About NJBEST: New Jersey’s 529 College Savings Plan

What Are 529 Plans?

Originally created in 1996, Qualified Tuition Plans — commonly referred to as 529 plans or 529 college savings plans — are tax-advantaged savings plans designed to make it easier to save for college or other post-secondary training. The moniker of “529 Plans” refers to section 529 of the Internal Revenue Service (IRS) code, which provided for the establishment of these plans.

There are two different types of 529 plans, but each must be set up with a designated beneficiary. The first type, a prepaid tuition plan, can generally be used to purchase credits or other approved units at participating colleges and universities. When the student begins attending school, they can use these prepaid credits toward tuition and fees. These plans can be beneficial because they lock in tuition prices at eligible schools. However, they are limited on what they can be used for and where they can be used. Many also have restrictions on the age or grade of the beneficiary.

College Savings Plans, on the other hand, tend to be more flexible. Tuition rates are not locked in because the funds are not designated for specific schools. There are no age limits on who they can be opened for and they can be used to cover all “qualified higher education expenses,” including:

• Tuition and Fees
• Room and Board
• Required Books and Computers

If you are interested in using a 529 plan to save money for college, make sure you look carefully into the pros and cons of each type of plan and pick the one that best fits the needs of you and your future student.

NJBEST: The New Jersey 529 College Savings Plan

The New Jersey Better Educational Savings Trust, NJBEST for short, is a 529 College Savings Plan created by the state of New Jersey. It has the flexibility of all 529 College Savings Plans, but also offers some exclusive benefits just for New Jersey residents.

Flexible Savings

First, you don’t have to worry about your savings being wasted. You, as the plan owner, get to decide how and when your assets are spent on higher education expenses. In fact, if your chosen beneficiary chooses not to pursue higher education, you have the ability to use the funds to educate another family member (read the Investor Handbook for details). And, since the funds can be used at any accredited college, you don’t have to worry about what school the student chooses to attend.

Potential Scholarship of up to $1,500

In addition to your savings, the NJBEST program offers students the potential of receiving a college scholarship of up to $1,500. This tax-free scholarship is available to many students at New Jersey colleges and universities. The value of the scholarship increases with the time and investment of your NJBEST savings plan.

Limited Interference with New Jersey Financial Aid Eligibility

One key feature of the NJBEST 529 College Savings Plan is that there is limited interference with other New Jersey Financial Aid. The plan is structured so that the first $25,000 in savings is excluded from the criteria used to determine financial aid eligibility in the state of New Jersey.

Low Minimum Contribution - High Contribution Limits

You don’t have to be able to save a lot to get started. In fact, you can start your NJBEST savings plan with as little as $25. Once started, you can continue to make contributions to your college savings plan until the plan’s value reaches $305,000, making sure that you can save plenty of money for your future student’s education.

Tax Advantages

Your NJBEST savings plan grows free from federal income tax and New Jersey state income tax. Qualified withdrawals are not typically subject to these taxes either. If others wish to make a large contribution to your beneficiary’s 529 savings plan, there is often special gift and estate tax treatment. A single-year contribution of up to $70,000 ($140,000 if given by a married couple) is generally excluded from federal gift and estate taxes. However, the contributor can make no further gifts to the beneficiary for five years under these circumstances.

College is expense and the rising cost of tuition means that it will only get more so. You can invest in your child’s future by opening a 529 Plan.

Sources:

https://www.sec.gov/investor/pubs/intro529.htm
https://www.irs.gov/uac/529-plans-questions-and-answers

1. Investing in NJBEST savings plans does not guarantee admission to any college, either in New Jersey or elsewhere.
2. NJBEST scholarships are awarded during a beneficiary’s first year of college.
3. Tax benefits are conditioned upon meeting certain requirements. Nonqualified withdrawals and particular circumstances may not result in tax benefits. Always consult a tax advisor before investing.
4. As with any investment, 529 plans have risks associated with them that can cause investment return and principal to fluctuate.
5. Please read the Investor Handbook for more information on NJBEST College Savings Plans.

How Much Does College Actually Cost?

Average College Costs for the 2015-2016 Academic Year

Most people know that college tuition rates go up almost every year. But it’s critical for potential students to understand how much their college experience is really going to cost. In addition to tuition and fees, there are a plethora of other expenses that need to be included in your budget, including transportation, housing, clothing, books, supplies, and more.

While many schools provide their prospective students with information on the average cost of many of these expenses, it’s important to figure out your own budget in order to know how much college is really going to cost you. You may only be able to estimate the cost of your books and supplies, but you often have much more control over expenses like food, clothing, and personal items. You’ll need to understand that one of the most critical factors in your college budget is where you live. That’s because housing and food expenses make up the second largest portion of most students’ college budget.

Once you estimate the full cost of your college, you’ll have a better idea of how much student financial aid provided by Grants, Scholarships, and Student Loans will factor into your educational future. Below, you’ll find an infographic detailing the average cost of college for private and public schools for the 2015-2016 academic year. Use these averages to give you a starting point for understanding your potential college expenses.

What Are the Risks of Cosigning a Student Loan?

With rising college costs, it is critical that you understand the different types of financial aid available to the families of students who wish to pursue higher education. College Savings Plans, Scholarships and Grants are typically the best sources of money to pay for college, but aren’t always enough. When college costs outstrip available funds and financial aid that does not require repayment, student loans are generally used to make up the difference. If you find that student loans are necessary to fulfilling your student’s higher education goals, you should begin by looking at ways to Minimize Student Loan Debt.

Federal Student Loans

If borrowing money becomes necessary, Federal Student Loans — both subsidized and unsubsidized — should be pursued as the primary loan source. These loans are entered into by the student and do not require a cosigner. Additional benefits of these loans typically include:

• Lower Interest Rates
• Repayment Deferral While the Student Is in School
• Interest Payments Are Tax Deductible in Some Cases
• There Are Options for Deferral or Forbearance During Repayment When Necessary

Private and Supplemental Student Loans

If savings, scholarships, grants, and Federal loans still aren’t enough, you can begin looking at private and supplemental loan options. Private loans are available through many financial institutions and some states offer supplemental loans like the New Jersey College Loans to Assist State Students (NJCLASS) available through the Higher Education Student Assistance Authority (HESAA). It’s important to note, however, that most of these types of loans require the student to have a cosigner.

Cosigning a Student Loan Is Risky

A cosigner’s established credit history often results in higher borrowing limits and lower interest rates, but cosigning isn’t without its risks. To begin with, when a student loan requires a cosigner, both the student and the cosigner are listed as borrowers on the loan, meaning that they are both responsible for the repayment of the loan.

As a cosigner, the risks you take on with a private or supplemental student loan include:

• The loan and its payment record are listed on your credit history.
• You are taking on new debt, which affects your credit score.
• Any late payments on the loan reflect on your credit history and credit score.
• You are liable for repayment of the loan if the student is unable to repay the loan at any time.
• Your responsibility for the loan is equal with that of the student borrower.
• If the loan defaults, the lender can attempt to recoup the balance of the loan from you.
• Financial institutions are not obligated to keep you up to date on the loan’s status.

It’s important to remember that cosigning a student loan is essentially the same as taking out a loan in your own name. Careful evaluation of the loan’s interest rates, terms, penalties, and repayment schedule is a critical action that should be part of the borrowing process.
If you choose to cosign a student loan, you should have a serious discussion with your student regarding the financial obligation that you are both taking on. Make sure that they understand that their actions or inaction can reflect on your financial position as well as their own.

10 Great Ways to Minimize Your Student Debt

College is expensive. But the hard truth is that in many industries and fields you are much more likely to both gain employment and advance if you have a college degree. Nevertheless, you won’t be surprised that the ever-increasing cost of college tuition has created a world where crippling student debt is the reality for many college graduates. For many of these former students — and their families — their debt hangs threateningly over their heads like Damocles’ fabled sword.

Also unsurprisingly, the best way to minimize the painful effects of student debt, is to first strive to minimize student loan amounts in the first place. At HESAA, We have compiled this list of ways to do just that.

1. Take Advanced Placement (AP) Classes

Advanced Placement (AP) courses are designed to allow high school students to receive a range of college credits before graduating from high school. By taking advantage of these courses, you or your student can actually start college with credits already in place. These credits help fill college prerequisite and graduation requirements and allow you to pay for fewer classes at the college tuition level.

2. Consider a Starting at a Community College

Generally speaking, 4-year degrees require a range of general education courses as part of their curriculum. A cost-effective way to work toward your degree is to start at a community college. These schools offer most general requirement courses at a significantly lower rate than full universities. By taking these courses at a community college before transferring to the college or university of your choice, you can save quite a bit of money.

3. Choose an Affordable College

Every student dreams of being able to choose the best school with the best program for their major. In reality, however, that’s not always practical. Choosing a school that has a quality program in your field of study that is also affordable is one of the best and easiest ways to limit the amount of student loans you will need. When researching the cost of a school, don’t forget to include room, board, and other living expenses in the total cost of attending.

4. Choose an In-Demand Major

When you were a child, you probably didn’t think much about how much money you could make when you were asked, “What do you want to be when you grow up?” However, as a prospective student or a current student, majoring in a subject that is in-demand in the job market is crucial to graduating with a degree that can help you get a job that will allow you to support yourself, support your family, and pay back any student loans you incurred while pursuing your degree.

5. Utilize Savings, Scholarships, and Grants

If your family has been able to save for your college education, you’ll find yourself at a good starting point. 529 College Savings plans, like the New Jersey Better Educational Savings Trust (NJBEST), are one of the best ways to save for tuition. These “qualified tuition plans,” as they are legally known, can offer special tax benefits. Earnings in a 529 plan are not subject to federal tax, nor are they subject to state tax in most cases.

In addition to college savings, scholarships and grants can greatly reduce the amount of student debt you incur. One of the best things about both grants and scholarships is that they are essentially “free” money because they do not have to be paid back. Filling out your FAFSA (Free Application for Federal Student Aid) will tell you if you qualify for federal grants like Pell Grants or Federal Supplemental Educational Opportunity Grants (FSEOG). Additionally, FastWEb.com is a great resource for scholarships and grants that you can apply for depending on your high school grades and personal successes. Other places to look for scholarships include:

• Each College or University You Are Interested In,
• Local Foundations, and
• Local Community groups.

6. Limit What You’re Borrowing Money For

There are many aspects of college life that cost you money, including: tuition, books, supplies, housing, food, etc. Nevertheless, whenever possible, you should borrow money for as few expenses as possible. Even if you are able to use grants and scholarships to cover part of your expenses, borrowing for too many expenses can add up quickly.

Let’s look at an example to illustrate this. In our example, two students are attending an art school that costs $30,000 in tuition for a two year degree.

Student A: Has a $30,000 scholarship through the school that covers their tuition. However, they borrow $1,200 per month for books, supplies, and living expenses. Over the two years, they accumulate $28,800 in student debt.

Student B: Has $10,000 in grants and scholarships that goes toward their tuition. They choose to live with family and work a part time job to cover the costs of books, supplies, and food. Over the two years they accumulate $20,000 in student debt.

As you can see, limiting what expenses you borrow money for can make a real difference in how much debt you accumulate.

7. Work While You Study

As shown with Student B in our example above, working a part-time or full-time job while you’re in school can help you cover some of your expenses. The key is to find the balance of how many hours you can work without experiencing a negative effect on your studies. For some, the best balance is to go to school full time and work part time. For others, the solution is to work full time and take a few courses each term. There is no one, right answer, but balancing school and work can really help you limit how much money you have to borrow for your education.

8. Apply For Federal Student Loans First

As their name suggests, Federal Student Loans, are funded by the Federal Government. They offer a variety of benefits over private loans, including:

• Lower Interest Rates
• Deferral of Repayment While in School
• Tax Deductible Interest (in some cases)
• Possible Options of Deferral or Forbearance During Repayment

Because of these benefits, it is a good idea to see if you qualify for any Federal loans before looking at private loan sources for student loans.

You should understand that there are two main types of Federal Student Loans, subsidized loans and unsubsidized loans. On subsidized loans, the Federal Government pays the interest while the loan is in its initial deferral stage. Unsubsidized loans, on the other hand, begin accruing interest as soon as the loan is taken out. It is often beneficial to make “interest only” payments on unsubsidized loans while in school in order to maintain lower principal loan amounts.

9. Carefully Evaluate Private & Supplemental Loans

Not all loans are created equal. If you find yourself in need of private or supplemental loans, make sure that you carefully evaluate all aspects of each loan before signing. Keep in mind that some states offer supplemental loans to help students from their states or who are attending school in their state. For example, New Jersey offers New Jersey College Loans to Assist State Students (NJCLASS) to New Jersey residents who choose to attend qualifying in-state or out-of-state schools as well as to out-of-state students who plan to attend a school in New Jersey.

Here are a few of the details you should look at when choosing a private or supplemental student loan:

• Interest Rates, including if they are fixed-rate or variable-rate loans
• Term of the Loan(s), i.e. how many years you will be repaying the loan(s)
• Presence of Early Payoff Penalties
• When Repayment Begins
• If "Interest Only" Payments Can Be Made Before Repayment Begins

10. In Short, Don’t Borrow Exorbitant Amounts

All of the above tips funnel to this one: accrue as little student debt as possible. If you find that you need to borrow money to make your college dream come true, make sure that you aren’t selling your future to do so. In general, borrowing more than you can reasonably expect to make as your starting salary after graduation is a bad idea. You should know that students who borrow more than twice what they can expect to make as their starting salary will be at high risk of default.

Bonus Tip: Avoid Defaulting On Your Loan(s)

If at all possible, avoid defaulting on your student loans. Defaulting on your loans has different consequences for different types of loans, but the consequences can ruin your credit score for years and result in paying a significantly higher amount once late fees and interest are taken into consideration. While consequences vary widely for defaulting on private loans, some of the consequences for defaulting on Federal Student Loans can include:

• The entire unpaid balance and accrued interest becoming immediately due
• Loss of eligibility for forbearance, deferment, and repayment plans
• Your loans being sent to a collection agency
• Wage garnishment

By limiting the amount of student debt you acquire, you can put yourself in the best situation possible to avoid defaulting on your loans and setting yourself up to repay your loans on time.

New Jersey Financial Aid For Students

Higher education can be very expensive. Between the tuition, fees, books, housing, living expenses, and more, there are lots of elements pulling for your attention. But it’s at times like these that HESSA - The Higher Education Student Assistance Authority - in New Jersey can help you. They make the finding financial aid for college easier by offering financial and informational resources to prospective students like you. Some of these programs and resources are listed below.

New Jersey’s 529 college savings plan

Start saving early with a 529 College Savings plan, created for American families to encourage saving for higher education. These plans are implemented by state agencies, meaning each state is a little different. The NJBEST 529 College Savings Plan allows maximum flexibility and diverse investments to fit the needs of any investor. You can learn more by visiting NJBEST.com

The New Jersey Better Educational Savings Trust (NJBEST)

The NJBEST Scholarship is for students who are part of New Jersey’s 529 College Savings Plan. They must have had an account open for at least 4 years, with their contribution greater than or equal to $1200. The scholarship will be $500 if the student has had their account with New Jersey’s 529 College Savings Program for 4 years, with an extra $250 available for each additional 2 years activity. Learn more on our page featuring information about the NJBEST Scholarship.

The Governor's Urban Scholarship Program

Created by New Jersey Governor Chris Christie in 2012, the Governor’s Urban Scholarship Program is a merit-based scholarship to help those in New Jersey’s Economically challenged communities. There are eligibility requirements including the area you reside in, being a US citizen and resident of New Jersey for at least one year, etc. You can find these requirements and more in our brochure.

New Jersey College Loans to Assist State Students (NJCLASS)

The New Jersey College Loans to Assist State Students (NJCLASS) is New Jersey’s supplemental student loan program for both New Jersey residents attending an eligible in or out of state school, or out-of-state students attending college in New Jersey. The purpose of the loan is to help pay for education expenses your scholarship, grants, and other loans don't cover such as tuition and fees, book and equipment, housing both on or off campus, and study abroad programs.

The New Jersey Tuition Aid Grant (TAG)

The New Jersey Tuition Aid Grant (TAG) is one of the most generous need-based financial aid programs in the nation. Available for both full and part time students, TAG bases your reward amount on Financial need, cost of attendance, and available funding. These awards can be renewed annually as long as the student meets their eligibility requirements. Check out their brochure to learn more.

New Jersey Student Tuition Assistance Reward Scholarship (NJ STARS and NJ STARS II)

The New Jersey Student Tuition Assistance Reward Scholarships are exclusively for New Jersey residents. There are 2 programs available, the NJ STARS cover the cost of tuition at New Jersey’s 19 community Colleges. This scholarship is for students who rank in the top 15% of their high school classes at the end of either their junior or senior year. Students are eligible for 5 semesters of tuition, and if they maintain a 3.25 GPA or higher, will be eligible for the NJ STARS II program. The NJ STARS II Program is for students who completed the NJ STARS program successfully and have transferred to a New Jersey four-year public or private college or university to earn a bachelor’s degree. This award is based on tuition only, except for those who are TAG recipients who may also be approved for assistance with other school fees as well.

The Governor's Industry Vocations Scholarship (NJ-GIVS)

Announced in 2013 by governor Chris Christie, the Governor’s Industry Vocations Scholarship is especially for minorities and women pursuing a certificate or degree program in a construction-related field. These degrees include Architectural engineering Technology, Carpentry, Civil Engineering Technology, Landscape Design/Build, Masonry, Plumbing, Quality Assurance Technology and more. This Scholarship pays up to $2,000/year or the cost of tuition minus any other financial aid the student may have. Click here for a list of available degree programs and eligibility requirements.

In New Jersey, there are resources designed to fit just about every need. You won’t have to put off going to college because of financial worries. HESAA is here to help find the program that is right for you.