: : : : : Personal Finance : : : : :
lion a year, from $1 billion, under
President Obama’s proposed budget.
You can change the investments
in your 529 accounts twice this year,
a rule that the IRS may extend.
ment’s PLUS Loan Program. PLUS
loans allow you to borrow for the full
cost of a dependent child’s college
education minus any financial aid.
For the 2009–10 school year the interest rate is 7. 9 percent for loans that
come directly from the government,
and 8. 5 percent for those in which a
financial institution is the intermediary. The fees run from 3 percent to 4
percent of the loan.
Leave private loans for last. Before
the credit crunch, you could cosign a
private student loan with a credit score
as low as 620. Now, says Kantrowitz,
banks require scores of 680 to 700—or
even 730. (Get your score at myfico.com
or equifax.com for about $16.)
THE OBSTACLE “My kids are a couple
of years from college, and our 529
savings took a huge hit. Should I bet
on stocks to get us back on track?”
WHAT TO DO The temptation is understandable, but please don’t load up on
stocks in hopes that a market rally will
restore your accounts. There’s no need
to abandon stocks, says Kalman Chany,
author of Paying for College Without
Going Broke (Princeton Review, 2008),
but overreliance on them would pose a
WHERE TO GO FOR...
529 PLAN INFO
hazard. “You simply can’t afford to lose
money when tuition bills are due so
soon,” he says.
Makes sense. And yet some parents
of teenagers got a rude awakening last
fall, when they discovered that the
age-based portfolios in their 529 plans
were invested more heavily in stocks
than they’d realized. Though most
age-based plans invest more conservatively as the child gets older, some keep
as much as 60 percent of deposits in
stocks even when the student is a year
or so from college, says Joseph Hurley,
founder of Savingforcollege.com.
Parents and grandparents looking
for safer alternatives should consider
more-conservative cash and fixed-income options within their plan. The
IRS has just made this easier to do. You
can change the investments in your 529
twice this year, which is twice as often
as before. It’s a rule change the IRS may
extend into future years.
If your current plan lacks enough
safe investments, consider rolling over
your assets into another state’s plan that
offers more choices. Insurance-backed
“guaranteed” options, for example, are
available in seven of the state plans
managed by TIAA-CREF. (Returns
for 2008 were as high as 4 percent.)
But before you do, review your tax
situation. You may lose a lucrative tax
break if your state allows a 529 deduction. Worse, warns Hurley, if you got a
break for contributing to your original
account, some states will require a payment if you change plans.
Will any of this restore your investment losses? Only slowly. But time
and caution should restore your confidence in investing and spur you to
keep on saving. ;
Walecia Konrad is a freelance writer
specializing in finance, and a frequent
contributor to AARP THE MAGAZINE.