education is This website offers a variety of information about the different avenues available to fund college expenses – from calculators that help estimate how much your child’s college education will cost to ways that help estimate your child’s financial aid eligibility.

This article originally appeared in the March, 2012 issue of Midlands Business Trends. It was also published on The Columbia SUNNE.WS.

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