Saving Pays, Literally
By Saving with a 529 Plan, Parents Can Accumulate Interest, Instead of Paying Interest
3/18/2008 PRINCETON, N.J.--(BUSINESS WIRE)--If you need more reasons to save for college, we may have something that will convince you. With a little research, you will find that saving money in advance for your child’s education can almost double your rewards. According to the College Board, saving any amount of money can make a big difference in what you can afford to pay for college. Further, your savings will allow you to gain interest, instead of paying interest on student loans down the road.
When it comes to college savings, parents tend to fit into 3 different categories: those who have saved all the tuition money they need in advance; those who have not saved at all and are inclined to borrow the full amount; and those who fall in between. It’s easy to assume that the person who saved the full amount is in the best financial situation; but just how much ahead is the college saver versus the borrower?
For every dollar you save, you earn money through interest. The longer you save, the more money you earn. For example:
A family that saves $50 per month from the time their child is born will amass more than $16,000 in savings by her high school graduation. Almost $6,000 of this is interest earnings.
For the parents who have not saved for their child’s education, there are plenty of lenders more than willing to help you fund your child’s education, but it will cost you.
The current interest rate on a Stafford Loan for new loans first disbursed beginning July 1, 2006 is a fixed rate of 6.8%; this applies to in-school, grace and repayment periods.
PLUS loans are another popular, non-need-based loans offered by the federal government to both parents of dependent students and to graduate students. Borrowers who qualify for PLUS loans are able to borrow up to the full cost of education, minus any financial aid. The interest rate on new PLUS Loans first disbursed beginning July 1, 2006 is a fixed rate of 8.5%.
So for the parent that has not saved anything and relies on loans and financial aid, instead of earning interest, they will be paying interest and sacrificing more of their money.
Let’s say upon graduation, your child owes $16,000 in loan repayment. You have a loan interest rate of 6.80% and there are no fees. Your payment plan is over a 10-year period with monthly payments of $184. Your total interest paid with this loan would be $6,095. This makes your grand total for a $16,000 loan up to $22,080.
So with these two instances, the saver gained around $6,000 while the borrower owed $6,000 in interest fees alone. In addition, many college graduates will find themselves with more debt than $16,000, so the amount of interest fees could possibly be much higher. For example, with the same loan as above, a student owing $40,000 could have interest payments totaling in up to around $15,000. That takes your $40,000 loan up to a grand total of $55,000.
College is a long-term investment and there’s no escaping the fact that college costs are rising. According to recently released reports from the College Board, most students and their families can expect to pay, on average, from $95 to $1,404 more than last year for this year's tuition and fees, depending on the type of college. Like other investments, such as buying a home, most families pay for college through a combination of savings, current income, and borrowing.
The more you save, the less you'll need to borrow making interest payments lower. If you’re like most people, you don’t enjoy throwing hard-earned money out the window. The earlier you start saving the better, and don't pass on saving completely because you think it's too little or too late.
A great way to save for college is with state-sponsored 529 Plans. With a 529 plan from College Savings Bank, earnings and withdrawals are federal tax-free and you can use the funds at any qualified college or university, in any state.
The two products offered by College Savings Bank, the CollegeSure CD and the InvestorSure CD, do not have any fees and the investment is designed to meet the rising cost of college, safely, with FDIC insurance to at least $100,000 per depositor and a dependable annual return on your investment.
College Savings Bank’s original product, the CollegeSure CD has stood the test of time and continues to be a safe, affordable and flexible method of saving money for education. The InvestorSure CD allows college savers the ability to see the upside of the S&P 500 without the accompanying risk. Both products are conservative saving tools and allow parents to save wisely for the future education of their children.
To find out more about the CollegeSure CD and the InvestorSure CD, please call a College Savings Bank Adviser at 1-800-888-2723 or visit our web site, http://collegesavings.com.
With 21 years of experience, College Savings Bank, a subsidiary of Pacific LifeCorp, was founded to meet the education needs of parents. If you’re looking for an easy, affordable and reliable way to save for your child’s future education, the InvestorSure CD from the MFESP may be right for you.
About College Savings Bank
Founded in 1987, College Savings Bank is a member of the Federal Deposit Insurance Corporation (FDIC), and the first savings bank chartered by New Jersey since 1893. The Bank helps families across the country meet the rising costs of postsecondary education by offering safe and effective financial products. College Savings Bank is the exclusive provider of the CollegeSure CD, an innovative, unique, saving-for-college investment backed by the full faith and credit of the U.S. Government up to $100,000 per depositor. College Savings Bank is a program manager to the Montana and Arizona qualified tuition programs. College Savings Bank can be reached online at www.collegesavings.com or by calling 800-888-2723.