What I learned from CFP® professional education (part 6)
PAYING FOR SCHOOL DEEP DIVE 🏫🚌✏️
Continuing this series on concepts from my professional studies for those looking to improve their finances.
Education unlocks a lifetime of earning power. It's probably the best investment we can make for ourselves and those we love.
But it's expensive. 🤑
This post describes major sources of education funding -- special accounts, grants, loans, tax credits, and the rules surrounding each.
Tons of useful info - you'll want to bookmark this one 🔖
Let's help you get every penny 🫰💰
👇🧵
PAYING FOR SCHOOL DEEP DIVE 🏫🚌✏️
Continuing this series on concepts from my professional studies for those looking to improve their finances.
Education unlocks a lifetime of earning power. It's probably the best investment we can make for ourselves and those we love.
But it's expensive. 🤑
This post describes major sources of education funding -- special accounts, grants, loans, tax credits, and the rules surrounding each.
Tons of useful info - you'll want to bookmark this one 🔖
Let's help you get every penny 🫰💰
👇🧵
I recently demonstrated a step-by-step process to calculate how much to save for college. You can use this method to quantify any future multi-year financial goal:
🔗
x.com/fin_empowermen…
If you do these calculations you'll notice the total amount you need to save is likely a lot more than you thought when you consider inflation (education costs have risen faster than overall inflation). For this reason many people find they lack the resources to fully pay for college using just their savings.
💵 FINANCIAL AID
Financial aid includes different government sponsored loan and grant programs.
Loans are borrowed funds you repay
Grants do not need to be repaid
The amount of aid for which a student may be eligible is based on the Student Aid Index. SAI measures a family's income and assets to determine their overall ability to afford school. The idea is that aid should go to families who truly need it.
Higher SAI = less financial aid, and vice versa.
🔗
x.com/fin_empowermen…
If you do these calculations you'll notice the total amount you need to save is likely a lot more than you thought when you consider inflation (education costs have risen faster than overall inflation). For this reason many people find they lack the resources to fully pay for college using just their savings.
💵 FINANCIAL AID
Financial aid includes different government sponsored loan and grant programs.
Loans are borrowed funds you repay
Grants do not need to be repaid
The amount of aid for which a student may be eligible is based on the Student Aid Index. SAI measures a family's income and assets to determine their overall ability to afford school. The idea is that aid should go to families who truly need it.
Higher SAI = less financial aid, and vice versa.
The SAI has four sections:
- parental income last year (22-47% included, depending on income level and other factors)
- parental assets EXCLUDING retirement accounts, primary residence, cars used for everyday transportation, and life insurance (max 5.64% included)
- student income above a certain threshold (50% included)
- student assets (20% included)
CALCULATION
parent section (22%-47% income + 5%-5.64% assets) + student section (50% income + 20% assets) = SAI
You don't need to calculate SAI, the government aid website has a tool to estimate how much aid you may qualify for:
🌐
studentaid.gov/aid-estimator/
BUT - knowing how it's calculated helps.
For example, we know a lower SAI = more likelihood of receiving aid. The lowest weighted section in the SAI calculation is PARENT ASSETS.
So if the goal is to maximize college savings while still retaining the ability to qualify for aid, it makes sense to aim to title assets/accounts in the parent's name where possible. 🤓
- parental income last year (22-47% included, depending on income level and other factors)
- parental assets EXCLUDING retirement accounts, primary residence, cars used for everyday transportation, and life insurance (max 5.64% included)
- student income above a certain threshold (50% included)
- student assets (20% included)
CALCULATION
parent section (22%-47% income + 5%-5.64% assets) + student section (50% income + 20% assets) = SAI
You don't need to calculate SAI, the government aid website has a tool to estimate how much aid you may qualify for:
🌐
studentaid.gov/aid-estimator/
BUT - knowing how it's calculated helps.
For example, we know a lower SAI = more likelihood of receiving aid. The lowest weighted section in the SAI calculation is PARENT ASSETS.
So if the goal is to maximize college savings while still retaining the ability to qualify for aid, it makes sense to aim to title assets/accounts in the parent's name where possible. 🤓
The SAI is calculated based on information found in the Federal Application for Student Aid (FAFSA). The FAFSA helps Uncle Sam determine which students have a financial need.
There are additional requirements to receive federal student aid, including US citizenship or eligible non-citizen, high school grad (or GED/homeschool complete), enrollment in an eligible program, sufficient academic progress, registering for selective service, no drug convictions while receiving aid, cannot be in default on a federal student loan, etc.
Filling out a FAFSA is the first step in determining if you're eligible for government funds for education. Here is the link to fill it out online.
🔗
studentaid.gov/h/apply-for-ai…
Let's look at different types of aid: loans and grants.
GRANTS 🎁
Federal grants are funded by the Department of Education and awarded based on financial need. High income earners won't qualify. The money doesn't have to be repaid - it's basically a gift. Some examples:
- Pell Grants: for undergraduate students enrolled at least half-time with a substantial financial need. The max amount you can receive for 2025-2026 school year is $7,395.
Those enrolled in an approved prison education program may be eligible as well.
- Federal Supplemental Educational Opportunity Grants: similar requirements as Pell grants including demonstrating a financial need, and undergraduate students only.
Teacher Education Assistance for College and Higher Education (TEACH) grants are available for students who agree to teach high need subjects for 4 years in low income areas after graduation. If you don't fulfill the service obligation TEACH grants convert to loans.
There are additional requirements to receive federal student aid, including US citizenship or eligible non-citizen, high school grad (or GED/homeschool complete), enrollment in an eligible program, sufficient academic progress, registering for selective service, no drug convictions while receiving aid, cannot be in default on a federal student loan, etc.
Filling out a FAFSA is the first step in determining if you're eligible for government funds for education. Here is the link to fill it out online.
🔗
studentaid.gov/h/apply-for-ai…
Let's look at different types of aid: loans and grants.
GRANTS 🎁
Federal grants are funded by the Department of Education and awarded based on financial need. High income earners won't qualify. The money doesn't have to be repaid - it's basically a gift. Some examples:
- Pell Grants: for undergraduate students enrolled at least half-time with a substantial financial need. The max amount you can receive for 2025-2026 school year is $7,395.
Those enrolled in an approved prison education program may be eligible as well.
- Federal Supplemental Educational Opportunity Grants: similar requirements as Pell grants including demonstrating a financial need, and undergraduate students only.
Teacher Education Assistance for College and Higher Education (TEACH) grants are available for students who agree to teach high need subjects for 4 years in low income areas after graduation. If you don't fulfill the service obligation TEACH grants convert to loans.
FEDERAL STUDENT LOANS
Loans come if four main types:
- Direct loans are dispersed to the student
- Campus based are dispersed to the school
- Subsidized loans = government pays interest while student is in school and for 6 months after graduation
- Unsubsidized = interest due 60 days after funds dispersed.
Needs-based loans will typically be subsidized.
Stafford Loans - Subsidized or unsubsidized loans available based on financial need to undergraduate students enrolled at least half-time.
Graduate students can apply for unsubsidized Stafford loans as well.
Stafford loan interest rates are based on financial markets and updated annually. The rate is set for the life of the loan. Current rates until July 2026 are 6.39% for undergraduate borrowers and 7.94% for graduate students (the rates are posted online studentaid.gov/understand-aid… ).
Student loan interest paid during the year is tax deductible up to $2500 (phaseouts apply).
LOAN FORGIVENESS 👼
Available for those working in certain professions, including public nonprofits, teaching in low income areas, or government / military.
Lots of rules and red tape. Read more here:
studentaid.gov/manage-loans/f…
DELINQUENCY AND DEFAULT
Student loans cannot be discharged through bankruptcy, so you want to be sure that you'll get the degree and have sufficient future earnings to pay them off.
Loans are considered delinquent if payment is not received by the due date, and are considered in default after 270 days.
Once in default the entire balance becomes due, and the student is not eligible for other loans or grants.
Loans come if four main types:
- Direct loans are dispersed to the student
- Campus based are dispersed to the school
- Subsidized loans = government pays interest while student is in school and for 6 months after graduation
- Unsubsidized = interest due 60 days after funds dispersed.
Needs-based loans will typically be subsidized.
Stafford Loans - Subsidized or unsubsidized loans available based on financial need to undergraduate students enrolled at least half-time.
Graduate students can apply for unsubsidized Stafford loans as well.
Stafford loan interest rates are based on financial markets and updated annually. The rate is set for the life of the loan. Current rates until July 2026 are 6.39% for undergraduate borrowers and 7.94% for graduate students (the rates are posted online studentaid.gov/understand-aid… ).
Student loan interest paid during the year is tax deductible up to $2500 (phaseouts apply).
LOAN FORGIVENESS 👼
Available for those working in certain professions, including public nonprofits, teaching in low income areas, or government / military.
Lots of rules and red tape. Read more here:
studentaid.gov/manage-loans/f…
DELINQUENCY AND DEFAULT
Student loans cannot be discharged through bankruptcy, so you want to be sure that you'll get the degree and have sufficient future earnings to pay them off.
Loans are considered delinquent if payment is not received by the due date, and are considered in default after 270 days.
Once in default the entire balance becomes due, and the student is not eligible for other loans or grants.
SCHOLARSHIPS
Available usually based on academic merit, sponsored by all types of non-profits and other organizations.
The Dept. of Labor has a website where you can search tons of available scholarships or talk to the financial aid office at your school:
🌐
careeronestop.org/toolkit/traini…
OTHER FUNDING SOURCES
Other institutions sponsoring grants and scholarships include Universities themselves, state governments, non-profits and other private organizations. Here's a master page with links to the various state government websites:
🏛️ed.gov/about/contacts…
The financial aid office at most colleges can also help, and studentaid.gov has tons of information and links.
Available usually based on academic merit, sponsored by all types of non-profits and other organizations.
The Dept. of Labor has a website where you can search tons of available scholarships or talk to the financial aid office at your school:
🌐
careeronestop.org/toolkit/traini…
OTHER FUNDING SOURCES
Other institutions sponsoring grants and scholarships include Universities themselves, state governments, non-profits and other private organizations. Here's a master page with links to the various state government websites:
🏛️ed.gov/about/contacts…
The financial aid office at most colleges can also help, and studentaid.gov has tons of information and links.
🚨 FREE RESOURCE
If you're finding this information useful, I've got a one-page, easy-to-read flowchart that walks you through the strategies discussed here and more.
Comment "college" and I'll send it to you for free (must be following) 👇👇
Moving on ...
If you're finding this information useful, I've got a one-page, easy-to-read flowchart that walks you through the strategies discussed here and more.
Comment "college" and I'll send it to you for free (must be following) 👇👇
Moving on ...
Government sponsored aid is great but most is reserved for those with limited financial resources. If you or your parents earn a high income or have over a certain amount of wealth, you may not qualify.
The bottom line, like many things in life, you can't rely on the government to bail you out. Government programs change year-to-year. The most reliable plan is to save and invest during the years before your child starts college, thus putting the magic of compound interest on your side.
Let's finish by looking at strategies including special accounts and tax credits designed to help families save for school.
QUALIFIED TUITION PLAN A.K.A. 529 PLAN
Tax advantaged account that works much like the individual retirement account (IRA) for retirees, but instead of retirement is meant to help save for educational expenses.
2 types of 529s:
- Prepaid tuition plan: investor purchases future tuition today at a discounted rate. Only a handful of states offer prepaid tuition plans.
- College savings plans: funds can be invested into various mutual funds similar to a 401k or brokerage account (more common). Savings plans also cover more expenses besides just tuition and mandatory fees covered by prepaid tuition plans, making them more useful.
529 savings plans are investment accounts owned by a US citizen 18 or older (typically a parent, but doesn't have to be), with the child designated as a beneficiary. If you are 18 years old you can open a 529 plan for anyone, you don't need to be their parent (or even related).
You can change beneficiaries if, for example, one child opts not to go to college. But need to be careful not to trigger a taxable event.
The bottom line, like many things in life, you can't rely on the government to bail you out. Government programs change year-to-year. The most reliable plan is to save and invest during the years before your child starts college, thus putting the magic of compound interest on your side.
Let's finish by looking at strategies including special accounts and tax credits designed to help families save for school.
QUALIFIED TUITION PLAN A.K.A. 529 PLAN
Tax advantaged account that works much like the individual retirement account (IRA) for retirees, but instead of retirement is meant to help save for educational expenses.
2 types of 529s:
- Prepaid tuition plan: investor purchases future tuition today at a discounted rate. Only a handful of states offer prepaid tuition plans.
- College savings plans: funds can be invested into various mutual funds similar to a 401k or brokerage account (more common). Savings plans also cover more expenses besides just tuition and mandatory fees covered by prepaid tuition plans, making them more useful.
529 savings plans are investment accounts owned by a US citizen 18 or older (typically a parent, but doesn't have to be), with the child designated as a beneficiary. If you are 18 years old you can open a 529 plan for anyone, you don't need to be their parent (or even related).
You can change beneficiaries if, for example, one child opts not to go to college. But need to be careful not to trigger a taxable event.
CONTRIBUTIONS
- unlike Roth IRAs for example, there are no income limits on contributing to 529 savings plans. High income is no problem.
- typically deductible from state income tax for in-state residents using their state's 529 plan (not deductible from Federal taxes)
- present interest, qualifies for the annual gift tax exclusion (give up to $19,000 to anyone tax free in 2025).
- you can also use gift splitting between spouses to use both exclusions for the same gift (must file a joint tax return)
- 5-year front loading is another gifting strategy where you can treat a single gift as if it were made over five years, using 5x exclusions at once.
- contributions can be invested in a selection of mutual funds depending on which state plan you use.
- money grows free of income and capital gains tax
DISTRIBUTIONS
Withdrawals are tax-free as long as they’re used for “qualified higher education expenses". QHEEs are defined by the IRS and include a wide range of education related expenses like:
- tuition and enrollment fees
- books, supplies, and required equipment
- computer, internet access, necessary software (not games) and peripheral equipment (mouse etc.)
- room and board, including on or off-campus housing, and meals as long as the student is enrolled at least half-time
- if the beneficiary has special-needs, you can pay expenses necessary for them to attend school
If funds are used for expenses other than QHEEs, it's counted as taxable income of the beneficiary (remember the SAI ....) and subject to a 10% penalty.
Years K-12 you can withdraw up to $10,000 tax free for QHEEs. Amounts over $10k would be a combination of contributions and investment growth, and the growth portion would be subject to tax.
Once you hit college age, unlimited withdrawals from 529 savings plans can be made for QHEEs.
- unlike Roth IRAs for example, there are no income limits on contributing to 529 savings plans. High income is no problem.
- typically deductible from state income tax for in-state residents using their state's 529 plan (not deductible from Federal taxes)
- present interest, qualifies for the annual gift tax exclusion (give up to $19,000 to anyone tax free in 2025).
- you can also use gift splitting between spouses to use both exclusions for the same gift (must file a joint tax return)
- 5-year front loading is another gifting strategy where you can treat a single gift as if it were made over five years, using 5x exclusions at once.
- contributions can be invested in a selection of mutual funds depending on which state plan you use.
- money grows free of income and capital gains tax
DISTRIBUTIONS
Withdrawals are tax-free as long as they’re used for “qualified higher education expenses". QHEEs are defined by the IRS and include a wide range of education related expenses like:
- tuition and enrollment fees
- books, supplies, and required equipment
- computer, internet access, necessary software (not games) and peripheral equipment (mouse etc.)
- room and board, including on or off-campus housing, and meals as long as the student is enrolled at least half-time
- if the beneficiary has special-needs, you can pay expenses necessary for them to attend school
If funds are used for expenses other than QHEEs, it's counted as taxable income of the beneficiary (remember the SAI ....) and subject to a 10% penalty.
Years K-12 you can withdraw up to $10,000 tax free for QHEEs. Amounts over $10k would be a combination of contributions and investment growth, and the growth portion would be subject to tax.
Once you hit college age, unlimited withdrawals from 529 savings plans can be made for QHEEs.
ELIGIBLE INSTITUTIONS
529 plan dollars can be used at most accredited colleges in the US and some foreign schools. You can search for accredited schools on this website maintained by the Dept. of Education:
🌐 ope.ed.gov/dapip/#/home
LOTS MORE 529 INFORMATION 🔗🤓
general 529 info: collegesavings.org
info on the various state plans: savingforcollege.com
INVESTMENT OPTIONS
529 savings plans generally offer a menu of mutual funds to choose from, similar to 401k plans. Let's look at the State of Texas plan as an example:
🌐texascollegesavings.com/tcsp-investmen…
There are US and international stock funds, bond funds, and a "stable value" fund, which is basically a money market fund.
529 plan dollars can be used at most accredited colleges in the US and some foreign schools. You can search for accredited schools on this website maintained by the Dept. of Education:
🌐 ope.ed.gov/dapip/#/home
LOTS MORE 529 INFORMATION 🔗🤓
general 529 info: collegesavings.org
info on the various state plans: savingforcollege.com
INVESTMENT OPTIONS
529 savings plans generally offer a menu of mutual funds to choose from, similar to 401k plans. Let's look at the State of Texas plan as an example:
🌐texascollegesavings.com/tcsp-investmen…
There are US and international stock funds, bond funds, and a "stable value" fund, which is basically a money market fund.
There are also age-based portfolios which invest in a mix of funds based on the age of the beneficiary. Younger kids have longer for the account to grow, so will be invested more aggressively (higher % in stocks) etc.
Easy choice if you don't know a lot about investments.
Easy choice if you don't know a lot about investments.
CESA
Coverdell Education Savings Accounts are another tax advantaged savings vehicle, but not as flexible as 529s.
- max contribution of $2,000 per year for any beneficiary, regardless the number of donors.
🚨income phaseouts at $95-$110k (Single); $190-$220k MFJ
- earnings grow tax free like a 529 savings plan, and can be withdrawn tax free for QHEEs related to K-12 and college.
- must use funds by age 30 (unless special needs) or funds distributed to beneficiary and subject to taxes and 10% penalty.
- one CESA rollover per year allowed, where you change beneficiary to another family member in order to avoid penalty.
CUSTODIAL ACCOUNTS - UTMA/UGMA
Less popular these days. Adult manages the account on behalf of child until they reach adulthood, and can invest in securities similar to a brokerage account.
Major disadvantage: at age of majority child owns the account and can access funds. No guarantee funds will be used for education.
- considered child's assets when determining financial aid eligibility (see SAI section above)
- irrevocable gift; cannot retitle account to another child if funds aren't needed
- kiddie tax applies to unearned income (won't get into this here)
Coverdell Education Savings Accounts are another tax advantaged savings vehicle, but not as flexible as 529s.
- max contribution of $2,000 per year for any beneficiary, regardless the number of donors.
🚨income phaseouts at $95-$110k (Single); $190-$220k MFJ
- earnings grow tax free like a 529 savings plan, and can be withdrawn tax free for QHEEs related to K-12 and college.
- must use funds by age 30 (unless special needs) or funds distributed to beneficiary and subject to taxes and 10% penalty.
- one CESA rollover per year allowed, where you change beneficiary to another family member in order to avoid penalty.
CUSTODIAL ACCOUNTS - UTMA/UGMA
Less popular these days. Adult manages the account on behalf of child until they reach adulthood, and can invest in securities similar to a brokerage account.
Major disadvantage: at age of majority child owns the account and can access funds. No guarantee funds will be used for education.
- considered child's assets when determining financial aid eligibility (see SAI section above)
- irrevocable gift; cannot retitle account to another child if funds aren't needed
- kiddie tax applies to unearned income (won't get into this here)
SERIES EE AND I SAVINGS BONDS
- interest not taxed on redemption if taxpayer, their spouse or dependents incurs tuition, fees or other eligible expenses.
- bond purchasers must be over 24 yrs old when they bought the bonds in order to qualify, and income phaseouts apply starting at $96,800- $111,800 (Single); $145,200-175,200 MFJ in 2025
TAX CREDITS
American Opportunity Tax Credit
- Available during the first 4 years of undergrad
- 100% of first $2000 of expenses and 25% of next $2000 = $2500 max TOTAL PER STUDENT can be claimed, based on qualified expenses like tuition, fees and materials (room and board excluded)
- must be enrolled at least half time in pursuit of a degree
- qualifying child must be a dependent of the taxpayer
- subject to income phaseouts starting at $80,000 (single) and $170,000 MFJ
- no felony drug convictions
Lifetime Learning Credit
- 20% of the first $10,000 in eligible education expenses = $2000 max PER FAMILY can be claimed
- available ANY YEAR of education when the American Opportunity Tax Credit was not also claimed for the same student (can't double dip)
- no degree pursuit requirement, half-time enrollment status, or felony drug rule
- same income phaseouts as AOTC
- interest not taxed on redemption if taxpayer, their spouse or dependents incurs tuition, fees or other eligible expenses.
- bond purchasers must be over 24 yrs old when they bought the bonds in order to qualify, and income phaseouts apply starting at $96,800- $111,800 (Single); $145,200-175,200 MFJ in 2025
TAX CREDITS
American Opportunity Tax Credit
- Available during the first 4 years of undergrad
- 100% of first $2000 of expenses and 25% of next $2000 = $2500 max TOTAL PER STUDENT can be claimed, based on qualified expenses like tuition, fees and materials (room and board excluded)
- must be enrolled at least half time in pursuit of a degree
- qualifying child must be a dependent of the taxpayer
- subject to income phaseouts starting at $80,000 (single) and $170,000 MFJ
- no felony drug convictions
Lifetime Learning Credit
- 20% of the first $10,000 in eligible education expenses = $2000 max PER FAMILY can be claimed
- available ANY YEAR of education when the American Opportunity Tax Credit was not also claimed for the same student (can't double dip)
- no degree pursuit requirement, half-time enrollment status, or felony drug rule
- same income phaseouts as AOTC
EMPLOYER EDUCATION ASSISTANCE
- if not job-related, can provide up to $5250 in tax-free assistance per year for undergrad or graduate study. Limited to the lesser of qualifying education expenses (tuition, fees, books, supplies) or $5250.
- if job-related, no $ limit to amount of assistance that can be provided (part of ordinary business expenses)
- no phaseout
RETIREMENT ACCOUNTS
- IRA owners typically must be 59.5 years old to withdraw funds penalty free. But there is no 10% early withdrawal penalty for funds used for QHEEs (529 categories). Would still have to pay income tax on withdrawal however.
- 72t rule for "substantially equal periodic payments" allows account owner to withdraw equal amounts annually for at least five years or until age 59.5 (whichever is later) and avoid the early withdrawal penalty.
🚨BEWARE of underfunding your retirement in order to pay for children's education. Careful analysis should be used.
FUNDING BY RELATIVES
- annual gift exclusions $19k in 2025
- qualified transfer direct to institution (example: grandpa pays the school directly for tuition) avoids gift tax
- 529 plans owned by relatives not part of SAI assets, but considered student income, included at 50% for SAI
That's all for now!
Please repost and share if you found value and be sure to follow this account for more personal finance content.
Thanks for reading!
🙏💵🙌
- if not job-related, can provide up to $5250 in tax-free assistance per year for undergrad or graduate study. Limited to the lesser of qualifying education expenses (tuition, fees, books, supplies) or $5250.
- if job-related, no $ limit to amount of assistance that can be provided (part of ordinary business expenses)
- no phaseout
RETIREMENT ACCOUNTS
- IRA owners typically must be 59.5 years old to withdraw funds penalty free. But there is no 10% early withdrawal penalty for funds used for QHEEs (529 categories). Would still have to pay income tax on withdrawal however.
- 72t rule for "substantially equal periodic payments" allows account owner to withdraw equal amounts annually for at least five years or until age 59.5 (whichever is later) and avoid the early withdrawal penalty.
🚨BEWARE of underfunding your retirement in order to pay for children's education. Careful analysis should be used.
FUNDING BY RELATIVES
- annual gift exclusions $19k in 2025
- qualified transfer direct to institution (example: grandpa pays the school directly for tuition) avoids gift tax
- 529 plans owned by relatives not part of SAI assets, but considered student income, included at 50% for SAI
That's all for now!
Please repost and share if you found value and be sure to follow this account for more personal finance content.
Thanks for reading!
🙏💵🙌
PS - Want to save money, crush debt, and start investing? I distilled years of financial writing into 8 simple steps to get on the path to wealth.
Claim your free gift here: mailchi.mp/1dcac87522fd/u… x.com/2992764097/sta…
Claim your free gift here: mailchi.mp/1dcac87522fd/u… x.com/2992764097/sta…
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