Education Financing Options
for You and Your Children
A college education is one of the most lasting gifts you can give your child. National statistics confirm incomes of people with even a year of college outpace those without. Unfortunately, college costs are rising faster than inflation. By 2020, some experts predict a four-year college education at a state school will cost more than $110,000. A private college will be more than double that. Parents and students have a variety of ways they can finance that cost. Most methods have potential tax benefits. See your tax advisor for details.
DCU now offers student loans to help you fill the funding gaps that federal aid can leave behind. By partnering with other credit unions to form Credit Union Student Choice, we are able to offer members lower cost financing options that will help you or a family member achieve your dream of a higher education. Select here to learn more details about our student loan products or apply online!
Federal Student Loans are a popular means of financing education if you haven't been able to save up for education expenses. Unfortunately, young people are often saddled with student loan payments for years after they leave school. Borrow as little as necessary and pay these loans off as early as you can. Interest on these loans may be tax-deductible.
Federal Subsidized Stafford Loans — Loans are to students based on financial need. No interest accrues during schooling. Repayment begins six months after enrollment ends. Maximum term is ten years. There are loan limits for individuals and families. Variable rates are based on the 91-day U.S. Treasury bill yield plus 3.10% with an 8.25% rate cap. It's used for undergraduate or graduate-level studies.
Federal Unsubsidized Stafford Loans — Same as subsidized loans except financial need is not a factor. Interest accrues during schooling.
Federal Parent PLUS Loans — Made to parents of dependent undergraduate students. Loan limit is the cost of attendance minus all other financial aid. Maximum term is 10 years and the variable rate is based on the 52-week U.S. Treasury bill yield plus 3.10% with a 9% rate cap. Interest and principal payments begin immediately.
DCU provides access by referral to all three programs through Nellie Mae, the country's largest nonprofit provider of education funding.
The Nellie Mae EDvantageSM* program offers repayment savings to Stafford Loan borrowers. Student borrowers can choose either a 2% interest rate reduction – 2% EDvantage, or have Nellie Mae pay off the last six student loan payments – 6 Month EDvantage.
In addition, a .25% interest rate reduction, Direct EDvantage, is available when Stafford borrowers choose automatic electronic payment from their checking or savings account. To get your copy of the Nellie Mae Passport to CollegeSM information and application kit, stop by any DCU branch, send an email request to DCU, or call our Information Center at 800.328.8797 weekdays from 8:00 a.m. to 8:00 p.m. and Saturdays from 9:00 a.m. to 3:00 p.m., Eastern time.
* Eligible to Stafford Loan borrowers who make their first 48 scheduled monthly loan payments on time. Borrowers must choose between the 6 Month EDvantage or 2% EDvantage programs. The 6 Month EDvantage program assumes borrowers make equal monthly payments over a ten year loan term with no pre-payment of the loan. With the 2% EDvantage program, Nellie Mae will reduce the interest rate by 2% for the remaining payment period. Nellie Mae reserves the right to change the program at any time.
At DCU, you can borrow up to 100% of the appraised value of your home minus your first mortgage balance. You pay no closing costs. Rates are already low and tax deductibility of interest for most people drives your effective rate even lower. Depending on your tax bracket and state tax laws, the final cost can be as low or lower than Federal student loans. You can take longer to repay, lowering your monthly payments.
Equity LinePLUS — This loan, with rates as low as Prime minus 1/4%*, allows you to take advances up to your credit limit as expenses arise. You have free access by check, PC Branch, Easy Touch Telephone Teller System, DCU ATM, or in a branch. You can draw on the loan for 20 years. It also offers a fixed-rate advance feature where you can have up to two advances from your line at any given time as Fixed-Rate Home Equity Loans.
Fixed-Rate Home Equity Installment Loan — This loan offers you one lump sum with fixed payments for a five, ten, or fifteen year term.
See Home Equity Loans for more details. DCU is an equal housing lender. Your rate is determined by your personal credit history.
*The Minimum APR is 4.00%. The Maximum APR is 18.00%
The earlier you can prepare for your education expenses, the less the financial burden will be. You have several options.
Coverdell Education Savings Account – Formerly known as the Education IRA, this program allows anyone to contribute up to $2,000 per year, after-tax, for higher education expenses for a child under 18. Earnings accumulate and can be withdrawn tax-free. For more details on this account and the options DCU provides, select here.
529 Plans – This is a state-sponsored education savings plan named after Section 529 of the Internal Revenue Code. A key benefit of a 529 plan is that you pay no taxes as your account accumulates. Additionally, under the current tax law, withdrawals taken from the plan to pay qualified higher education expenses can be made free of federal income tax for both the account owner and the beneficiary (see below).
A 529 Plan is flexible, too. The beneficiary can choose any accredited college in America and many universities in other countries. And it can be used for room, board, books, and supplies – not just tuition.
There are three people named in most 529 plans – the owner, the successor owner, and the beneficiary. The owner is the person who actually deposits funds into the plan. He or she makes the investment choices and controls withdrawals. This allows the owner to retain control, ensuring that assets do not just transfer to the beneficiary at a specified age (as with a UTMA account). Owners can contribute up to the $11,000 annual federal gift tax exclusion, meaning they are allowed to deposit $11,000 per beneficiary, per year, without triggering gift taxes. Some plans will allow an owner to accelerate the first five years of contributions in one year. There a no restrictions placed on the owner as with other types of education savings accounts.
The successor owner merely takes over the owner's responsibilities if the owner is unable to serve in that capacity.
The beneficiary is the child for whom the account is established. Initially, anyone can establish a 529 plan for anyone else. From that point, the owner can change beneficiaries at any time provided the new beneficiary is related to the original beneficiary.
If the beneficiary does not go to college, the owner can change beneficiaries, leave the assets in the plan for later use, or withdraw the assets. If the assets are withdrawn, the owner will pay the deferred income taxes and a 10% penalty tax. These taxes and penalties apply only to the growth of the account and not to the principal.
Investors can invest funds into any combination of portfolios offered by the plan. Portfolios range from conservative to aggressive, and some even become more conservative as the child gets closer to college. Most 529 plans have low initial and ongoing investment minimums, making them more affordable.
You can get more information on 529 Plans through our subsidiary, DCU Financial.
Traditional IRAs – These IRAs allow you to make penalty-free withdrawals for qualified education expenses. However, you will owe taxes on the pre-tax contributions and earnings. If these funds are already earmarked for your retirement, this may not be a prudent choice. Funds withdrawn from retirement savings and used for other purposes are always a challenge to replace. What's more, you'll lose compound growth on those funds while they are gone. IRAs are available at DCU. Select here for details.
Education Planning – If you need advice on how to plan for education expense, DCU Financial, a DCU subsidiary, provides this service. Select here for details.
Upromise® – This program is essentially a 529 Plan with a twist. There is no cost to participate. You just sign up, choose a beneficiary, register your credit cards, and sign up for company programs. When you shop online through Upromise or at participating retailers with the credit cards you register, a portion of your purchase goes into the fund. You can even have friends and family sign up and direct their benefits toward your beneficiaries. You can use your DCU Visa® for purchases under this program.
Note: DCU does not endorse the Upromise program. Be sure you understand and accept their program conditions and privacy policies before signing up. Upromise web site.
The best way to pay for education is to get someone else to do it for you. There is an incredible amount of money available if you are willing to do the legwork.
Contact your high school and college financial aid offices. For scholarships, you should also talk to your employer, service clubs in your area, and local businesses to see what is available and how to apply. You may want to visit FinAid – The Financial Aid Information Page for more information on financial aid and to search for scholarships.
If you are working full-time and want to get your undergraduate or graduate degree, many employers have tuition reimbursement programs that pay all or part of the cost of college tuition, books, and fees. Most have a minimum grade requirement and may insist the degree be job-related. Currently, employer tuition reimbursement is not subject to federal income taxes for most people. Ask your employer's Human Resources Department for details.
DCU also offers the annual DCU Memorial Scholarship Program at the beginning of each year. DCU members who are graduating high school seniors headed for accredited colleges or universities are eligible to apply. Select here for more information.
Use our Financial Calculators to help you determine the loan financing and payment options that are best for you.
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Digital Federal Credit Union
220 Donald Lynch Boulevard PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797 |
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