vehicle because the money grows tax-free and withdrawals used for college expenses are not taxed. “Most of the 529 plans offer tax credit to their residents. However, if your state doesn’t have a 529 plan, you may participate with another state that does have a plan, but you won’t get the tax credit,” says Vicki Brackens, a financial planner with MetLife in Syracuse, New York. However, she does advise everyone to seek tax advice before choosing the plan.
The Coverdell Education Savings Account, formerly known as the Education IRA, allows you to save up to $2,000 a year tax-deferred. What’s great about the account is that you ca
n use it for elementary and secondary school as well as college. Unfortunately, these funds are considered s
tudent assets, so when financial aid is calculated, it could reduce your child’s aid.
State prepaid tuition programs allow you to lock in current tuition rates for future use. The tuition rate is an in-state public college rate, so if your child attends a private school, be prepared to pay the difference.
The Uniform Gifts to Minors/Uniform Transfers to Minors Acts allow you to give your child $11,000 without getting hit with taxes. It’s more flexible in the way it can be used, but at age 18, your child assumes complete responsibility, so be careful.
For more ways to make college affordable, log on to www.black enterprise.com/payforcollege.
Know Your Limits: Here is a breakdown of the federal loans:
| Perkins Loan | Subsidized Stafford Loan | Unsubsidized Stafford Loan | Direct & FFEL PLUS Loans | |
| Min. amount | — | 2625 | 2625 | — |
| Max. amount | $4,000 for undergraduate students $6,000 for graduate students | 8500 | 18500 | Cost of attendance minus additional financial aid |
| Interest rate | 0.05 | 0.053 | 0.053 | 0.061 |
| Grace period | Nine months | Six months | Six months | — |
| Repayment | Up to 10 years | 10–30 years | 10–30 years | None specified |
Source: U.S. department of education federal student aid