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In addition to regular interest-bearing savings accounts, college savings plans are available to help you increase how much you can save and contribute to your or your child's education.
Saving for college can be accomplished through various college savings plans with tax advantages, where the money is usually invested into mutual funds. There's no single college savings plan perfect for every family. Deciding where to invest will largely depend on your income, the age of your child, and your chances of qualifying for financial aid.
It is important to keep your child's future financial aid in mind from the beginning because where you invest can have an impact on their aid eligibility. But be careful to avoid the trap of not saving at all, thinking it will help your child to qualify for more aid. Financial aid is determined more by income than by accumulated assets, and investments held in a student's name typically reduce financial aid more than assets held in a parent's name.
Qualified Tuition Plans, also known as 529 college savings plans, allow you to save for higher education for a named beneficiary or prepay future tuition in today's dollars, and can offer significant tax advantages. Parents, grandparents, siblings, uncles, aunts or friends can establish them. You can even set up a plan for yourself as long as the plan is designated for education funding needs.
A Coverdell Education Savings Account (CESA), formerly known as an Education IRA, is designed to help you set aside money for the qualified education expenses of your children, grandchildren or any other eligible beneficiaries. You cannot deduct contributions on your tax return, but the earnings are not taxed while they are held in the account. When your child is ready to head to college, distributions from this account will be tax-free if they're used to pay qualified education expenses. These funds may also be used to save for elementary and secondary education.
A custodial account under the Uniform Gifts to Minor Act (UGMA) and Uniform Transfers to Minor Act (UTMA) is another way to save for your child's future higher education needs. Although not tax advantaged - earnings and withdrawals may be subject to your child's tax rate - custodial accounts allow you to contribute as much as you like and give you maximum control over investment choices and decisions.
Grants and scholarships are two forms of financial aid that are available. Grants are given through the government and to apply, you must file a FAFSA each year. Scholarships are available from a variety of sources, and you must apply for each individually. Finding “free money” that doesn't need to be paid back will reduce the amount of student loans you'll need to borrow, saving you money now and into the future.
Federal Supplemental Educational Opportunity Grant (FSEOG)
This grant provides monetary assistance to undergraduate students who exhibit exceptional financial need and have not yet earned either a bachelor's or a professional degree. Both full-time and part-time students are eligible. Like Pell Grants, this grant does not have to be repaid. Awards may range from $100 to $4,000 annually. To apply, you must complete the FAFSA.
Scholarship awards vary, and there are thousands of scholarships out there for students. It's important to begin looking for them early.
These resources can make the search easier:
When Do I Choose a Repayment Option? When you apply for a student loan, you'll be asked to choose a repayment option. It's important to review the benefits of each option to determine which is best for you, because your choice will remain in effect throughout repayment, and will determine whether you'll receive a bill in the mail in a few weeks or not until after you graduate.
Principal: The dollar amount of a loan that's initially borrowed. It's also the amount on which interest is charged. For example, if you borrow a $10,000 loan (assuming you're charged no fees), your principal amount will be $10,000.
Interest: The fee charged by a bank or lender to borrow money, charged as a percentage of the principal borrowed.
With this option, you'll begin paying toward the loan's principal and interest immediately after the loan is fully disbursed. The first payment will be due within 45 days after the loan funds are sent to your school. There is no grace period before repayment when choosing this option. Choosing immediate repayment will result in paying less over the life of the loan.
Making interest-only payments means that you'll pay only the accrued interest on your loan each month while you're enrolled in school, up to four consecutive years. Full repayment of principal and interest begins 45 days after you graduate or your enrollment drops below half time. With this option there is no grace period before repayment, as you begin making payments within 45 days after your loan funds are sent to your school. Entering immediate repayment will yield the highest level of savings on interest costs.
Choosing this option means you'll have no payments due on your Solution Loan while enrolled in school for up to five consecutive years. PNC Solution Loans have grace periods of 6 months before repayment begins, so you'll start paying toward principal and interest 6 months after graduation or if your enrollment drops below half time as determined by your school. While your loan is in deferment, interest will continue to accrue and will be capitalized at the time of repayment. Though payments are not required while enrolled in school, you can make voluntary payments during this time to save money over the life of the loan.
There are advantages to both loan options. Which option works best for you will depend on your situation.
What is more important to you: a stable monthly payment into the future or a lower interest rate right now? Do you feel that interest rates will rise or remain low in the future? Your answers to such questions will lead to the loan option that's right for you.
There are many reasons to choose one loan rate option over the other. For instance, if you would prefer the stability of paying the same amount each month, a fixed rate loan might be better for you. Or if you believe that interest rates and indices such as LIBOR will remain low in the future, a variable rate loan might be better for you.
If you apply for your loan and are approved, you will be presented with your rates for both the fixed and variable rate versions of the loan. At that point you'll be able to choose which loan rate option - fixed or variable - you'd like to accept.
|Variable Rate||Fixed Rate|
|Rate Structure||Based on an index that changes quarterly plus a fixed margin that is determined by the creditworthiness of the borrower and any co-signer at the time of application. PNC private student loans are based on the London Interbank Offer Rate (LIBOR) index.||Based on the creditworthiness of the borrower and any co-signer at the time of application|
|Comparing Interest Rates When Your Loan is Approved||Rate may currently be lower than the rate offered on a fixed rate loan, but may change over the life of the loan||Rate may be higher than the rate currently available on a variable rate loan, but will remain fixed over the life of the loan|
|Rate Stable or Changing?||Rate will change quarterly over the life of the loan, increasing or decreasing as LIBOR increases or decreases||Rate will not change over the life of the loan.|
|Monthly Payment||Monthly payment amount will change as LIBOR fluctuates. For example, if LIBOR increases, your payment will increase.||Payment will remain the same over the life of the loan|
All PNC Solution Loans™ have a fixed and variable rate option, and you don't have to decide which you'd prefer before you apply.
The variable rate PNC Solution Loan is based on the average of the LIBOR rates from the previous three months.
You are encouraged to explore all scholarship, grant and federal borrowing options before applying for a private loan.
PNC does not provide accounting, tax or legal advice. Any calculators provided are intended for educational and estimation purposes only, and their accuracy is not guaranteed. The calculators, and any results displayed, do not constitute the advice of, or reflect actual products, services, rates and/or terms available from PNC Bank or its affiliates, and nothing contained in the calculators shall constitute an offer or solicitation of a product or service by PNC Bank or its affiliates.