Personal Finance Chat: Vern Hayden and Anna Leider Talk College Financing - TheStreet

Vern Hayden chatted with Anna Leider on Yahoo!, Tuesday, October 24th at 5 p.m. EDT.

laura_the_street:

Welcome to tonight's personal finance chat. Our guests are

Anna Leider

and

Vern Hayden

, both are leaders in their fields. Anna Leider is the publisher of Octemeron Associates, a higher education publishing and consulting firm based just outside of Washington, DC. Vern Hayden is a financial consultant and advisory associate of Financial Network Investment Corp. He is an owner of Hayden Financial Group and he is a regular columnist for

TheStreet.com

.

laura_the_street:

Merrill Lynch is not responsible for the information provided by TheStreet.com during this chat. This chat will focus on a parent's financial planning for their child's college education.

vern_tsc:

Hi everybody! Let's get these kids educated!

leider_anna2000:

I look forward to answering all of your college planning questions.

zooey_franny asks:

I'd like to save some money for my nephew's college education. He turns 1 in November and I'd like to start my investment with $1,000 - what's the best way to ensure that that money will grow over the next 18 years?

vern_tsc:

Take a look at a good growth mutual fund. There's plenty of time to overcome rocky markets. Try Selected American or White Oak Growth..no loads..also go to library and check out

morningstat

for 4 and 5 star rated funds over 5 years.

leider_anna2000:

You should also look at state-sponsored tuition savings programs. The money will grow tax-deferred with families paying federal tax at the student's rate on the appreciation when they redeem the funds for college. Most states have a plan, www.savingforcollege.com.

laura_the_street:

How much is a good amount to give the fund each month, or is the initial investment going to be enough?

vern_tsc:

If you project the cost of a four year college education. 18 years from now it would be about 267,000 at a private and 125,000 at a public. It would take a monthly savings of 557 for a private and 262 a month for public assuming 8% growth.

leider_anna2000:

We encourage families not to be too scared by these projections, and to focus on saving enough to pay for half of college. They will be able to use their current earnings and student earnings, as well as a small loan when the time comes to enroll.

vern_tsc:

I agree. Anything is better than nothing.

absenceofmalice asks:

Is it too late to start saving for a 13-year old?

leider_anna2000:

It's never too late to start saving. And remember, the student will be in college for 4 years, until he or she is 21. That's 8 years in which to save.

honey_crash asks:

Will I miss out on financial aid if I put money away for college?

leider_anna2000:

Most financial aid now takes the form of loans. So, yes, you may miss out on some low-interest loan money, but you won't be saddled with debt after graduation. There's also an increasing amount of merit aid and your savings have little impact on your eligibility for that money.

laura_the_street:

What about scholarships? What if my child isn't athletically inclined, or a rocket scientist? Can she still hope for help with the cost of a good education?

leider_anna2000:

With athletic aid, remember, coaches need back-up players, as well as starters. Over 1200 colleges offer academic-based scholarships. At some schools, students need only a B average, or 900-1000 SATs to qualify. A student may qualify for academic at one school (where he or she is a "top applicant" but not at another where she or she barely meets the admission threshold.

laura_the_street:

What about the extra's? Travel expense, books? How do you get $$ for those?

leider_anna2000:

The "cost of attendance" on which financial aid decisions are based includes tuition, fees, books, room, board, transportation as well as an allowance for computer expenses (as much as $3000 at some schools) and an allowance for "miscellaneous" which can be set quite high for students with special needs, or child care bills.

brave_chicken asks:

So I finally made it to college. Of course I'm happy but at the same time I'm worried about paying for college after I graduate. Any help?

leider_anna2000:

The federal government is trying to make it easier to repay student loans. For example, you can consolidate all your loans into one, and take up to 30 years to repay. Of course, this means you're paying much more in interest than someone who repays quickly.

leider_anna2000:

You can also look into "forgiveness" programs like Americorps, or teaching in underserved communities, and the US Army is happy to help you repay as well, in exchange for a quick salute, and a few years of your time.

laura_the_street:

Before I start pimping out my son and have him join a boy band what do you think about putting a portion of my salary in IRA Roth?

vern_tsc:

There are two different kinds of IRA's that can potentially help fund an education. This can get a bit detailed so I'll highlight. Congress threw us a bone in the last tax bill and created an educational IRA. The problem is it only allows for a contribution of 500 a year. At 12% growth per year it comes to about 28,000...not nearly enough...maybe for a year. So if your going to use that keep it going till the senior year.

leider_anna2000:

Congress, as well as our nominees for President have proposed expanding the education IRA to as much as $5000 per year. If and when that happens, these savings vehicles will be worth looking into.

vern_tsc:

Another approach is for a parent or grandparent to use their Roth IRA. You can withdraw money from your ROTH to pay what's called qualified higher education expense. It can be for you, your spouse, your child or grandchild. The 10% penalty for early withdrawal is waived. If you use only the amount you contributed there is no tax, however any growth is subject to tax in your regular tax bracket.

leider_anna2000:

Raids on your Roth will cause your fund to grow more slowly, however, so if you REALLY need the money for retirement, you may want to look at other resources.

vern_tsc:

There is no dollar limit on the amount you can withdraw for education. Over 18 years one parent will have 36,000 and two parents double that so 72,000 could be used without ant tax penalty. The growth could be kept for retirement and there would be no tax. Of course all this has to be adapted to your unique situation, we're just talking about general possibilities.

laura_the_street:

How important is the information on your college application in relation to what kind of financial aid package you receive?

leider_anna2000:

The relationship between admission and financial aid has grown much more complicated over the past few years.

leider_anna2000:

In general, the better the student, the "sweeter" the financial aid package, more grants, fewer loans. Conversely, at some schools, students who need a great deal of financial aid might be passed over in favor of a less-needy but equally qualified student. The situation varies from school to school and from student to student so it's hard to give a more specific answer.

love_u_4_ever_n_ever asks:

do you know anything about tax deductions?

vern_tsc:

The taxpayer Relief Act of 1997 provided for some educational tax credits. This applies to single income earners of $40,000 or less or joint returns of $80,000 or less. The first is called the HOPE credit. The credit equals 100% of the first $1,000 and 50% of the next $1,000 of tuition expense. There's a max of $1,500 for each student. It can only be used for the first two years of college.

leider_anna2000:

The Lifetime Learning credit allows taxpayers to claim an annual credit of up to 20% of tuition expenses, capping out, currently, at $5000 in expenses. Finally, there is a deduction of up to $2000 for interest paid on student loans

vern_tsc:

Just to clarify what a credit is, it's a dollar for dollar reduction of your tax bill.

laura_the_street:

Thanks so much for joining us this afternoon.

laura_the_street:

We've been chatting with Anna Leider of Octemeron Publications and Vern Hayden of TheStreet.com. For more information on how to finance a college education go to www.thinktuition.com.

leider_anna2000:

Good luck to everyone and I look forward to the next chat.

vern_tsc:

Thanks for a fun hour and hope you can get those kids through school.