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Early planning makes college easier to afford
MISSISSIPPI STATE -- Paying for college is expensive, but parents can make the task easier on themselves and their child if they start saving when the child is young.
The cost of a college education at a public university for children born this year is expected to be $100,000. For those wishing to attend a private university, the cost rises to $235,000 for the four-year experience.
Jan Lukens, Extension consumer management specialist at Mississippi State University's Coastal Research and Extension Center in Biloxi, said compound interest works in favor of those who start saving early.
"The sooner you start saving, the better, even if you only save just a small amount each month," Lukens said. "You can be well on your way to having the funds needed for your child to go to college."
Among the issues parents need to consider are the amount of money they hope to accumulate, how many years they have to do this, the rate of return necessary to reach the financial goal, and taxes that will be imposed on earnings.
"If parents start investing $25 a month at 8 percent interest when the child is born, by the time that child is 18, they will have just over $12,000," Lukens said. "If they save $100 a month, they would have more than $48,000. A one-time investment of $20,000 at an 8 percent return when the child is born can grow to just under $80,000 by the time the child is ready for college."
The state of Mississippi offers two college finance programs to residents, the Mississippi Pre-paid Affordable College Tuition and the Mississippi Affordable College Savings programs. Known as MPACT and MACS, each offers different financial solutions.
Those who contribute fully to MPACT lock in the cost of tuition at any public Mississippi school. The money does not guarantee tuition at out-of-state schools, but can be transferred to some family members other than the one for which it was intended. If the child decides to study out of state, the money invested can generally be refunded to the parents, with no guarantee that it will cover tuition elsewhere.
"One of the strengths of MPACT is that it's guaranteed by the full faith and credit of the state of Mississippi," Lukens said. "Its use is restricted to tuition and mandatory fees at public institutions, and does not cover items such as housing and books."
MACS is similar to a 401K fund, but with fewer investment alternatives. Money paid into this program grows until the child is ready for college and can pay for school expenses at most institutions in Mississippi or across the country, and even some international schools. A parent, grandparent or friend can contribute up to $10,000 a year, for a total of $20,000 per couple, and receive a state tax deduction on this amount.
"The nicest thing about this program happened very recently. Funds withdrawn for education are not taxable, starting in 2002," Lukens said. "Only a Roth IRA or tax-exempt municipal bonds offer this same type of tax exemption."
MACS can be set up for as little as $15 a month through payroll deduction. Money can be transferred to other siblings or first cousins, and can be spent on tuition, room, board and books.
"Talk to a tax advisor to determine what investment plan is best for you and your needs," Lukens said.
More information on the state's college finance programs is available online at www.collegesavingsmississippi.com or by calling 1-800-987-4450.
There are other options for hopeful college students who don't have a bankroll ready to finance their education. Financial aid, scholarships and part-time jobs fund many people's college education.
"The child and the family should start looking into financial aid no later than the child's junior year," Lukens said. "The sooner they start doing that, the more likely they are to find options available."
Most financial aid is in the form of loans, that while useful, can mean graduates start their career with a tremendous debt load. Scholarships often are linked to good grades, but extracurricular activities weigh heavily also. Part-time jobs or work-study programs are another way for students to pay their own way through school.