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September 19, 2018

New Yorkers Have Tax Free Savings Option in 529 but Plan Contains Some Risks


By Assemblyman Will Barclay
College orientations are under way this time of year. Many of you may have children, grandchildren or relatives who are embarking on higher education in the coming weeks, or even in the coming years.

In April the U.S. Bureau of Labor Statistics reported that 66% of 2012 high school graduates were enrolled in colleges or universities. Paying for tuition and college costs is on the minds of many students and parents of all ages. I wanted to take some time this week to point out a few ways to pay for college education and long-term savings and planning options available to New York residents.

Saving for College: Tax free option

New Yorkers are able to open what’s known as a 529 plan. It’s a tax deductible savings account that can be used for qualifying higher education expenses such as tuition, some board, books, fees, supplies and equipment. The money going in is tax deductible, and earnings are tax free. Residents can contribute up to $5,000 a year or couples filing jointly may contribute up to $10,000.

The 529 program is structured so consumers can customize their investment options or allow the administrators to put them on a track which ranges from conservative to aggressive investments. As with any investment program, there are risks.

For example, many lost some of their principal investment during the dip in the stock market in 2009. Also, any 529 in an applicant’s name will be considered when applying for financial aid, which could influence how much financial aid a college student is awarded.

Many retailers and service agencies participate in what’s known as the Upromise.

Purchases made at participating locations offer the option to add “rewards” to your college savings plan. These rewards can then be transferred to the 529 account and invested or used for college expenses.

For information, visit www.upromise.com

Grants and Scholarships

In New York State, our Tuition Assistance Program (TAP) is the largest state-sponsored student financial aid program throughout the 50 states. Our state budget allotted $950 million for TAP. In New York, the annual TAP award can be as high as $5,000, which is a big help to any family.

This is good news for those who are college bound or who have college in their future.

TAP is awarded based on income.

There are 16 other state grant and scholarship programs offered through the New York State Higher Education Services Corporation (NYSHESC) website. The scholarships all have qualifications applicants must meet but it’s worth investigating to see if you or someone you know may qualify. At the NYSHESC website, http://www.hesc.ny.gov/, there is also a listing of federal grant programs. Remember, grants and scholarships do not have to be paid back.

Many community organizations and athletic booster clubs print notices of local scholarships usually in the winter or spring. In some cases, students have to be nominated but in other cases, students can apply directly for these local awards. Also, colleges offer academic, athletic and institutional scholarships based on an individual’s high school accomplishments.

As students explore local, college, and state options, they can also fill out a Free Application for Federal Student Aid (FAFSA). This is where students find out if they qualify for Pell Grants of up to $5,550, Federal Supplemental Education Opportunity Grant (FSEOG), up to $4,000 and Federal Work Study Programs offered through colleges to help pay for education expenses.

Student Loan Options

Federal student loans include the Perkins, Stafford, and PLUS Loans. Federal loans are a good first choice because they are usually less expensive then private loans, have flexible repayment options and are subsidized by the federal government. They also have fixed interest rates, in contrast to private loans. With private loans, interest rates are determined based on your credit score.

In 2007, the state passed an act aimed at protecting borrowers who needed private loans.

I was pleased to support this in the Assembly. Known as the Student Lending Accountability, Transparency and Enforcement Act, it aimed to end deceptive practices and conflicts of interest. For example, some lenders were providing payments and perks to colleges and university in return for benefits, including placement on the school’s preferred lender list.

The act also developed what became known as the Student Bill of Rights.

This is a short list of important items that includes the right to choose the lender that is best, the right to know what benefits or rate discounts lenders offer, and the right to know if a lender has agreed to sell its loans to another lender. It also included the right to know the interest rate for the loan before borrowing. This New York law set the standard for the country, as Congress soon adopted its principles.

Something to be wary of are businesses that charge a fee to help students obtain financial aid and scholarships. In reality, many are just charging as much as $500 to fill out the FAFSA.

According to the New York State Higher Education Services Corporation (HESC), there are no secret formulas or sources of college aid and the amount of aid you’ll receive, based on your financial need, is the same regardless of who completes the student aid application.

If you have any questions or comments on this or any other state issue, or if you would like to be added to my mailing list or receive my newsletter, please contact my office.

My office can be reached by mail at 200 N. Second St., Fulton, NY 13069, by e-mail at [email protected] or by calling (315) 598-5185.

You may also friend me, Assemblyman Barclay, on Facebook.

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