<p>Now that the dust has settled, it appears the three colleges that remain in contention for my D will cost about the same, give or take a thou', per year. What they will cost is a teensy bit less (in a couple of cases) or a bit more (in one case) than my EFC per FAFSA. I had imagined working it this way: Spend out of 529 while continuing to contribute to the account out of salary. Do not take loans until and unless needed. By the time my D goes to school, I will have saved a bit more than two years' worth of the likely COA for any of these schools. Two questions: 1) Is there any reason to take out an unsubsidized Stafford loan before we need to? 2) Would it be better to try to pay as we go using salary and preserve as much of the principal of the 529 account as possible? Forgive me if these are stupid questions. I always seem to do it wrong when it comes to money, and I don't know jack about investments. It appears the 529 account, knock wood, is finally getting some kind of return (rate of return now showing as 4% give or take rather than negative something!). Any rules of thumb?</p>
<p>Only thing I’ve heard is to make sure you can take the amount of loans you’ll need each year in the future… in other words… if you spend all your resources early on and don’t take loans first few years there will still be a limit to how many loans you can take each year later. Will that be enough? If so, then I’d avoid taking loans and paying interest before you need to.</p>
<p>In my opinion, if you are able to fund college without loans, that is terrific. We actually had our kids take the stafford loans as it helped OUR cashflow while they were in school.</p>
<p>So what I really need to do is a back-of-the-envelope cash flow analysis and see what things look like as we move from year to year. As in, duh (smacking head), I don’t want to hit a wall when senior year comes and have to borrow more than she or I would be eligible to borrow at that time to cover the gap!</p>
<p>We took subsidized loan portion this year though not needed to preserve 529 money. It was low interest and deferred payment, almost free money. We know will need loans for junior/senior year anyway, terms may not be as good? Pencil out all four years, and if you are good with spread sheet, try different rates of tuition inflation and 529 returns. Good luck, you are wise to consider that gaps will increase.</p>
<p>I was advised by my accountant to use 529 funds for non tution expenses and pay tution from other funds to avail of tax benefits</p>
<p>If your 529 is invested in equities, I’d consider moving it to something safer if you will be using the funds in the near future.</p>
<p>prdparent: You wrote “I was advised by my accountant to use 529 funds for non tution expenses and pay tution from other funds to avail of tax benefits.” I’m wondering why. Does it apply to everyone or just you in your tax situation? I can’t find anything on the internet about this.</p>
<p>beolein - My understanding is that you can get tax benefits for tuition and fees but not other expenses like room and board, books etc but when you use 529 funds for these other expenses they qualify for tax free withdrawl. </p>
<p>[Publication</a> 970 (2010), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>
<p>Above post is confusing…you are not talking about 529 distributions in that tax document…</p>
<p>529 funds are able to be used tax free if used for any qualified educational expense, including room, board and fees…there is another thread about this elsewhere in parents cafe…</p>
<p>To the OP: the only advice we were given by our accountant was to use cash flow for COA before 529 to allow 529 recoup some of the 2008-2009 debacle…we were already moved into more conservative options…so far, so good…</p>
<p>I’m reading this forum and as another parent of a HS senior, I’m completely baffled. </p>
<p>“We took subsidized loan portion this year though not needed to preserve 529 money. It was low interest and deferred payment, almost free money. We know will need loans for junior/senior year anyway”</p>
<p>Could you explain this in a bit more detail, jtmoney? Am I too naive to expect that if assets go down over time due to 529 withdrawals, there might be a reduction in EFC that could lead to in increase in FA? </p>
<p>And if you take out a subsidized loan when not needing the money yet, what do you do with it? Can you add it to the 529 for use later?</p>
<p>I also heard that the tax benefits for Higher Ed are supposed to expire at the end of this year. Has anyone else heard this?</p>
<p>Sorry for the stupid follow up questions. This is yet another ramp in the almost never-ending steep learning curve.</p>
<p>to respond to the previous message:</p>
<ol>
<li><p>After July, new federal Stafford subsidized loans will double in interest rate, from 3.4 to 6.8% and stay at 6.8% afterwards. The President has asked congress to extend the 3.4% rate for one more year, but the odds are against it.</p></li>
<li><p>After July, the federal subsidies will disappear for new loans for graduate and professional school.</p></li>
<li><p>In a year, the perkins federal grant program will disappear, unless Congress acts to reconstitute it.</p></li>
</ol>
<p>Just to reinforce a point made above, the federal stafford loan program limits the amount of subsidized loans that can be taken out each school year. Therefore, you cannot spend down all your savings and then expect to pay for the 4th year with $10,000 of federal subsidized loans.</p>
<p>rodney - following statements from the IRS document are relevant about tax issues -</p>
<ol>
<li>You can reduce your income subject to tax by up to $4,000.</li>
<li>The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent</li>
<li>No Double Benefit Allowed - You cannot do any of the following. - Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP).</li>
</ol>
<p>Here is more discussion on QTP - <a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service;
<p>So for this tax benefit one can spend $4000 from income and remaining from 529, US Saving bond or similar accounts</p>