How Military Families Can Save for College

Reyna Gobel

Navy service member Xavier Gamez started looking for college scholarships for his kids as soon as they were born. "I found out about the [USAA Distinguished Valor] matching grant program when searching the Nevada Treasury Department website, looking for scholarships for my kids," he says.

He receives a $300 annual matching grant for five years for both of his children. He qualified by meeting active duty military service requirements, being a Nevada resident, and choosing USAA's 529 plan, a tax-advantaged college savings account. The extra college cash is also available to Nevada families of Purple Heart recipients.

[Learn about scholarships honoring veterans and their families.]

Regardless of where they live, military families should follow certain college savings guidelines, experts say.

Service members should start by considering the USAA College Savings Plan. "While the USAA 529 College Savings Plan is open to both military and civilian families, other USAA products aren't," Nevada State Treasurer Kate Marshall says. "USAA members can keep all their financial business in one place and deal with one person."

Parents can therefore talk about their retirement accounts at the same time as 529 plans, she notes. Membership continues after leaving the military and is passed onto family members. "Your father's there, your mother's there, you're there, your aunts, your uncles--everyone is in the same program," she says.

There are numerous factors that go into picking a 529 plan. Investment-research firm Morningstar's ratings of college savings plans are based on price, range of investment choices, and how they're managed. The USAA option is a bronze-rated plan by Morningstar mutual fund analysts.

"The USAA plan is quite a good plan," says Kailin Liu, a Morningstar analyst. "It's all active management," she says, where the fund managers make individual investment choices instead of sticking to a fund based on a financial index.

"People have opinions on whether that's something they want or something they don't want. Active management can at times look better, at times look worse," Liu says. "If you invest in this kind of plan you want to make sure the plans are good at what they do, and that very much is the case with the USAA plan," she says.

[See why military students and vets struggle with paying for college.]

Military families should compare USAA's plan with other highly rated plans, Liu says. While the bronze USAA plan is recommended by Morningstar, gold and silver plans come with an even higher level of recommendation. For instance, a parent who prefers plans that aren't actively managed may decide to go with the gold-rated Utah Education Savings Plan because of lower plan fees or price.

There are 4 gold, 4 silver, and 19 bronze 529 plans available, she says. About 100 plans earned negative or neutral ratings. However, they don't account for tax deductions or matching grants.

While USAA is considering matching grant programs for other states beyond Nevada, this isn't available yet. Military parents should therefore consider tax deductions and matching grants that they might be eligible for in their home state, Liu says.

"The grants we tend to hear about are need-based grants restricted to the residents of a particular state. Maine residents have quite a few grants that they can apply for."

Tax deductions are often available to military and civilian families alike, experts say. Military families should review all their options and pick the plan that works best for them--taking into account the benefits that are open to everyone as well as those specific to the military.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.