Most parents know that tuition costs are high, but they don’t always appreciate all of the ancillary costs that go hand-in-hand with tuition. Some clever parents even start college funds early in the life of their children. However, even that might not be sufficient if all college-related costs are not realistically assessed.
Since 1980, the average tuition costs for higher education have increased over eight times more than job wage growth over the same period. The average cost of tuition during the 1987-1988 semester for a four-year, public university was only $3,200. It was $15,000 for a private college.
The Unconsidered Costs of College
However, what most parents and aspiring college student don’t take into account is that paying for college requires more than paying for tuition. For students who opt to live in a dorm, or go to college out of state, room and board costs must be paid for along with tuition. Not considering room and board can be the difference between going and not going to college.
The tuition for attending an in-state four-year university is $10,000, although $11,000 must be added to the cost for room and board. Tuition for an out-of-state university is $26,000 with another $11,000 required for room and board. A private college costs $35,000 per semester with another $12,600 required for room and board.
Concerned parents can use a 529 education savings plan to pay for room and board costs. Before we get into that, let’s explain exactly what a 529 plan is.
The 529 Plan
A 529 plan is a tax-advantaged, education-specific savings plan. It’s basically an account that you can use to fund your child’s tuition costs. Every state and the District of Columbia offers a 529 plan. They are called, “529,” plans because they are named after IRS code called Section 529. As long as you use these funds for educational expenses, they are always tax deferred.
529 plans are available in two forms, prepaid tuition plans and educational savings plans. You can visit your state’s official online site for more information. Additionally, many financial institutions can help open one as well. A 529 plan can be opened by anyone and used to fund the educational expenses of a beneficiary.
That beneficiary does not have to be related to the owner of the 529 account. So, can 529 be used for room and board?
How to Use a 529 Plan to Pay for Room and Board
There are over 100 different kinds of 529 plans offered in every state. However, after opening a 529 account you have the ability to distribute funds for specific uses relative to educational expenses. So, you can use a 529 plan to select a dedicated distribution plan to pay for the beneficiary’s, your child, housing and food costs.
You can also use a 529 plan to pay for laptops, computer equipment, printers, and internet service fees as long as they are used for higher education purposes. 529 plans usually can’t be used to pay for cell phones, transportation costs, to pay for sports fees, or to pay off student loan debt.
Learn More About 529 Plans
For more information you can talk to college or university authorities, visit your state’s official website, or ask at a financial institution. The earlier that you open a 529 account, the less you’ll have to worry about paying for tuition and room and board costs in the future.
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