What kinds of expenses does a college savings plan (529) pay for and how much should we be setting aside for additional college expenses?
Answers | 2
Great question. The easiest way to think about this is that a 529 plan will cover expenses billed by the college. If the bill comes from anything other than the school, you’re out of luck.
A financial aid note about 529 plans: If you’re otherwise eligible for financial aid, your financial aid award will be reduced by 5.6% for every dollar you have in that 529 plan (or any parent-owned asset).
Your question of how much to set aside for college is a difficult one to answer. If you look at the sticker price of college, today, you’re going to pay about $100,000 for 4 years. Here are 3 examples using Maryland schools in-state rates:
University of Maryland: $24,685 per year or $98,740+ for 4 years
Towson University: $25,208 per year or $100,832+ for 4 years
Salisbury University: $23,618 per year or $94,472+ for 4 years
Now, these are the sticker prices. The only way you pay sticker price is if your income and assets are too high. What’s too high? For these schools, too much income is about $110,000.
Now, let’s say your income is $80,000. If you have no assets you’ll only have to pay about $10,000 to $15,000 per year… Unless you have too much in assets. In this case, you would need $200,000 in total assets before you would get ZERO financial aid help.
I hope this helps answer your question. Here’s a link to Amazon.com for a book that will help you understand this: http://amzn.to/1JK9YNK. (Yes, I’m the author of this book.)
Or, reach out to me and I will be happy to help you create a college funding and savings plan for your specific family. My contact details are in my profile.
Please let me know if you have any questions.
In my personal experience, the amounts published by my kids' school is a few thousand less than it really costs to live off campus but pretty close"