LEGISLATIVE UPDATE By State Representative C.B. Embry, Jr.
Paying for Higher Education takes Center Stage During College Savings Month - As we conclude this month, I’d like to take a moment to talk about the importance of college savings since Congress has declared September “College Savings Month.” While it’s true that our current fiscal situation may not seem like the ideal time to think about financially planning for college, it’s important to remember that tuition costs are constantly rising and, therefore, investing in education is a financially smart and responsible move.
We all want to ensure that our children are afforded the best education options, but you may be unsure how to begin a college savings fund. Whether the thought of college is years away or just around the corner, budgeting and planning are the two major factors in establishing your savings fund, and this includes understanding what causes the tuition rates to skyrocket.
First and foremost, account for the natural trend of inflation. In recent years, the average rate of college costs has been rising four to six percent annually. It is also important to factor in the basic market theory of supply and demand. With more young adults wanting to attend college, schools have the advantage of driving up the cost of tuition. If current unemployment numbers continue climbing, it is likely the number of students enrolling in college will correlate.
It is also important to begin thinking about the possibility of scholarships. Although every parent believes his or her child to be exceptional, in reality, the numbers of academic and athletic scholarships are few and far between. If your child is truly gifted, whether academically or athletically, hone in on that skill and help it flourish.
Another issue to consider is the growing popularity of certain majors. All parents want their children to take on a prestigious career and, since colleges generally limit class size, not all students who enter college together will finish at the same time. A growing number of students are taking five or more years to complete what was traditionally a four-year degree; this extra year can cost in excess of $10,000.
Weighing all this information would make any parents wonder if investing in college is still financially smart and how they can afford to send their child to the school. This is where the Kentucky Education Savings Plan can help. Kentucky’s 529 college saving plan, the Kentucky Education Savings Plan Trust, helps families plan and save for their children’s college education. Parents can open a trust account for a child of any age, with the contributions, as low as $25 per month, determined by the trust owner. The younger a child is when the fund is established, the better equipped a family will be to meet the challenge of ever-increasing higher education costs. Withdrawals from the trust fund that are used for qualified college expenses will be exempt from federal income tax, and any earnings accrued by the fund are also free from taxes.
Paying for higher education can be a daunting task with costs rapidly increasing annually. Students who are set to begin school in a few years may see senior year costs rise 15-25 percent more than freshman year costs. For those future students who are currently in grade school, their savings plan needs to account for this likely increase. The Kentucky Education Savings Plan can help you, the parent, to budget, plan, and survive these challenging, yet worthwhile, expenditures that will be rewarded once that diploma is in your student’s hand.