Stretch College Savings With a Year-End Review
Sometimes paying for your children's college education is as much of a matter of stretching savings as it is about saving more. When Ohio parents Leny and Lowell Tenpas sent their daughter Hannah to Ohio State University, they wanted her to take ownership of her education.
The couple made their daughter a deal: They would pay for tuition out of her tax-advantaged college savings plan, commonly known as a 529 plan, and she would pay for room and board.
Hannah became really frugal with her money because she had to budget for that expense, Lowell Tenpas says. She learned how to buy and sell textbooks online as well as rent textbooks.
The family quickly learned that on-campus living was expensive. It cost Hannah about $400 per month to live in a tiny suite without cooking facilities with other students. While she paid about the same amount of money to live off campus, she was able to cook all of her meals.
The campus meal plan cost $8 per meal. The family decided on a plan with a large number of meals the first semester - but Hannah had quite a few meal credits left on her card when the semester ended.
If students find a cheaper alternative than the cafeteria for a meal each day, such as spending $2 per day for a breakfast of bagels and cream cheese, they'll save $6 per day on just the one meal. Those savings could add up to hundreds of dollars over the course of a 16-week semester.
In her own apartment, Hannah had cereal and milk for breakfast and made sandwiches. She spent about $40 per week on groceries, plus the cost of a two-day-a-week meal plan. Over the course of a semester, she saved $2,000.
Housing and food aren't the only areas families can review spending to find places to stretch savings to pay for college. Often students waste money by not taking enough credits per semester, says Mary Morris, chairwoman of the College Savings Foundation and CEO of Virginia529, the state's college savings plan.
[Review 529 plans annually to set savings goals.]
If a student only takes 12 to 14 credits per semester, he or she might graduate in five years instead of four, she says. The additional year will automatically cost families more in room and board, simply because the student will need another year of food and housing.
However, at some schools, the extra year will also cost students more in tuition. If the student attends a college where there is a set cost per semester, the tuition and fees cost could be roughly the same for 12 credits as it would for 18 credits, Morris says. She says students should take as many courses as they can reasonably handle.
Families should also consider whether they'll get money back from the Internal Revenue Service or from their state return, says Michael Strauss, a Virginia-based certified public accountant. If families qualify, they could see up to a $2,500 federal tax credit per student in college that they can put toward expenses for the following year.
[Learn how to maximize state tax benefits for 529 plans.]
The federal tuition deduction may be available for those who don't qualify for federal tax credits based on their income. Don't assume if you qualify one year for a federal tax credit or deduction, that you will the next, Strauss says. Income changes can affect eligibility. Pay attention to IRS rules as well as rules listed on tax documentation from your child's school and from your 529 plan regarding distributions, he says.
Frugality helped the Tenpas family the most with Hannah's college expenses. She still has some money in her 529 plan postgraduation and earned money for grad school through Teach for America, a nonprofit program that offers employment and educational assistance for teachers.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
