YM
"Granny Bank"
Gift
Relative
Up to $10,000 may be given to a child by a grandparent or any adult without taxation. Each year, a grandparent can also give gift money directly to the school--tax free.
A grandparent's or other relative's savings aren't counted as part of your family's assets, so they don't decrease your child's financial aid.
No eligibility requirements.
Gifts must be given in accordance with state "gift tax" (transfer) laws.
No repayment necessary, unless the donor says so.
Far-out! A great way for granny or gramps to invest in their grandchild's future without being penalized and without penalizing their loved ones.
401(k)
Retirement Fund
Employer
Usually, you can borrow half of the amount you contributed to your 401(k) plus earnings. You may also be able to borrow half of your employer's contributions, depending on how long you have worked for the company. These amounts may vary.
Many 401(k) retirement savings plans (available through many employers) allow you to borrow money from your own retirement funds at good rates. This basically means that you borrow and repay yourself. Rules vary from company to company.
You may typically not withdraw this money without penalty until you reach the age of 59 1/2. However, you may borrow the money before then.
You must start a 401(k) through your employer and must speak to the employer about borrowing rules and regulations.
Rules vary from company to company.
Because it does not have the strict repayment timeframe of an IRA, a 401(k) plan is usually the better source of money to raid. However, you should consider how dipping into your retirement funds could affect your financial health for retirement.
Bonds
Investment
Government, Corporations
Municipal bonds pay a tax-free income twice a year; corporate bonds pay out semi-annually.
Two types: municipal, which draw incomes from local taxes and fees, and corporate bonds, which are paid off by corporations with established sinking funds. (The ability to pay off bonds is a part of a company's quality rating.)
Purchase municipals through towns, states, and local authorities; corporates can be bought from the New York Stock Exchange or from over-the-counter markets.
Usually sold in $5000 units. If your dealer charges a bond commission, it will usually fall between $5 and $20 per bond. There is no commission if you purchase directly from the underwriter. Municipal bonds are taxed by state or local authorities.
Corporate bonds offer high returns, and thus make for excellent savings. There are many strings attached to municipals, including call notices (where they are replaced with a cheaper series).
Certificates of Deposit (CDs)
Private Lender
You can time CDs to mature anytime after 6 months of the issue. Hence, you can time the due date to coincide with the arrival of tuition bills. CDs return principal plus compounded interest. Rates vary, but increase as the time to maturity increases.
Bank-issued IOUs that result in a relatively high yield (when compared to savings plans).
Purchase from a bank, savings and loan association, or credit union
Can be created for virtually any denomination up to $100,000. If you pull out before maturity, the bank may penalize you by taking 31 days of interest. Penalties for longer maturities are stiffer.
These are one of the best bets for families looking to save long-term for the cost of college. As with bonds, the longer the life of issue, the less expensive the initial investment.  CDs are a safe investment and are effective short-term vehicles.  The
return is not as high as riskier investments.
Credit Union
Loan, Savings
Depends on transaction.
These financial institutions, typically formed by people in a shared profession or organization, usually charge lower rates on loans and lower fees than ordinary banks. In addition, they typically pay higher rates on savings accounts.
You must belong to the organization affiliated with the credit union. Check with your employer, church/synagogue, or community.
Check with each credit union to determine application process.
Loans are loans--but loans with lower fees are definitely preferred.
Credit unions are like banks in many respects, but there are also several ways in which they differ. Most do not have Automatic Teller Machines, and you must often bank during set hours. But the long term benefits can make them worthwhile.
Home Equity Line of Credit
Loan
You can take what you need when you need it, up to the maximum you have been approved (the amount will vary from lender to lender).
Taps into your home's equity, like a home equity loan, but instead of borrowing a sizable amount, you can take what you need when you need it.
Homeowner with equity.
Apply through the bank that is financing your house.
You only pay interest on what you use.
Of the two forms of home equity--loans and lines of credit, lines of credit are the better way to go because of their flexibility regarding the amount you can take out and pay interest on.
Home Equity Loan
You can borrow up to 80% of the amount you have already paid on your mortgage (your equity). It is a fixed loan for a defined term.
You are taking money out of your house based on its equity. This is a good source of income if monthly payments from a tuition payment plan would be too much.
Apply through the bank that is financing your home.
Interest is normally 6%. If you borrow money for education purposes, you can write off the interest as a tax deduction.
Home equity loans offer the least expensive loan available, with the lowest interest rate and the best terms. The down side is that it will take longer to pay off your home, and that the house is the collateral for the loan. Only consider this option if
you know you can make the monthly payments. If you're considering this option, you may find a newer alternative, a home-equity line of credit, more appealing.
IRA
May require you to save for a period of time before borrowing is allowed.
If you agree to pay the money back in 60 days, you can borrow once a year from your IRA without penalty.
There is limited borrowing allowed from these non-company related retirement funds.
You may typically not withdraw this money without penalty until you reach the age of 59 1/2. However, you may borrow from it before then.
You must start an IRA through a bank, and must inquire with the bank about its borrowing policies.
You must repay the money within 60 days of borrowing, or you will be charged a penalty.
The 60 day repayment plan does not offer borrowers much time for repaying an education loan.
Loan Against Insurance
Insurance
Insurance Co.
Varies by company policy.
While buying a life insurance plan as a means to save for college is generally inadvisable (it takes away from the sum you could otherwise accumulate), it may be possible to borrow against that old insurance policy you took out several years ago.
Purchase through life insurance agencies. Note that newer policies may have less cash surrender value.
You can sometimes borrow at relatively low interest rates. Policies and premiums vary.
The cash value of these policies is often less than what you paid, so insurance policies are not particularly well-suited for college savings.
Monthly Earnings
Work
Self
Your monthly earnings may go up over time, thus making monthly loan and tuition payments more affordable.
Unfortunately, while your income may well be going up, so is college tuition-- at about 6.5% for private schools and 4% for public.
Part-Time jobs/Summer Jobs
Part time earnings vary with job type and experience. As you rise to higher levels of education, you should be able to find higher paying jobs.
Summer jobs are a good way to make money between academic years and to gain valuable experience. Some studies show that part-time jobs during the school year may actually make you a more effective student.
Varies by employer.
You must work, of course!  Be sure to balance school with work; make sure your job doesn't cost you needed study time and good grades.
A student's savings will be considered along with family savings and assets when determining the EFC.   You're expected to contribute a good chink of your asssets (35% according to the FAFSA).
Savings Account
Savings
Private Lender, Banking Institution
No initial deposit requirement, although some banks charge if you fall below a certain amount.
Save money in a bank and earn interest on it.
You may open an account through a bank or credit union.
Pay very low interest rates. Start saving when your child is young, and do so without jeopardizing your retirement savings.
They're safe.  You're money is liquid. However, consider investing some of your money in higher yield investments (which also, unfortunately, carry higher risk) to gain more substantial earnings that a savings account can get you.
Series EE Savings Bonds
Bank, Credit Union
Like Zero Coupon bonds, the accruing interest is not paid out in returns, but remains with the principal. You receive the full amount of the bond upon maturity.
U.S. Savings bonds that are sold in banks.
Purchase these bonds through a bank.
Cost half the amount of their face value and are available in face value denominations of $50, $75, $100, $200, $500, $1000, $5000, and $10,000. There's a limit to how much you can purchase: $30,000 face value per year.
An excellent option for long-term college savings. Also, interest is tax deferred until redeemed. You'll owe little or no tax on interest if you fall into certain income brackets.
Stocks
Varies
If profitable, you can earn income through price appreciation (selling stocks when the price of your share is higher than what you originally paid) and through a dividend from the company's earnings.
These are investments in corporations that essentially make you part-owner of a company. There are several types of common stocks--blue chip, growth, and speculative stocks. There are also two ways to buy them (see applying).
Two ways to buy: individual issues, in which stocks are managed by an individual investor, and mutual funds, in which collections of stocks are purchased and maintained by a money manager who is specifically hired to research for the investor.
You determine the number of shares you wish to purchase and the length of ownership.
Stock prices vary on a daily basis and vary depending on politics, the economy, and supply and demand. You may be charged commission by your broker or money manager. Also, the buying and selling of stocks costs about 1% of the principal.
Stocks are subject to the ups and downs of a company's activity. Nonetheless, strategists feel that these are the most profitable ventures for earning money over time for college, provided your need is at least four years away (that lessens the ris
k).  It is generally not considered an attractive short-term investment strategy. Don't invest in these after your child is 15, as stocks could drop and fail to recover in time. At that point, move your earnings to safer instruments, like a CD.
Treasury Bills
Government
You will earn back principal plus accrued/coupon interest. The total yield is determined by the life of the issue, the interest rate, and the bill's cost (the discount, not the face value).
Treasury Bills have virtually no credit risk, as they are backed with the full faith of the U.S. Government.
Purchase from regional reserve banks for no additional charge. Brokers and bankers will buy for you for a nominal commission.
Hold a face value of $10,000. Bill cost varies according to the issue length. If you buy through a broker, you will be charged a nominal fee.
T-bills are extremely liquid, which means easily within your reach at a moment's notice. You can customize purchases and issue lengths to coincide with tuition bills.
Zero Coupon Treasury Bonds
You purchase this bond at a fraction of its face value and redeem at maturity for full face value. The face value is designated at the time of purchase.
These virtually risk-free investments are good for accumulating small sums. Investments may be staggered to mature at a specific time--such as just before college. The "Zero Coupon" means that interest accumulates within the bond itself.
You can purchase these directly from the Federal Government.
The cost varies according to the time it takes to mature, the rate of return, and its face value. The longer the life, the lower the cost is to you. If you decide to redeem it earlier than its set maturity, you could lose money.
Zero Coupon Treasury Bonds are far less risky than the tax exempt corporate zeros and municipal zeros. The return rate is less, but Zero Treasuries are always a sure thing, as they are the easiest to time for a maturity that is convenient for your needs.