Tuesday, November 20, 2012

A College Education is a Steeper and Steeper Path

As we reported Sunday, the proposed $411 million budget proposed for Montgomery County's 2013 expenses includes a $5.1 million cut to the Montgomery County Community College.

College President Karen Stout said the 10 percent tuition hike instituted at the start of the college's fiscal year to help cover part of that funding gap has hit Pottstown's western campus disproportionately hard.

Karen Stout
It seems fewer of the west campus's students could absorb the higher cost, kicking off a self-defeating spiral.

With fewer students, its harder for the college to muster enough students to pay for low-attendance classes, which results in fewer classes at the west campus.

Given that in a tough economy, community college's are often the most affordable option for getting the first two years of a college education, or job training, or a certificate needed for a new job, this is troubling news.

Equally as troubling is the amount of debt American families are undertaking in order to finance increasingly more expensive college educations -- all of which further indicates the value of having a quality community college in your midst.

According to a Pew Research Center study released in September, nearly one in five U.S. households had college debt in 2010. 

The number is double the share of households with student loan debt in 1989

The Pew report found a record 40 percent of households headed by someone under the age of 35 have outstanding student loans, and the average outstanding loan balance was nearly $26,700. 

The study also states while average annual household income dropped 11 percent between 2007 and 2010, student loan debt over the same period increased 15 percent.

There is a way to lower our dependence on debt to pay for higher education.

They're called  tax-advantaged 529 plans.

"Once again, we see another report that makes clear the burden of student loans continues to mount for American families," State Treasurer Rob McCord, said in a prepared statement that arrived in my in-box some time ago.

"The challenges of this economy and long-term tuition inflation have led more students to finance their education with debt, thus more young adults are going to be saddled with repayment obligations and find it more difficult to buy a home, start a family, or save for retirement."

"Future students can avoid student loans if they and their families start to save for college today," said McCord. 

"Regardless of whether it is a little or a lot, it is important to save something, because it can be half as expensive to finance a higher education with savings as opposed loans you must repay with interest. Now is the time to start and one of the best ways to do so is with the tax benefits of PA 529 College Savings Plan," he said.

The PA 529 College Savings Program provides two ways to save: the PA 529 Guaranteed Savings Plan (GSP) and the PA 529 Investment Plan (IP).

Both plans provide flexibility to pay for college expenses at most higher education institutions across the country. The primary difference between the two plans is the way savings grow.

PA State Treasurer Rob McCord
The PA 529 GSP is designed to help savings grow to meet the future cost of education. When used for qualified higher education expenses, PA 529 GSP contributions grow based on tuition inflation (subject to fees and premiums). 

For example, if you save enough for one semester today at a State System of Higher Education university, you will have enough for one semester there in the future, no matter when or how much tuition has increased in the meantime.

The second PA 529 plan, the PA 529 IP, features low fees and more than a dozen conservative and aggressive investment options from The Vanguard Group, one of the nation's largest financial services companies.

Contributions to a PA 529 plan -- including funds earned through U-Promise -- are deductible from Pennsylvania income taxes (up to $13,000 per beneficiary, or up to $26,000 for married couples provided each individual has income of at least the amount deducted), grow tax free, and when used for qualified educational expenses, are federal and state tax exempt.

Visit PA529.com or call 1-800-440-4000 to learn more information, open an account, or make a contribution to a PA 529 plan. The website also offers free college savings webinars. The live online presentations allow participants to have their questions answered by a PA 529 college savings expert.

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