Coverdell Education Savings Account (CESA)
Like a 529, this is a tax-advantaged savings account to help invest for education. Unlike a 529, a Coverdell allows tax-free withdrawals to pay for elementary or secondary school expenses in addition to tuition.
Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA)
Both are trusts allowing adults to transfer assets to minors, and may be used for college. A custodian is appointed to manage the funds until the child becomes an adult.
Applying for Financial Aid
No matter how hard you save, chances are your student will also use financial aid. In fact, 86% of first-time, first-year undergraduates received financial aid in some form.2 The process comes with a whole new lexicon.
Below are some terms you should know:
FAFSA: Also known as the Free Application for Federal Student Aid, this free form is required to receive any grants or loans from the federal government. The College Board recommends that every family fill it out, regardless of income.3
CSS/Financial Aid PROFILE: Like FAFSA, this is a form you fill out to get financial aid. The College Scholarship Service (CSS) is used by private colleges and universities to determine eligibility for non-government aid.
Cost of Attendance (COA): The yearly total it will cost for a student to attend a particular college. This includes tuition, fees, transportation, health insurance, books and other miscellaneous expenses.
Expected Family Contribution (EFC): This is the amount of money your family should be able to pay for college. It’s calculated using information from the FAFSA, such as family income, assets and size.
Student Aid Report (SAR): After you file a FAFSA, you’ll receive this document informing you of your EFC. This will also be shared with schools you listed on the FAFSA.
Financial Need: The difference between EFC and COA. This number is used by college aid officers to determine how much need-based aid a student should get.
Grant or scholarship: Money for school that does not have to be paid back. According to the College Board, “grant” usually refers to need-based aid, and “scholarship” to merit-based aid.4
Financial Aid Award Letter: A document stating how much aid the school will offer your student. It usually includes grants, scholarships and loans.
Federal Student Loan or Stafford Loan: The Department of Education lends this money directly to students. Those with financial need may qualify for subsidized loans; unsubsidized loans are available regardless of need. The interest rate is fixed.5
PLUS Loan (Federal Direct Graduate PLUS Loan): These government loans allow parents or graduate students to borrow beyond the limits of the Stafford Loan.
Private Student Loan: Funds loaned by banks, private schools or other lenders, but not the federal government. They may be more expensive and don’t have some of the benefits that federal loans offer.6
Pell Grant: Aid the federal government awards to needy students with no need to pay back. The current maximum is $6,495 per year, depending on the EFC and tuition cost.7
American Opportunity Tax Credit (AOTC): This tax credit allows parents to subtract up to $2,500 of qualifying education expenses from their federal income taxes.8