Financial Aid for Nontraditional Students

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A Penny Saved is a Penny Earned

The Coverdell Education Savings Account is one option for students with special needs. The funds in this trust are not tax deductible, but the interest grows tax-free. The maximum income is approximately $110,000 to $220,000 for joint tax returns. Contributions can be made, up to $2,000, if the beneficiary is under 18 years old. Funds must also be drawn by the time the student is 30 years old. So that doesn’t apply to some of you! But… if you are a “special needs beneficiary” then you may qualify no matter your age. After smoldering on hold with the IRS for 37 minutes, they still couldn’t give me a definition of special needs; it hadn’t been published yet. You can find more information within the IRS’s 970 yellow-page-of-a-pamphlet publication at the IRS Web site.

Pinching from your Roth or traditional IRA account is your last resort. Indeed, you’ll have an education, but you could be chowing on Iams Active Maturity™ in your golden years if you’re not careful. Using your IRA account to fund you or your family’s education is allowed without a 10 percent tax penalty. However, you may have to pay an income tax on the withdrawn funds for this privilege. You knew there had to be a catch.

There’s always the late-night stop at the black jack table at the casino. Hey, don’t knock it until you’ve tried it. Just don’t lay the house deed on the line.

Signing Your Life Away With Student Loans

Fortunately, most colleges have a payment-plan system for student loans like AMS (Academic Management Services), which is owned by the Sallie Mae Corporation. I mean, come on, who just happens to have a couple thousand dollars stuffed underneath their mattress. Oh, you do? Well then, I’m referring to the people who can barely squeeze their newfound wisdom into their budget. AMS is not based on financial need, so don’t worry if your household makes more than a gazillion dollars per year. You pay approximately a $35 setup fee and the company breaks your loan payments over the semester term. They even give out student loans for bad credit persons. Sweet huh? I’ve exercised this little thingamajig throughout my college tenure.

The downside of AMS is that they break the payments over the course of the semester. Period. Most semesters run from three to four months long. So, say, you have a $2,500 tuition payment and you have four months to pay it. With my dismal calculations–math was never one of my strongpoints–you have $625 monthly payments. “Holy cow!” you say. “That’s about as much as my mortgage!” That it certainly is, which means you’d have to cut back on weekly facials or Saturday afternoons at the racing track. Imagine paying this house-and-the-kitchen-sink-along-with-the-floorboards loan payment for the next few years. Fortunately, it beats the alternative, which is not going at all. You also have to sign up every semester if you want assistance. Or you can sign up for one semester and not the next. There is no long-term contract, so you can bounce in and out.

Four-year college students acquired an average of $15,000 to $20,000 in debt by the time they graduated*.

You could always take out a low-interest federal student loan if you still don’t have the dough. Guaranteed student loans (GSL) are subsidized by the government. The interest rates on these loans are usually lower than private student loans. They are, in fact, “guaranteed.” Albeit this is still a loan and must be paid back, but with a little more wiggle room. You can request a “forbearance,” which is simply delaying the date that you are to begin your first payment if you are in a financial squeeze. And if you ignore payment requests, the loan can become delinquent, which will go on your credit report for the next seven years.

A bankruptcy cannot exempt a student loan. The government can also sanction your tax refund to pay the balance if owed (there goes that new dishwasher!). If you’ve defaulted on a student loan in the past, you won’t be eligible this time around unless you’ve settled that other nightmare.

The Upside of a College Education

At least all or part of a college education is tax deductible: tuition, books and college-related expenses. I knew that’d get your heartbeat purring. It sure got my husband’s wallet slaphappy. But check with the IRS for up to date information. Oh, come on, they’re friendly over the phone.

Here are two great books on how to get money for college: How to Go to College Almost for Free and Free $ for College for Dummies.

 
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* Gladieux, Lawrence. Perna, Laura. “Borrowers Who Drop Out: A Neglected Aspect of the College Student Loan Trend.” National Center Report 05-2. The National Center for Public Policy and Higher Education. May 2005.

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