On March 11, New York’s Columbia University joined the growing number of elite universities that are extending more financial aid to the middle class. According to The New York Times, undergrad from families with annual incomes as high as $60,000 won’t have to pay for tuition, room and board, and other fees, beginning this fall. Yale, Harvard and Stanford have already announced similar moves.
Don’t let these developments discourage you from saving for college. The best savings vehicle is a state-sponsored 529 plan. The money grows tax-free and can be withdrawn federally tax-free if the money is used for qualified high education expenses such as tuition, room and board and books. Some states, such as New York, also offer an immediate tax break when you put money in their plans. See this site for details on your state’s plan.
Savings held in 529 plans barely have a minimal effect on financial aid eligibility, according to Mark Kantrowitz, founder of the informational college website finaid.org. “Regardless of how much the parents earn, amounts in retirement funds, the net home equity, and small businesses owned and controlled by the family are ignored,” Kantrowitz explains.
“Of the remaining assets, the first $45,000 to $50,000 is sheltered, depending on the age of the older parent. The remaining assets are assessed on a bracketed scale, with the top bracket at 5.64 percent,” he says. “So if you save $10,000, the worst case impact is a $564 reduction in aid, leaving you with $9,436 more than you would have had otherwise.”