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How to Find the Right 529 Savings Plan for You

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

It is never too early to think about saving for college, and a 529 savings plan can help you do just that.

No other savings or investment account offers the tax breaks that a 529 college savings plan offers, which means that every dollar you contribute can cover a greater share of college costs. That’s especially helpful considering the average net price of a private nonprofit university came in at $26,740 for the 2017-18 school year, and the cost of college is on the rise.

But with almost every state offering a 529 savings plan, and with many offering more than one, it can be challenging to figure out which plan is right for you.

If you’re already well-versed in this savings tool, you can see our roundup of the best options here:

The truth is that contributing to a 529 savings plan isn’t always the right move. You may be better off using a different college savings account or even focusing on other financial responsibilities first.

This guide will help you sort through all of that. You’ll learn what a 529 college savings plan is, how it works, how to choose the right plan for you and alternatives you should consider.

What is a 529 college savings plan and how does it work?

A 529 college savings plan is an investment account that offers a number of tax breaks when the money is used for qualified education expenses:

  • Contributions are made after taxes, though there are a number of states that allow either a deduction or a credit for state income tax purposes.
  • Your money grows tax-free while it is in the account.
  • Money can be withdrawn tax-free for qualified education expenses, which typically includes tuition at any eligible school from elementary onward, as well as fees, books and room and board at an eligible higher education institution. If you withdraw the money for any other type of expense, the earnings will be taxed and subject to a 10% penalty.

529 savings plans offer a preselected set of mutual funds and your account balance will rise and fall based on your contributions and the performance of your chosen investments. Most 529 savings plans also offer age-based investments that provide an all-in-one portfolio and automatically become more conservative as your child approaches college.

529 savings plans are administered by states, with every state except for Wyoming offering at least one plan. However, you do not have to use your home state’s plan, and in some cases, you may be better off going elsewhere.

Regardless of which 529 savings plan you choose, you can withdraw the money tax-free for expenses incurred at any eligible school in any state, and even for certain international schools.

Anyone can open a 529 savings plan and name anyone else, including himself, as the beneficiary. You can also change the beneficiary later on, as long as the new beneficiary is related to the old beneficiary.

In short, 529 savings plans allow you to save and invest for future education expenses in a tax-advantaged way.

Prepaid tuition plans vs. savings plans

In addition to 529 savings plans, some states also offer prepaid tuition plans that may be advantageous in certain situations.

Prepaid tuition plans allow you to buy units that each typically cover 1% of one year’s worth of college tuition at a public, in-state university. This essentially allows you to lock in the current cost of college, protecting you against the risk that tuition costs will continue to rise.

“The huge part of a prepaid tuition plan is that it’s guaranteed,” said Angie Furubotten-LaRosee, fee-only CFP and founder of Avea Financial Planning. “With a traditional 529 plan you have to worry about market fluctuations, and with these you don’t.”

There are downsides, though. The biggest of which is that while you can usually get your money back if your child wants to go to a private college or go out of state, the return is typically much smaller than what you would get from attending an in-state public school.

This is in contrast to a 529 savings plan, which allows you to use the money you’ve earned at any eligible institution.

“Prepaid plans are ideal for parents who have a good idea of where their child will attend college and who are willing to give up investment flexibility to lock in those costs,” said Kathleen Boyd, CFP and wealth adviser at Navigoe. “However, if you’re uncertain about your child’s future college plans, then a 529 savings plan may be the ideal option.”

Benefits of a 529 savings plan

1. Tax breaks

The tax breaks are the main advantage of 529 savings plans over other savings and investments accounts.

The growth and the ability to withdraw the money all tax-free for qualified education expenses mean that every dollar you contribute can multiply faster and cover a greater portion of your education expenses.

And if you live in one of the states that offers a state income tax break for contributions, you can potentially afford to make a bigger contribution without affecting your monthly budget, allowing you to get an even bigger head start.

“If you are in a state that offers good benefits, and some states even offer matching funds, it really is the right choice at that point because you aren’t going to get those benefits from any other option,” said Nannette Kamien, CFP and principal of Inspiration Financial Planning, a fee-only financial planning firm with expertise in helping families prepare for college financially.

2. High contribution limits

If you’d like to save a lot of money for education, a 529 savings plan will allow you to do it.

There is no annual contribution limit, though contributions are subject to gift tax rules, which means that you can effectively contribute $15,000 per year, per child, without exceeding the 2018 gift tax exemption. That limit is applied per donor, meaning that parents can combine their limits to contribute up to $30,000 per year, per child.

The tax code also allows you spread excess contributions over a 5-year period, meaning that as a couple, you could potentially contribute up to $150,000 in a single year without any gift tax consequences.

Most 529 savings plans do have lifetime contribution limits, but those limits are very high. For example, New York allows you to contribute up to $520,000 to any single beneficiary, and Utah allows up to $446,000 per beneficiary.

Additionally, there are no income restrictions on contributions, so anyone can take advantage of a 529 savings plan no matter how much money you make.

3. Mindset and accountability

One of the biggest benefits of contributing to a 529 plan is that it establishes saving for college as a real goal with progress that can be tracked along the way.

“Just having the 529 plan in and of itself solidifies that it’s an important priority for you and your family,” said Furubotten-LaRosee. “It’s now a budget item, it’s identified as money that’s earmarked for college, and I think that setting that habit is half the battle for a lot of people.”

4. Potential for long-term returns

By offering mutual funds that are invested in the stock and bond markets, 529 savings plans allow you to participate in the long-term, compounding returns that those investments offer. This can be especially powerful if you start when your child is young.

“Families who can invest over the long term are prime candidates for 529s,” said Boyd. “The earlier you start, the more time you have to take advantage of compound returns the markets provide over time.”

5. Low impact on financial aid

Many people are hesitant to save for college because of the potential impact on financial aid, but 529 savings plans have a relatively low impact.

As long as the account is held in a parent’s name, only up to 5.64% of the money in a 529 savings plan will be counted on the FAFSA. For example, if you have $100,000 in your 529 savings plan, only $5,640 will be considered for financial aid purposes.

In other words, there’s very little penalty for having money in a 529 savings plan. And the benefits of saving the money ahead of time will almost always outweigh any small decrease in financial aid.

6. Ability to change beneficiaries

529 savings plans allow a reasonable amount of flexibility when it comes to changing the beneficiary of the funds.

You are allowed to change the beneficiary as often as you like, and the only restriction is that the new beneficiary must be a family member of the old beneficiary. For the purposes of 529 plans, “family members” include siblings and stepsiblings, children, stepchildren, and grandchildren, parents, grandparents, nieces, nephews, first cousins and even in-laws.

All of which means that if the money isn’t needed for the original beneficiary, you can simply use it for another family member.

Pitfalls of 529 savings plans

1. Taxes and penalties if not used for education

The biggest downside to using a 529 savings plan is that if you withdraw money for anything other than qualified education expenses, the earnings will be subject to taxes and a 10% penalty.

This is one reason to be careful about over-contributing, and also to not contribute money that may be needed for other financial goals.

“That’s where that overarching financial plan comes into play,” said Furubotten-LaRosee. “You can always use other vehicles, like a Roth IRA, that come with more flexibility.”

2. Investment options can be narrow and confusing

Each 529 plan offers its own preselected set of investment options, and those options vary widely in terms of what they invest in and how much they cost. Sorting through all of those options and making the best choices for your needs can be difficult.

“Sometimes I see that parents are afraid to really invest the money and they don’t understand what the different investment options mean,” said Kamien. “Sometimes they get stuck in investments that are higher cost, and that really eats into the earnings that they could have gotten.”

Kamien said that she encourages people to look for “age-based index” options. These funds provide an all-in-one portfolio that automatically gets more conservative as your child approaches college, and they build the portfolio with index funds, which are generally low cost and have been shown to outperform actively managed funds the majority of the time.

3. Other financial responsibilities may be more important

While saving for college is a great goal, it’s often a good idea to handle other financial responsibilities first. This is especially important to consider before contributing money to a 529 savings plan because of the taxes and penalties on nonqualified withdrawals.

“I certainly would caution a parent or grandparent against sacrificing their own financial goals like saving for an emergency fund, paying off debt or retirement plans to contribute to a 529 plan,” said Boyd. “Saving for education is very important, but it’s also a luxury and a privilege for your children, and it shouldn’t come above your own financial security.”

How to compare 529 savings plans

When it comes to choosing a 529 savings plan, start by looking at the potential tax breaks offered by your home state’s plan, said Fred Amrein, a college funding expert and the founder of EFC Plus.

“You need to understand your in-state plan first, and if the beneficiary is in another state you need to understand their state’s plan next,” Amrein said. “In some cases, it may be more beneficial to gift the money to the beneficiary or the beneficiary’s parents and let them contribute the money.”

Even if your state does offer tax breaks, it’s not a given that your home state’s plan is the best option. There are a few more major variables you should consider as you compare 529 savings plans.

Here are the criteria we used to construct our list of best 529 plans.

Out of state

We evaluated each 529 savings plan from the perspective of an out-of-state resident. That means that state income tax breaks were not considered and that any 529 plans that are unavailable to out-of-state residents were ruled out.

Fees

Research has shown that cost is the best predictor of future investment performance, with lower costs leading to better returns. For that reason, we preferred 529 plans that minimized both investment and administrative fees.

We also filtered out adviser-selling 529 plans, which are specifically designed to be sold and managed by financial advisers and have higher fees in the form of commissions and management fees. Given that financial advisers can also advise on 529 plans that are sold directly to the consumer, and therefore cost less, we limited our search to those direct-sold plans.

Investment options

Investment portfolios built with index funds have been shown to outperform actively managed portfolios 80%-90% of the time, and we therefore only included 529 savings plans that offer index funds.

We also limited our list to 529 savings plans that offer age-based portfolios constructed with index funds, since these all-in-one portfolios simplify the investment process and automatically decrease your investment risk as your child nears college age.

Finally, we preferred 529 savings plans that offered access to individual index funds that allow investors to build custom portfolios if they so choose.

Minimum investment

Finding room in your budget for college savings can be difficult, so we did not consider any 529 savings plan that required a significant minimum investment.

None of the plans listed below require more than a $50 initial investment.

Other features

While most 529 savings plans offer most of the same basic features, we did consider additional features offered by certain plans that may be helpful for some investors.

The nine best 529 savings plans

Fidelity Arizona College Savings Plan

Arizona’s College Savings
Arizona’s College Savings Plan is managed by Fidelity, just like Delaware, Massachusetts and New Hampshire, which also appear on this list. Each of these states offers essentially the same plan.The index funds are high quality and low cost, and there are no other significant fees, though the presence of higher-cost actively managed funds could lead some people to pay more than they have to.

  • Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.
  • Other features: None of note.
  • Website:https://www.fidelity.com/go/529-arizona/overview

California ScholarShare 529

ScholarShare 529
Managed by TIAA-CREF, California offers a selection of both index funds and actively managed funds. The lineup of passive age-based funds and individual index funds is strong.
  • Investment options: Age-based portfolios constructed with TIAA-CREF index funds, as well as access to individual TIAA-CREF index funds, if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.11%-0.17% per year. Individual index funds range from 0.08%-0.20% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $25 otherwise.
  • Other features: None of note.
  • Website:https://www.scholarshare529.com

Delaware College Investment Plan

Delaware College Investment Plan

Delaware’s College Investment Plan is managed by Fidelity, just like Arizona, Massachusetts and New Hampshire. These states offer essentially the same plan.

The index funds are high-quality and low-cost and there are no other significant fees. The plan does offer higher cost actively managed funds, which could lead some people to pay more than they have to.

  • Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.
  • Other features: None of note.
  • Website:https://www.fidelity.com/go/529-delaware/overview

Illinois Bright Start Direct-Sold College Savings Program

Illinois Bright Start Direct-Sold College Savings Program
The index age-based funds use Vanguard mutual funds with some of the lowest fees offered by any 529 savings plan. Even the higher-cost “multi-firm” age-based funds cost less than most actively managed funds offered by other plans.

  • Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds and DFA funds — a highly respected group of mutual funds that are typically only available through financial advisers — if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.12%-0.15% per year. Individual Vanguard index funds range from 0.10%-0.18% per year. There are no account maintenance fees.
  • Minimum initial investment: None
  • Other features: None of note.
  • Website:https://www.brightstartsavings.com

College Savings Iowa

College Savings Iowa
Every investment offered within Iowa’s 529 savings plan is managed by Vanguard and costs just 0.20% per year. And with a strong lineup of both age-based portfolios and individual mutual funds, you have plenty of room to personalize your investment plan.

  • Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio.
  • Fees: Every investment option costs 0.20% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $25 otherwise.
  • Other features: None of note.
  • Website:https://www.collegesavingsiowa.com

Massachusetts U.Fund College Investing Plan

Massachusetts U.Fund College Investing Plan
Massachusetts U.Fund College Investing Plan is managed by Fidelity. The plan is essentially the same as Arizona’s, Delaware’s and New Hampshire’s.

It offers high-quality, low-cost index funds with no other significant fees, though the presence of higher cost actively-managed funds could lead some people to pay more than they have to.

  • Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.
  • Other features: None of note.
  • Website:https://www.fidelity.com/529-plans/massachusetts

New Hampshire UNIQUE College Investing Plan

New Hampshire UNIQUE College Investing Plan
New Hampshire’s UNIQUE College Investing Plan is managed by Fidelity, just like Arizona, Delaware and Massachusetts. Each of these states’ plans are on this list and are basically the same.

New Hampshire’s plan offers high-quality, low-cost index funds with no other significant fees. However, the plan offers higher cost actively-managed funds, which could lead some people to pay more than they have to.

  • Investment options: Age-based portfolios constructed with Fidelity index funds, as well as access to individual Fidelity index funds if you’d like to customize your portfolio.
  • Fees: Age-based index funds range from 0.13%-0.16% per year. Individual index funds range from 0.13%-0.18% per year. There are no account maintenance fees.
  • Minimum initial investment: $15 with enrollment in automatic contributions. $50 otherwise.
  • Other features: None of note.
  • Website:https://www.fidelity.com/529-plans/new-hampshire

New York’s 529 College Savings Program

New York’s 529 College Savings Program
Like Iowa, New York’s 529 College Savings Program offers only Vanguard index funds and index age-based funds, and in this case, the cost of each fund is even lower at 0.15% per year.

If your priority is minimizing fees and accessing Vanguard funds, this is likely the plan for you.

  • Investment options: Age-based portfolios constructed with Vanguard index funds, as well as access to individual Vanguard index funds if you’d like to customize your portfolio.
  • Fees: Every investment option costs 0.15% per year. There are no account maintenance fees.
  • Minimum initial investment: $0.
  • Other features: None of note.
  • Website:https://www.nysaves.org

Utah my529

Utah my529

Utah’s my529 offers possibly the most noteworthy set of features of any 529 savings plan:

  1. You can create your own age-based portfolio from the underlying funds offered by the plan, which include Vanguard index funds as well as DFA funds that are typically only offered by financial advisers.
  2. If you are working with a financial adviser, you can give him or her access to your 529 plan in order to manage your investments.

The fees are slightly higher than the other 529 savings plans listed here — though they are still very low — but the investment capabilities are second to none.

  • Investment options: A wide variety of age-based portfolios, Vanguard index funds and DFA funds.
  • Fees: Age-based index funds range from 0.169%-0.202% per year. Vanguard individual index funds range from 0.22%-0.40% per year and DFA funds range from 0.37%-0.72% per year. There are no account maintenance fees.
  • Minimum initial investment: $0.
  • Other features: Customized age-based portfolios and financial adviser access.
  • Website:https://my529.org

How to enroll in a 529 savings plan

Once you know which 529 savings plan you want to use, it’s time to open an account and make your first contribution. And while every plan will have a slightly different process, there are a few steps that are likely to be similar across the board:

  1. Have the necessary information ready for the account owner:
    1. Social Security number
    2. Birth date
    3. Mailing address
    4. Physical address
    5. Bank account number and routing number for making contributions
  2. Have the necessary information ready for the beneficiary
    1. Social Security number
    2. Birth date
    3. Mailing address
    4. Physical address
  3. Read the program description, which can be found on the 529 plan’s website
  4. Choose an investment strategy. You can review the options on the 529 plan’s website and in the program description.
  5. Start the application process online or submit the appropriate paperwork.

How to use 529 plans to pay for K-12 private education

The recently passed Tax Cuts and Jobs Act expanded the flexibility of 529 savings plans by allowing investors to withdraw up to $10,000 per year, per child tax-free and penalty-free for tuition for elementary or secondary school.

This opens up more opportunities for parents to use 529 funds for their child’s education. But given how new the law is, it’s a good idea to proceed carefully.

According to Amrein, the tax implications of withdrawing 529 money for K-12 tuition are straightforward on the federal side but are yet to be determined on the state side.

“What a lot of states are dealing with is a lot of them had incentive programs for college contributions,” said Amrein. “What I’m hearing is some of the states are either going to withdraw that incentive or, if you use it for K-12 expenses, there may be a clawback provision that they can rescind that tax break you received for previous contributions.”

If you live in a state that offers tax breaks for 529 plan contributions, and if you’ve taken advantage of those tax breaks, you may want to speak to an accountant before using your 529 funds for K-12 tuition.

Alternatives to 529 savings plans

While the tax breaks offered by a 529 savings plan are hard to beat if you’re saving money specifically for education, there are a number of other savings and investment accounts that can be more advantageous, depending on the specifics of your situation.

Here are some of the major alternatives to consider.

Roth IRA

While Roth IRAs are technically retirement accounts, they have a few characteristics that make them attractive college savings accounts:

  • They offer tax-deferred growth while the money is inside the account.
  • You can withdraw up to the amount you’ve contributed at any time and for any reason without tax or penalty.
  • Early withdrawals of Roth IRA earnings used for higher education are taxed but are not subject to the typical 10% penalty.
  • If you don’t need the money for college, you can keep it in the Roth IRA and use it tax-free for retirement.

“I’m a big proponent of incorporating a Roth into college planning, especially when you have a teenager who is hopefully earning money,” said Furubotten-LaRosee. “Starting the savings habit is a biggie, and if you don’t use it for college it’s available for retirement or any other goal.”

The big downsides are that Roth IRAs are not as tax-efficient as 529 savings plans when used for college and that by dedicating your Roth IRA for college savings, you’re using up valuable retirement space.

Still, the flexibility is often worth it.

Taxable investment account

A regular, taxable investment account doesn’t offer any tax advantages, but it does provide maximum flexibility to invest in whatever you’d like and to use the money at any time and for any reason.

“As a parent, sometimes you need flexibility with your money,” said Furubotten-LaRosee. “You need the ability to control things as life progresses, and not having it tied into a 529 plan means you can access it when you need to.”

Coverdell ESA

The primary benefit of a Coverdell Education Savings Account (ESA) used to be the ability to allocate the money for K-12 expenses, but that benefit is much less relevant now that 529 savings plans can also be used for the same purpose.

Coverdell ESAs also come with stricter contribution limits than 529 savings plans. Contributions are limited to $2,000 per year, per child across all contributors. Once your Modified AGI (adjusted gross income with certain deductions like student loan interest added back) exceeds $110,000 for individuals or $220,000 for married couples filing jointly, you can no longer contribute.

According to Amrein, the main benefit of a Coverdell ESA at this point is the ability to choose from a much wider range of investment options than you can get from a 529 plan.

“It’s kind of like comparing a 401(k) to an IRA,” said Amrein. “Most 529 plans are very restrictive, with maybe five to 10 investment options to choose from. On the Coverdell side, you can invest in anything you want, but you’re limited to $2,000 per year.”

Savings account

While a savings account can’t offer the long-term returns that you might get from a 529 savings plan, Roth IRA or Coverdell ESA, it is a simple and safe choice that can make sense either as a starting point or if your child will be starting college soon.

And Furubotten-LaRosee argues that no matter which account you choose, the main priority should simply be to separate your college savings from your regular checking and savings accounts.

“Even if it’s just in a separate savings account, the main thing is having it really separate and earmarked for college,” said Furubotten-LaRosee. “That gives it a little protection from your day-to-day spending.”

Choosing the right 529 savings plan for you

529 savings plans allow you to save a lot of money while being tax-efficient for your child’s education, which can help defray the rising costs of college.

The first step is always understanding your home state’s plan to see what kind of tax breaks are available. Then, you can compare it with other states to determine which 529 savings plan will allow you to minimize costs and access the best investment options.

Finally, you can make your decision within the context of your entire financial plan. Saving for college is a fantastic goal, and 529 savings plans are a powerful way to do it, but it shouldn’t come at the expense of other financial responsibilities.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

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College Students and Recent Grads

Top Checking Accounts for College Grads

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Top Checking Accounts for College Grads
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For many college students, their default banking option while in school is a student checking account, which is typically free. Unfortunately, when you graduate you lose those benefits. Many student checking accounts will begin to charge you monthly maintenance fees unless you meet certain requirements.

So, where do you go from there?

Few young adults would turn to their parents for fashion or dating advice and, yet, one of the most common ways we’ve found young people choose their bank account is by going with whichever bank their parents already use. This could be a bigger faux pas than stealing your dad’s old pair of parachute pants.

The bank your parents use may carry fees or have requirements that don’t meet your lifestyle or budget, and make accounts expensive to use.

But where do you even begin to choose the right checking account?

When you’re nearing graduation, start planning your bank transition.

Many banks send a letter in the mail a few months prior to your expected graduation date informing you that your student checking account is going transition to a non-student account. If you’re not careful and you disregard the letter, you may be transitioned into an account that charges a fee if you don’t meet certain requirements.

You can always call the bank and ask to switch to a different account or you can choose a new account that offers more benefits, like interest and ATM fee refunds.

Account Name

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

Aspiration Spend and Save Account$0$0$10Unlimited2.00% APY on the balance of the save portion in your account.
Empower Checking Account$0$0$0One out-of-network ATM withdrawal per month1.90%
nbkc bank Personal Account$0$0$5$51.01% APY on all balances
Atlantic Stewardship Bank Cash Back Checking$0$0$1UnlimitedDoes not earn interest. But it does offer 0.50% cash back if you meet requirements
Radius Bank Radius Hybrid Checking$0$0$100Unlimited1.00% on balances from $2,500 to $99,000
One American Bank Kasasa Cash Account$0$0$0None, member of MoneyPass network3.50% APY if requirements are met

0.01% APY if requirements are not met
Orion Federal Credit Union Premium Checking$0, provided you meet qualifications. Otherwise $5$0$0$10 per month4.00% on balances up to $30,000, 0.05% on portion of balances greater than $30,000
TAB Bank Kasasa Cash Rewards Checking$0$0$0Up to $15 in ATM fees reimbursed if minimum account requirements are met4.00% APY on balances up to $50,000
La Capitol Federal Credit Union Choice Plus Checking$2, waived if you enroll in eStatements$0$50Up to $25 per month4.25% APY on balances up to $3,000

2.00% APY on balances $3,000-$10,000

0.10% APY on balances over $10,000 (or on all balances if you don’t make 15 or more posted non-ATM debit card transactions per month)

The 5 key things you should look for in a checking account

When you’re shopping around for a new checking account, there are several things you should look for to ensure you’re getting the most value from your account:

  1. A $0 monthly fee: Sometimes banks may say they don’t charge a monthly fee but read the fine print — they may require a minimum monthly balance in order to avoid it. There are plenty of free checking accounts available for you to open, so there’s no reason to stay stuck with an account that charges a monthly fee. Take note, as some accounts may require you to meet certain criteria to maintain a free account like using a debit card, enrolling in eStatements or maintaining a minimum daily balance.
  2. No minimum daily balance: Accounts without minimum daily balances mean you can have a $0 balance at any given time. This may allow you to have a free account without meeting balance requirements — although other terms may apply to maintain a free account.
  3. APY: Annual Percentage Yield is the total amount of interest you will earn on balances in your account. Opening an account that earns you interest on your balance is an easy way to be rewarded for money that would typically sit without earning anything. You should definitely aim to earn a decent APY on your savings account.
  4. ATM fee refunds: You may not be able to access an in-network ATM at all times, so accounts providing ATM fee refunds can reimburse you for ATM fees you may incur while using out-of-network ATMs. Those $3 or $5 charges add up!
  5. No or low overdraft fees: Most banks charge you an overdraft fee of around $35 if you spend more money than you have available in your account. Therefore, it’s a good idea to choose an account that has no or low overdraft fees.

Top overall checking accounts for college grads

The best checking accounts will have a number of features that are both simple and low cost. For the top overall checking accounts, we chose accounts that have no monthly service fees, no ATM fees, refunds for ATM fees from other banks, interest earned on your deposited balances and with strong mobile banking apps. While there is no all-inclusive account that contains every benefit, the accounts below are sure to provide value whether you want a high interest rate, unlimited ATM fee refunds or 24/7 live customer support.

1. Aspiration Spend and Save Account

The Aspiration Spend and Save Account offers a wide range of benefits for account holders and has few fees. The $10 amount to open is fairly low, and once you open your account there is no minimum monthly balance to maintain — though the more money you keep in your account, the more interest you’ll earn. Keep in mind that you earn the 2.00% APY on the funds you move to savings side of your account.

Another helpful feature is unlimited ATM fee refunds. That means you can either use in-network ATMs (filter by checking “SUM”) and avoid fees, or use any other ATM and be reimbursed for any fees incurred at the end of the month. If you’re looking for an interest checking account with no ATM fees, the Aspiration Spend and Save Account is a solid choice.

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on Aspiration’s secure website

2. Empower Checking Account

Empower is the mobile banking division of Evolve Bank & Trust. The Empower Checking Account currently offers a very attractive 1.90% APY on your full checking account balance, with neither a minimum deposit to open nor any need to maintain a minimum balance. Empower gives you access to over 25,000 fee-free ATMs nationwide, however you’ll only get one out-of-network ATM fee reimbursed per month. One other drawback: There are no check-writing capabilities with this account.

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on Empower’s secure website

Member FDIC

3. nbkc bank Personal Account

nbkc has several locations in the Kansas City region. Anyone can sign up for an account, however. This just means if you don’t reside nearby, you’ll have to rely on their online banking system.

The nbkc Personal Account earns interest on your balances and has no hidden fees. Typical checking accounts charge overdraft fees and stop payment fees, among others, but nbkc doesn’t.

The two fees that may apply are for less common transactions — $5 to send domestic wires and $45 to send or receive international wires.

You can use 32,000+ MoneyPass® ATMs in the U.S. for free, and if you use out-of-network ATMs you’ll be reimbursed up to $12 a month. This account is a good choice if you want a checking account that has minimal fees and earns interest.

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on nbkc bank’s secure website

Member FDIC

Top free checking accounts for college grads

Free checking accounts are a great way to save on the monthly service fees many banks charge if you don’t meet deposit or balance requirements. The checking accounts listed below are all free, and if there are requirements, they’re minor like enrolling in eStatements or using a debit card. These accounts can be a good choice if you often have a fluctuating or low account balance and don’t want to worry about maintaining the requirements big banks impose to keep their accounts free.

1. Atlantic Stewardship Bank Cash Back Checking

Atlantic Stewardship Bank is headquartered in New Jersey and donates 10% of its profits annually to Christian and nonprofit organizations. Its Cash Back Checking account has a minor opening deposit and basic requirements for you to meet to get the added perks.

*When you make 12 debit card transactions each cycle and enroll in online banking and eStatements, you can receive unlimited ATM fee refunds and the chance to earn rewards at 0.50% cash back on debit card purchases.

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on Atlantic Stewardship Bank’s secure website

Member FDIC

2. Radius Bank Radius Hybrid Checking

Radius Bank is a community bank headquartered in Boston. The Radius Hybrid Checking account is free as long as you open the account with the required deposit and meet three simple requirements: Enroll in online banking, receive eStatements and choose to receive a debit card. Unlike other checking accounts that require you to make a certain number of debit card transactions a month, Radius Bank does not. In addition to simple requirements, there are unlimited ATM fee refunds at the end of each statement cycle.

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on Radius Bank’s secure website

Member FDIC

3. One American Bank Kasasa Cash Account

One American Bank may be a tiny community bank based in Sioux Falls, SD, but its Kasasa Cash Account packs a big punch. Available nationwide, this checking account earns an impressive 3.50% APY on balances up to $10,000. Best of all, the account is totally free, and as a member of the MoneyPass ATM network, One American Bank gives you fee-free access to thousands of ATMs nationwide. Kasasa accounts are a special class of bank product that help smaller banks compete against larger rivals by providing high-yielding rates and other features desired by consumers.

To earn your Kasasa reward APY, for each monthly qualification cycle simply do the following: Make at least 12 debit card purchase transactions of at least $5.00 each that post and settle to your account; receive electronic bank statements, account notices and disclosures; and log in to online banking at least one time.

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on One American Bank’s secure website

Member FDIC

 

Check out our full list of the best free checking accounts.

Top high-yield checking accounts for college grads

Since most checking accounts offer little to no interest, high-yield checking accounts are a great way for you to maximize the money that typically would just sit in your account without earning interest. These accounts often offer interest rates that fluctuate depending on how much money you have in the account. However, in order to earn interest, there are some requirements that you may have to meet such as making a certain number of debit card transactions and enrolling in eStatements.

1. Orion Federal Credit Union Premium Checking

An excellent choice for recent graduates looking for a high-yield checking account is Orion Federal Credit Union’s Premium Checking account, which promises customers 4.00% APY on balances up to $30,000.

You also need to keep in mind that because Orion FCU is a credit union, you have to jump through some additional hoops to access the high APY:

  • Pay $10 to one of five organizations approved by Orion to become eligible for membership in the credit union
  • Deposit $25 in a special savings account with Orion to officially become a member
  • Make an electronic deposit of at least $500 every month into your Premium Checking account
  • Make at least 8 signature based debit card transactions — not PIN-code based debit transactions — each month.

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on Orion Federal Credit Union’s secure website

NCUA Insured

2. TAB Bank Kasasa Cash Rewards Checking Account

Based in Ogden, UT, TAB Bank’s Kasasa Cash Checking account is a great choice for recent graduates. You can earn a very competitive 4.00% APY by meeting a few simple requirements: Have at least one direct deposit, ACH payment, or bill pay transaction posted to the account during each billing cycle; and make at least 15 debit card purchases. Even better, the bank will reimburse up to $15 in ATM fees per month from making withdrawals outside their ATM network.

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on TAB Bank’s secure website

Member FDIC

3. La Capitol Federal Credit Union Choice Plus Checking

This checking account has a $2 monthly service fee, which can easily be waived if you enroll in eStatements.

*While the terms state a minimum balance requirement of $1,000 and a low balance fee of $8, the fee can be waived if you make 15 or more posted non-ATM debit card transactions per month.

To earn the top interest rate on your checking balance, you just need to make at least 15 or more posted non-ATM debit card transactions per month. There are numerous surcharge-free La Capitol ATMs for you to use, and after signing up for eStatements you can receive up to $25 per month in ATM fee refunds when you use out-of-network ATMs.

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on La Capitol Federal Credit Union’s secure website

NCUA Insured

Check out our full list of the best high-yield checking accounts.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
James Ellis |

James Ellis is a writer at MagnifyMoney. You can email James here

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College Students and Recent Grads

Guide to Paying for College in 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Tuition rates have been steadily rising over the years, and the cost of college has never been so high. According to College Board, the cost of tuition and fees at public four-year colleges is more than three times what it was 30 years ago. At private four-year colleges, the cost has more than doubled since 1988.

But even though higher education is expensive, a college degree remains valuable. In fact, those who hold a bachelor’s degree make an average of $1 million more over the course of their lives than those who don’t, according to the Department of Education. So a degree can still worth investing in — but first you need to know how to pay for it.

To that end, we’ll explore the costs of college and how you can piece together scholarships, grants, savings and student loans to fund your education.

Part I: How Much Does College Cost?

When you first look at the cost of tuition and fees, room and board and meal plans, most colleges appear oppressively expensive. But appearances can be deceiving. The first number you see is the “sticker price,” and it’s usually much more than you end up shelling out for your education.

The number you actually pay — the net price — is lower for most students. Net price is how much the school charges minus the amount of financial aid you’re awarded.

Net price vs. sticker price

If you already know how much financial aid you’ll be receiving, you can subtract that number from your school’s nominal cost of attendance. The difference will be your net price.

Colleges are required to have a net price calculator on their websites to help you estimate costs. Before using one of these calculators, however, keep these points in mind:

  • The numbers they produce will be estimates only and aren’t guaranteed.
  • Some calculators base their calculations on in-state tuition. If you’re an out-of-state student, your costs could be higher.
  • Some calculators also factor in financial aid opportunities available to first-year students. There’s usually more funding for freshmen, so you can expect your subsequent three years to be more expensive than your first one.

Nonprofit vs. for-profit schools

For-profit schools tend to cost a good deal more than non-profit schools, even private non-profit schools. This is partly because for-profit schools offer less institutional aid (financial aid given through the college itself). Instead, they rely heavily on federal financial aid for the funding of their students’ education.

As a result, students who attend for-profit schools generally wind up with more student loan debt after graduation. At for-profit schools, 88% of graduates had loans, and the average debt burden was $39,950. At private nonprofit schools, those numbers were lower, with 75% of graduates having loans, and at an average total debt of $32,300.

Before going into debt for a for-profit school, be careful to weigh net prices at nonprofit institutions. Remember, the sticker price won’t necessarily be what you end up paying. Also note that nonprofit institutions will usually offer more scholarships and grants, reducing the number of loans — and therefore debt — you have to take on.

Public vs. private school tuition

Undoubtedly, the sticker prices for public colleges tend to be lower than that of private institutions. However, some private schools also have large endowments providing substantial student aid at the institutional level.

For example, Cornell University offers significant grants to students from low-income families. In an example generated by the university, a traditional student from a household with under $40,000 in annual income could receive a Cornell grant of $41,911.

In this example, the student’s net price is only $2,700 for one year at this Ivy League university.

Also note that private college institutional aid can also be extended to students from middle-income families as well, even if they don’t qualify for a large amount of aid through federal programs.

Part II: How to Pay for College

There are several different ways to find money for college expenses. If you stay on top of financial aid application deadlines and have a high GPA and strong test scores, you may be able to shave many thousands of dollars off your cost of attendance.

In this section, we’ll cover the most common sources of college funding.

Understanding the FAFSA: The key to financial aid

Paying for College
Source: iStock

The Free Application for Federal Student Aid (FAFSA) is likely the single most important document you’ll fill out as a college student.

Why? Because you need to submit the FAFSA to access the majority of financial aid options we’re going to cover in this guide. These include:

  • Grants
  • Work-study opportunities
  • Federal student loans
  • Direct PLUS Loans for parents

Not only will the FAFSA tell you how much aid you’re eligible for through the federal government, but it’s also usually a required step to getting institutional financial aid from your college or university.

How to fill out the FAFSA

It’s important to remember that you don’t have to pay to file the FAFSA — it’s entirely free. Go to https://fafsa.gov/ to create a Federal Student Aid account and start your application.

Important: You must fill out a FAFSA every year you attend college in order to receive aid.

Learn more with our in-depth FAFSA Guide >

Expected Family Contribution

The Expected Family Contribution (EFC) is how much the federal government determines you or your parents should be able to contribute to your education costs. This number is then used to figure out how much aid the government is willing to extend to you.

For example, to qualify for a full Pell Grant in the 2019-20 school year, your family’s Expected Family Contribution can’t be higher than $5,576.

FAFSA deadlines

Filing for aid for the 2019-2020 school year began in Oct. 1, 2018 but remains open until June 30, 2020. For the 2020-2021 year, you can file anytime after Oct. 1, 2019.

Ideally, you should apply as soon as possible, as the aid is doled out on a first-come, first-served basis, and some awards can in fact run out of funds.

You should also note that some states have stricter deadlines than the federal government; be sure to check your state’s deadline to be sure you get your application in on time.

Student Loans: Explained

Paying for College
Source: iStock

Another form of aid distributed by the federal government is student loans. You will know which federal student loans you qualify for after you fill out your FAFSA.

Because student loans have to be repaid with interest, they should only be pursued after you’ve exhausted all grant, scholarship and work-study options.

Types of federal student loans

As an undergraduate student, there are a variety of federal student loans you may be offered.

Direct Loans, both subsidized and unsubsidized, come with the advantage of income-driven repayment options, as well as deferment, forgiveness and cancellation programs.

Try to max out your federal student loan eligibility before turning to private loans. Federal student debt typically has better rates than private loans, as well as those flexible repayment options.

Private student loans

If federal student loans aren’t enough, you can turn to private student loans for college financing. These loans from banks, credit unions and online marketplace lenders might not have the same generous repayment programs, though some do have deferment options in certain situations, such as unemployment.

Private loans come with variable or fixed interest rates. If you take out a variable interest rate loan, the rate could go up over the course of your loan. Fixed interest rates, meanwhile, remain stable throughout the course of repayment.

Should I get a cosigner?

If you haven’t established credit yet, you’ll likely need a cosigner to qualify for private student loans. If you’re a non-traditional student and have a less-than-stellar credit history, you’ll also probably benefit from having a cosigner.

Borrowers with very good credit scores can skip the cosigner, but if you do decide you need some help, look for loan options with a cosigner release. This lets the cosigner off the hook after a certain period of time — generally once your payment history has allowed you to establish a better credit history yourself.

How much should I borrow?

You don’t want to borrow more than you can reasonably afford to pay back. Certain professions that require extensive education, like law and medicine, will have considerably more student loan debt than other professions. But while these kinds of professions are likely to garner higher incomes, there is no guarantee — recent reports show stagnation in doctors’ salaries and a difficulty in finding employment amongst lawyers.

Others, such as teaching, might require a master’s degree but won’t necessarily lead to an entry-level salary that makes up for all your educational expenses.

Before taking on a lot of debt, talk to professionals in your target field to get a sense of the entry-level pay and rate of salary growth over the course of a career. While using online sources to find this information is great, it’s not going to replace the knowledge of a professional working in the field.

You can then plug that number into CollegeBoard’s Student Loan Calculator, along with how much money you intend to borrow. It will analyze the figures and tell you if your monthly payments will exceed 10% to 15% of your income — which is generally considered to be the maximum you should allot to student loan payments.

If you take out federal student loans, you may be able to borrow more, as most loan options allow you to pay based on your income level. Just be careful not to bury yourself in debt — you don’t want to be paying student loans into your 70s.

Scholarships

Scholarships are among the most valuable forms of financial aid, since they give you free money for school that you never have to pay back. They’re a little different from grants (see below) and come in various forms. Here are features to look for:

Merit-based vs. need-based scholarships

While the majority of grants are need-based, most scholarships are merit-based. There may be maximum income levels or priority given to those in dire financial straits, but for most scholarships, you’ll be judged based on your achievements.

Many of these awards require you to maintain a certain GPA, and almost all will involve some type of essay, portfolio or video submission.

If your family’s income doesn’t help you establish a strong financial need, don’t lose hope. There are plenty of scholarships out there that have no financial requirements and are completely based on your essay — on rare occasion, they won’t even ask about grades.

Recurring vs. one-time scholarships

Most scholarships only last one semester or one school year. However, there are some you can apply for that will cover your entire tenure as an undergrad. Keep in mind, though, that these options are likely to require you to maintain a certain GPA throughout your studies.

How do I find scholarships?

The first place you can look is your financial aid office. Many schools have endowments, not just for grants, but for scholarships as well.

After you’ve exhausted scholarship options at your school, look in other places, such as:

  • Professional organizations in the field you want to enter
  • Professional organizations or unions your parents may belong to
  • National student organizations related to your major
  • Potential future employers — especially if they’re a larger company
  • Groups within the community you grew up in
  • Organizations based on your ethnicity or heritage
  • Religious organizations
  • Organizations related to any extracurricular activities or hobbies

You can look for scholarships on specialty search engines, like Fastweb, CollegeBoard and Scholarships.com, but you’ll find a ton of competition. On the other hand, if you search for scholarships focused on what makes you unique, you might find a dramatically smaller applicant pool, boosting your chances of winning an award.

How soon should I start applying?

Start applying for scholarships as soon as possible. It is even possible to fund your entire education this way, though you would have to fill out a lot of applications and write a lot of essays. The sooner you get started, the better.

Each scholarship has a window, which is typically opened annually or once a semester, during which you can file an application. While high school sophomores will be able to apply for some scholarships, opportunities really start opening up in your junior year.

Beware of scholarship displacement

Although scholarships can be a great tool for paying for college, you also need to be careful about scholarship displacement. Some colleges will take away some need-based aid if you have a lot of outside scholarship help. Before applying far and wide to scholarships, it could be worth checking with your financial aid office to see if it engages in this practice.

Grants

A grant, like a scholarship, is money you never have to pay back, unless you drop out of school or violate the terms of the agreement some other way. For undergraduates, grants are typically need-based.

In order to qualify for federal grant programs, you must fill out the FAFSA and meet eligibility requirements. Here are some types of federal grants, along with other opportunities from your state or school:

Pell Grants

Federal Pell Grants are distributed based on income-eligibility only. They can be awarded regardless of whether you’re in school full-time, half-time or less than half-time.

For the 2019-20 school year, the maximum Pell Grant award is $6,195 for full-time students. Pell Grant awards are distributed in two parts over two semesters.

Students taking summer courses might also receive a summer Pell Grant, which is an additional 50% of your full award to spend on summer studies. This extra grant money can be particularly helpful for community college students whose course of study typically runs through the summer.

Federal Supplemental Educational Opportunity Grants

Federal Supplemental Educational Opportunity Grants (FSEOGs) are available to students with financial needs in excess of what the Pell Grant can address. These funds are distributed to schools upfront and then awarded on a first-come, first-served basis. Notably, not all schools participate, so you would need to consult your school’s financial aid office.

The maximum award is between $100 and $4,000, depending on your personal financial situation.

Iraq and Afghanistan Service Grants

If you lost a parent or guardian while they were serving in the military in Iraq or Afghanistan after 9/11, you may qualify for the Iraq and Afghanistan Service Grant — which offers funds almost equal to that of a full Pell Grant — regardless of your family income.

To qualify, you must:

  • Meet all Pell Grant requirements, except for the EFC requirements.
  • Have been 24 years old or younger and enrolled in college at least part-time at the time of your parent or guardian’s death.

TEACH Grants

If you’re planning on becoming a teacher, you may be interested in a Teacher Education Assistance for College and Higher Education (TEACH) Grant.

In order to qualify, you must be enrolled in a TEACH-eligible program. Not all schools participate, and the ones that do determine which of their programs qualify for TEACH Grants, so be sure to sit down with your financial aid counselor to determine your eligibility.

When you accept a TEACH Grant, you’re agreeing to serve four out of your first eight years in the workforce in a high-need specialization in a low-income area. You can also meet this obligation by teaching at a Bureau of Indian Education school.

High-need specializations include:

If you do not keep your promise to serve in this capacity, your grant will turn into a Direct Unsubsidized Loan, which will have to be repaid.

The maximum grant amount is $3,752 if disbursed after Oct. 1, 2018 and before Oct. 1, 2019. For grants paid out after Oct. 1, 2019 and before Oct. 1, 2020, the maximum award is $3,764.

State grants

Your state government may also issue need-based grants. Generally, you will be redirected to your state’s application page at the end of your FAFSA application, but if you want to check out your options beforehand, you can find information from your state’s department of higher education here.

Institutional grants

Your college or university may also issue need-based grants. While your EFC is not likely to be measured in the same way, a FAFSA application is still required.

Some colleges, though typically not Ivy League schools, will also offer merit-based grants. Your grades will likely be a factor here.

Work-Study Programs

Work-study programs are another form of aid that will not be accessible unless you complete your FAFSA.

Many schools participate in federally backed work-study programs for students with financial need. With work-study, you’re assigned a set amount of hours working for the school, in a community service role, or in a field relevant to your course of study.

You should get a paycheck at least once per month, and you can often choose whether to receive the funds directly or to have it applied against any money you owe the school.

529 college savings plans

529 accounts are tax-advantaged accounts to help you save for future college expenses. Contributions go in after you’ve paid taxes on your income. That money is invested and grows tax-free — as long as you spend the money on qualified educational expenses.

Types of 529 accounts

Not all 529 accounts are created equal. They are issued under state law, and each state has its own specific rules on how 529 accounts can be used. However, some states will let you purchase their 529 accounts even if you aren’t a state resident.

There are two basic kinds of 529 accounts:

College Savings Plans

The College Savings Plan structure allows your money to grow in traditional investments, as made available by your state. You can use this money to pay for school at almost any U.S. institution — and even at some schools abroad.

With a College Savings Plan, whatever you have saved can be applied toward any allowable educational expenses, though you’ll have to cover the remaining costs after exhausting the money from your 529.

A good example of a College Savings Plan is Utah’s 529 plan, which even offers a few investment options insured by the Federal Deposit Insurance Corporation.

Prepaid Tuition Plans

Prepaid Tuition Plans allow you to save for tomorrow’s college at today’s rates. There may be different tiers of saving for different types of schools.

For example, Pennsylvania’s Guaranteed Savings Plan 529 option currently allows you to buy credits at today’s rates. These credits will be valid when your child goes to school in the future — even if tuition rates have skyrocketed.

One thing to be careful of with Prepaid Tuition Plans is that if you save at the state school level, and your child ends up not wanting to attend a state school when they graduate from high school, you could run into some funding problems. Pennsylvania allows you to change your investment tier at any time, but this is a potential point of friction you should consider if you decide to go with this type of 529.

You’ll also notice that price per credit is quite high at Ivy League schools. As discussed earlier with the example of Cornell, Ivy League schools tend to have extensive grants. If you’re making a median income, saving in this manner may reduce your child’s future institutional aid, costing you more money than you would have had to pay without the dramatic savings.

What can I use my 529 account for?

You can only use the money in your 529 account for qualified educational expenses. If you use the money for anything else, you will have to pay taxes on the withdrawal.

Qualified educational expenses include:

  • Tuition and fees*
  • Room and board — though you must be enrolled at least half-time to claim this expense
  • Books
  • Technology required for school — including internet access
  • Other required equipment and materials, as assigned by your instructor

*Some Prepaid Tuition Plans cover tuition and fees only.

How to make a 529 withdrawal

Most programs allow you to make a withdrawal online or via postal mail. Your 529 account issuer will not keep records of how that money was spent. Producing documentation to show that the money was spent on educational expenses falls squarely on your shoulders.

Pros of 529 accounts:

  • Studies show that regardless of how much you save, the fact that you are saving for college makes your child more likely to attend college.
  • If you have a high enough income level, your child might not qualify for need-based financial aid. Saving in a 529 plan is a generous investment in their future, given that they won’t have as many funding opportunities available to them.
  • Because you are investing, your money is likely to grow — and it will grow federally tax-free. This means you won’t have to save as much in a College Savings Plan in order to meet your goals.

Cons of 529 accounts:

  • The amount you have saved could reduce institutional aid — especially if you open the account in your child’s name. Open the account in your name and list your child as a beneficiary instead.
  • When saving in a Prepaid Tuition Plan, do your best to ensure you’re saving at a level your child will actually be able to use. If they don’t end up going to school in state, you could hit a bump in the road if you’ve been saving at state school tuition levels.
  • Because you are investing, there’s no guarantee of growth. You could conceivably lose money in a 529 account.

FAQ

To see if your college degree is worth the cost, you need to figure out the net price of your education and your expected salary. A good tool to crunch these numbers is the College Scorecard, provided by the Department of Education, which shows data on net cost of attendance, alumni salaries and debt upon graduation.

Be wary of relying too heavily on the data here, though. Your future salary, for instance, likely depends more on your major and profession than on the undergraduate institution you attended. Often, an even better way to figure out potential future earnings is by talking with someone who is already working in your field.

Technically, you’re only allowed to spend federal student loans on educational expenses. These can include:

  • Tuition and fees
  • Room and board
  • Books, supplies and equipment
  • Transportation while at school
  • Dependent child care expenses

Unlike with 529 funds, no one will be monitoring how you spend your federal loan money. However, if you end up having the money to go on shopping sprees after you’ve paid for all of the above expenses, you’re probably borrowing too much. Consider returning the money rather than paying interest on it after you graduate.

If you’re borrowing from a private lender, check your loan agreement for any restrictions on how you can spend your private student loans.

Most of the time, you don’t have to live in on-campus housing. Some colleges and universities require their traditional freshmen to live on campus, but even these stipulations can sometimes be worked around if you’re commuting from your parents’ home.

If at all possible, yes, try to make student loan payments while you’re still in school. Make an effort to pay the interest at least, so it won’t accrue while you’re in school (or during your grace period or deferment) and cost you more money in the long run.

The only time when in-school payments don’t matter is when you have Direct Subsidized Loans — those loans won’t accrue interest while you’re in school. Even then, making principal payments early isn’t a bad thing if you can swing it.

If you take out a Direct Loan, you’ll be assigned one of nine loan servicers and will make payments through that assigned servicer.

Those who have taken out Perkins Loans may repay them directly through their school or via a loan servicer designated by their school.

Likewise, you can repay private loans directly to your lender or assigned servicer.

If you miss one payment on your federal student loans, you will have to make it up within 90 days — otherwise you’ll get reported to the credit bureaus.

If you miss several payments on your Direct Loans and don’t make payments for 270 days, you will be in default, which puts you at risk of not only being reported to the credit bureaus, but also losing all benefits of federal student loans, such as income-driven repayment options. You could also end up in court.

The consequences for missing payments on Perkins Loans and private student loans depend on the agreement you signed prior to disbursement. Private lenders can report you to the credit bureaus as soon as you’re 30 days late with a payment.

If you can’t afford your Direct Loans, apply for an income-driven repayment plan. These plans cap your maximum payment at a percentage of your disposable income to ensure that they are affordable.

If you have a private loan, you may want to look into refinancing for lower monthly payments.
And if you have a Perkins Loan, set up an appointment with your financial aid office or loan servicer to discuss your options.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne here

Rebecca Safier
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Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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