Before the establishment of the United Negro College fund in 1954, the reality for most African Americans who wanted to go to college was to either come from a wealthy family or get their tuition from private resources or benefactors.
Across all racial lines, basic education was reserved for the privileged and college was reserved for the wealthy. That’s hard to imagine in today's highly educated society, where for many opportunities, a bachelor's degree is a minimum requirement.
But who pays for college? According to the College Board, while some parents are able to provide their children with the financial resources to pay tuition and fees without serious difficulty, college would be out of the question for a large majority of students without generous subsidies from the government or scholarships from colleges and universities.
And the costs of higher education continue to rise. The average cost of tuition and fees for the 2014–2015 school year was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents attending public universities.
As a result, students are making up the difference by taking out private and federal student loans. In 2013, 69 percent of graduating seniors at public and private colleges had student loans and the average amount of debt owed was $28,400. As a result of the growing student loan debt burden, Millennials are less secure with their finances and delaying buying their first home and starting a family.
Dominique Broadway of Maryland says that her friends were stunned when she purchased her home before graduation. Broadway says her grandfather began saving for her tuition “as soon as she got a social security number.” He started by purchasing $25 saving bonds each paycheck and as his salary increased so did his contribution. By the time Broadway reached college, she had the savings from her grandfather and several scholarships. She finished school debt free and used the money left over as a down payment on her condo.
She says that because of her grandfather’s planning, she left school with an asset, while the rest of her friends returned home so they could figure out a game plan for paying their loans. Understanding the importance of a debt-free start, Broadway contributes regularly to a 529 plan she set up for her younger sister.
Most financial institutions have a product tailored specifically to helping parents and family members plan for a loved one’s future education expenses. For individuals who are starting to plan for college, there are several options available.
One of the most well known options, this plan is named after section 529 of the federal tax code. While the plans vary from state to state, they all offer the ability to set aside funds for qualified higher-education expenses on a tax-deferred basis. It should be noted that the 529 plan can be transferred to another child. For example, a young professional might take out a 529 plan for a niece or nephew, but a few years later they have their own child. The plan can be transferred to their child and all the money that has been accruing interest would remain with the funds.
College Prepayment Plans
Under these plans, you contribute funds to a specific college, prepaying your child's costs at that college. The biggest drawback of this plan is that your child may not want to go to the particular college or for academic reasons they may not even get accepted by the school you have been contributing to.
U.S. Savings Bonds
An oldie but goodie when it comes to college planning. This option is popular primarily because of its safety, backing by the government, and lack of sales fees. Series EE Savings bonds are also not subject to state or local taxes and may be free of federal taxes for those who qualify and use the bonds solely for their child's college education.
Coverdell Education Savings Accounts
A less-known option, this account allows single individuals who meet certain income requirements to contribute a maximum of $2,000 (non-deductible), per child (under the age of 18), per year. Withdrawals are tax-free and can be used to pay for qualifying college costs and may even include elementary and secondary school expenses. Covered expenses include tuition, fees, room and board, books, computer equipment and uniforms. Under this option, your income cannot exceed $110,000 for a single taxpayer or $220,000 for a joint return.
This approach enables parents, grandparents or other family members to set aside money for their children with the assurance that it will be used exactly as the parent wishes. Establishing a trust requires the services of an attorney, an accountant and a trust specialist. A life insurance policy can be placed in a trust.
A financial planner can help you determine your education funding needs by preparing a financial analysis for your family. A financial adviser can also help parents plan for inflation, which is important because when adjusted for inflation, students today are paying more than triple what students paid 30 years ago to attend a public, four-year institution and about 2.5 times more to attend a private nonprofit or two-year public one.
College planning is essentially life planning. Attending college not only provides an academic advantage, there are often invaluable social networks and relationships that are built in college. Helping your child or a loved one cover half, if not all of their tuition could provide them with an added peace of mind and opportunity when they get their degree.