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Financial aid can be a big help when it comes to college bills. However, rarely do students attain “full rides.” To prepare for the remaining cost of college, consider the following options:
Saving
A great way to prepare for your child’s college education is to start saving early, and set specific and realistic savings goals. There are several different types of savings plans available with banks, credit unions, brokers, insurance companies and mutual funds companies.
Click on the terms below to read more about each money-saving opportunity. Or, speak with a financial advisor for help deciding which options are right for you.
College Illinois! (529 prepaid tuition program)
Bright Start ® (529 college savings program)
Savings Accounts
Certificates of Deposit
Mutual Funds
Common Stock
Corporate and Municipal Bonds
Tax-Deferred Annuities
Variable Life Insurance
College Savings Bonds
U.S. Savings Bonds
Coverdell Education Savings Account (formerly Education IRA)
Upromise™
UGMA
529 College Savings Programs vs. 529 College Prepaid Programs
529 plans are among the best ways to save for college. There are two types of plans—prepaid tuition plans, such as College Illinois!, and college savings plans, such as Bright Start®, Prepaid tuition plans (College Illinois!) allow you to prepay tuition at a locked-in price, protecting you from future tuition inflation and the uncertainty of the stock market. College Illinois! can be purchased for children as young as newborn. And the earlier you open an account, the more advantageous it is financially. Visit College Illinois! to order materials and/or an application.
College savings plans allow you to save money for college in a strategically beneficial way – you earn money over time through interest, and your savings, along with the savings of others, are invested collectively on your behalf.
Both types of 529 plans have federal and state tax benefits that other types of investments do not have.
Savings Accounts
Simple to start and easy to use, this traditional savings method allows you to invest at your own pace. You may find the convenience of automatic deposit a good way to reinforce your own savings discipline. Interest rates vary, so shop around to find the best place for your account. Ready access to your money can be a mixed blessing—be aware of the temptations to "borrow" from a college savings account in other than extreme circumstances.
Certificates of Deposit (CDs)
These are short-term investments—usually available without purchase fees or service charges—that guarantee a specific return at a specific time. Because CDs are federally insured, they are very low-risk investments. However, investors also usually pay significant penalties for withdrawing funds before the maturity date.
Mutual Funds
Investors' dollars are pooled to purchase a diversified collection of stocks and bonds (security portfolio) managed by financial professionals. The investment objectives of mutual funds are outlined in their prospectus, and range from high-risk speculation to lower-risk managed growth. Mutual funds are evaluated annually in several popular financial magazines.
Common Stock
Ranging from very high-risk, "speculative" investments to lower risk "blue chip" issues, common stock offers potential income from both capital appreciation and dividend yield. Stock brokerage commissions vary widely between firms. Any stock can lose as well as gain value; investors should acknowledge their own level of comfort with that risk prior to purchase.
Corporate and Municipal Bonds
These fixed-income investments pay a predetermined rate of interest periodically and return principal at the maturity date. The financial markets rate bonds; selecting bonds with high ratings that mature within seven years will minimize your risk.
Tax-Deferred Annuities
Investors deposit a lump sum with an insurance company and accumulate interest at a competitive fixed or variable rate.
Variable Life Insurance
The investor's premium is professionally managed to purchase stocks, bonds, money market portfolios or other investments.
College Savings Bonds
The State of Illinois periodically offers college savings bonds that are zero-coupon bonds (instead of paying periodic interest, these bonds offer a fixed-cash payment at maturity).
No Illinois College Savings Bonds have been sold since the fall of 2002. This page will be updated if the Governor's Office of Management and Budget announces a future sale of Illinois College Saving Bonds.
As of January 1, 2005, state law prohibits exempting moneys held in college savings bonds from calculation of financial aid eligibility. Therefore, those moneys will count as assets in determining a student's eligibility for state and federal financial assistance.
Answers to Frequently Asked Questions (FAQ) about Illinois College Savings Bonds are available on the State of Illinois Web site.
Beneficiaries of Illinois College Savings Bonds who enroll on at least a half-time basis as an undergraduate or graduate student at an ISAC-approved two- or four-year college in Illinois may be eligible to receive funds from the College Savings Bonds Bonus Incentive Grant (BIG) Program. The number of grants made through this program, as well as the individual dollar amount awarded, are subject to sufficient annual appropriations by the Illinois General Assembly and the governor. To apply, the bondholder and beneficiary must complete an application for the BIG Program, and submit it to ISAC between August 1 and May 30 of the academic year in which the bond(s) was redeemed or in the academic year immediately following redemption. Further details regarding the BIG Program are available within the Grants area of the Student Zone.
U.S. Savings Bonds
The familiar EE-bonds are guaranteed by the government and are virtually risk-free. They are available for as little as $25, often through payroll deduction plans, and never have a purchase or redemption charge. The interest rate paid on these bonds adjusts every six months in relation to the yield on federal five-year Treasury Bonds. Interest is paid at redemption. For EE-bonds purchased after 1989, within income limits, interest used for college expenses is free from federal tax.
Coverdell
Since the Tax Relief Reconciliation Act of 2001, Education IRAs have developed into Coverdell Education Savings Accounts. This type of account offers a flexible way to save for college, with special tax advantages; and can be used for tuition, fees, room and board, books and more. Your child’s Coverdell account can be used for elementary, secondary or higher education, and assets can be transferred between accounts.
Contact your financial consultant for more information about Coverdell.
Upromise™
Upromise™ is a program that anyone can join at no cost, to accumulate extra money for college. Simply set up an account at upromise.com by listing any of your credit cards and participating grocery and loyalty cards. Then use your cards as usual to buy goods from any of the many companies that participate in Upromise™. By purchasing items that you would normally buy anyway, you’ll receive rebates—giving you extra money for college. The money is added to your account, and can be used when your child goes to college. Plus, your friends and family can help add money to the account by simply adding their names and credit card numbers to your child’s account. It’s completely free, and the benefits can be found at retail and grocery stores, restaurants, services, online shopping and more.
For more information about Upromise™, and/or to sign up for an account, visit upromise.com.
UGMA
The Uniform Gift for Minors Act (UGMA) allows you to use your assets toward your child’s college expenses without setting up a trust. The money can be used for any purpose. Plus, your deposits are not limited to you, as anyone can contribute to the account. The account is not subject to gift tax, and you may deposit up to $11,000 per child, per year. It is important to note that at the age of consent (usually age 18), the child assumes control of the assets in this type of account.
Contact your financial consultant for more information about the UGMA.
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