MONEY College

How College Costs Will Change in 2015

Although college costs are still increasing, they're increasing at a much lower rate than they have in recent years. Interest rates and repayment for federal loans have eased as well.

MONEY College

Here’s How the Government Thinks We Should Grade Colleges

Access, affordability, and outcomes are the three most important factors. But how will the government measure them?

The federal government Friday morning released what it’s calling a “framework” to rate America’s colleges on their performance in three areas: how many low-income and disadvantaged students they educate; how affordable they are; and how well their graduates do financially, in the job market, and in graduate school.

The U.S. Department of Education said it planned to issue the ratings “in time for the 2015 school year” — so, presumably, by August of 2015.

But researchers familiar with the government’s plans say that ambitious and idealistic plan will be stymied by an ugly reality: much of the information needed to rate the colleges on these factors doesn’t exist yet.

While describing the government’s plan as “thoughtful,” Terry Hartle, a spokesman for the nation’s largest association of colleges, the American Council on Education, said “It is not clear how they will get it done.” The problem, he and other researchers said, is that there is currently no easy way to mine the government’s data on citizens to find out, for example, which graduates of which colleges go on to graduate schools, how much graduates of each college earn, or how much alumni of each college are paying on their student loans.

In August of 2013, President Obama pledged to create ratings based on which colleges are “offering the best value so students” and giving taxpayers “a bigger bang for their buck.” He said he hoped the government would provide more financial aid to students at colleges that do the best job providing opportunities, educating students, and helping launch good careers.

In its announcement Friday, the Education Department asked for public comments on its plans to judge colleges by the following factors:

Access: The Education Department said it was thinking of judging colleges’ provision of opportunities to all by examining, for example, factors such as the percentage of students receiving Pell Grants, which are grants awarded only to low-income students, and the percentage of students whose parents did not attend college. It was also considering looking at the family incomes of students at each college, and giving higher ratings to colleges with more students from the lowest income groups.

Affordability: The government is considering giving poor ratings to schools that provide so little financial aid that families end up having to pay much more than the “Expected Family Contribution” (EFC) after they fill out their Free Application for Federal Student Aid (FAFSA). Financial aid is generally in such short supply that 99% of colleges fail to provide enough grants or scholarships so that every student has to pay only their EFC. But currently, colleges are not required to reveal how many students they leave with financial aid “gaps” or how large those gaps are. Additionally, the ratings may ding colleges with high “net prices,” which is the price students (and their parents) pay after all grants are subtracted. The government said it may look at either the overall average net prices, or the average net prices paid by families divided into five income groups, such as those earning up to $30,000, or those earning more than $100,000.

Outcomes: While graduation rates are a commonly used metric for judging colleges, the Education Department proposes adding other gauges such as how many new graduates find jobs quickly, and how much money they earn over the long term. In theory, the Internal Revenue Services or the Social Security Administration might be able to provide the employment and earnings information for graduates of each school, but privacy concerns have stymied efforts to gather that data in the past. The Department says it may also consider what percentage of graduates are paying their loans off, and what percent go on to graduate school. For community colleges, the Department said it may consider what percentage of students transfer to four-year colleges.

To help families gauge the affordability and value of colleges, MONEY hired Mark Schneider, a former head of the federal National Center for Education Statistics, to develop college rankings based on quality, affordability, and outcomes, using the best data currently available, including, for example, a national survey of college graduates’ earnings by Payscale.com. Our rankings of the 665 top colleges in the country were released in the summer of 2014.

Read next: The Long, Sad Tradition of College Admissions Mistakes

MONEY best of 2014

7 Ways Tech Made Your Life Better in 2014

A new reason to ditch your cellphone contract, safer credit cards, and five more bright ideas that can help you save money in the year ahead.

Every year, there are innovators who come up with fresh solutions to nagging problems. Companies roll out new products or services, or improve on old ones. Researchers propose better theories to explain the world. Or stuff that’s been flying under the radar finally captivates a wide audience. For MONEY’s annual Best New Ideas list, our writers searched the world of money for the most compelling products, strategies, and insights of 2014. To make the list, these ideas—which cover the world of investing, retirement, health care, college, and more—have to be more than novel. They have to help you save money, make money, or improve the way you spend it, like these seven tech innovations.

  • Best Side Effect of the Hacking Mess

    Chip and Pin credit card transformed into a lock
    Image Source—Alamy

    Safer Credit Cards…Finally

    Chip-and-PIN credit cards include a special chip that makes them harder for hackers to replicate. Though you’re legally protected from having to pay most charges when a card number is stolen, more-secure plastic can save you a lot of hassle. Card companies had been slow to roll out chip-and-PIN—until millions of credit card numbers were stolen from major retailers such as Target and Home Depot. “The frequency and size of the breaches absolutely are driving more rapid adoption of the technology,” says Paul Kleinschnitz of First Data, a payment technology firm. Here are two more things to know about the new cards:

    They don’t eliminate all your risk. Chip-and-PIN makes it harder to create fake plastic but doesn’t stop numbers from being used at online stores. So you should still check your statement regularly for weird charges. Chip-and-PIN is already common in Europe; the new cards work in automated machines there that don’t accept old-fashioned plastic.

  • Best Smartphone Savings

    No-Contract Plans

    Old way: Commit to a contract and pay $200 for a smartphone that really costs $650. Of course, you still pay for the phone as part of your monthly bill.

    New way: Wireless companies are making it easier to separate the cost of the phone and the price of service.

    You can shop for a new plan with your old phone. Low-cost players and now the big carriers offer no-contract plans, which may be $100 cheaper per month for a family. Check with carriers for phone compatibility; look up network quality in your area at rootmetrics.com.

    Or get a new phone. You can buy a phone outright or on installment, and combine that with a no-contract plan. Sometimes, but not always, the total price beats the comparable contract option, so run the numbers. If you do go contract, mark your calendar: After 24 months, switch to no-contract if you don’t care to upgrade.

  • Best Reason to Rent, Not Own, Your eBooks

    Amazon Kindle

    All-You-Can Read Subscriptions

    As with music, books are moving toward an all-you-can read subscription model.

    The Services: The service you pick will hinge on the device you prefer to read with. Scribd ($8.99 per month) lets you read an unlimited number of books, and it quintupled its library this year to 500,000, with 30,000 audiobooks. The service now includes many titles from the big publishers Simon & Schuster and HarperCollins. Works on: iOS, Android, Kindle Fire (but not e-ink readers), Nook tablets.

    Though Scribd is the better service overall, it doesn’t work on Kindle e-ink readers. If you’re devoted to that device, Amazon has its own options. With an Amazon Prime subscription, you can choose from thousands of titles to read for no extra charge (one per month). Kindle Unlimited ($9.99) is like Scribd, but customers and reviewers say it’s hard to find books from the “Big Five” publishers. Works on: iOS, Android, Kindle Fire, and Kindle readers.

    The Gadget: Phone and tablet apps are fine for many readers, but e-ink devices provide a more booklike experience. The new Kindle Voyage has a screen that’s 39% brighter than its predecessor.

  • Best Reason to Rent, Not Buy, Your Music

    Streaming Services

    Why buy songs that you’re rarely going to listen to in a few months? What if you could listen to just about anything—except for a few famous holdouts, like Taylor Swift and the Beatles—for less than the price of one CD per month? (Remember those?) A smart new pricing plan could make 2015 the year you make the switch from buying music to legally streaming it.

    The Service: Spotify lets you listen to any song you want in its vast catalogue. A free version, with ads, works on desktops or allows you to play artists or albums on Shuffle on your phone. Paying up for Spotify Premium ($9.99 a month) gets you no ads and total control on any device. Spotify has rolled out a family plan that lets you add new users for $4.99 each; that way two people in your family can play their own tunes at the same time. Works On: iOs, Android, desktop

    The Gadgets to Listen On: Docking stations are easy to use, with no setup or wires required. The $130 iHome iDL48 works with most iPads and iPhones. A portable speaker lets you get your music off your little earbuds and carry it to any room. The reliable Jawbone Mini Jambox ($130) connects to smartphones, tablets, and most computers through Bluetooth. If your existing stereo has an auxiliary input, an easy fix (in you’re not a hi-fi purist) is to run a cable from the headphone or line-out jack on phone, tablet or PC. Cords are $5 to $10 at Monoprice or Amazon.

  • Best Retro Tech

    2015 Ford Focus
    2015 Ford Focus

    Dashboard Knobs are Back!

    For years cars have become more tech-laden, with systems to let you make phone calls, find local pizza joints, or answer email. Which is nice, unless you prefer to keep your focus on driving. Interiors became a maze of numeric keypads and other control points. Ford says its research shows drivers don’t use or want all that tech. Now it’s retro time. For the 2015 model year Ford Focus, the automaker has eliminated many buttons, and added old-fashioned knobs to systems such as heat and A/C. In the next Fusion, the company is even getting rid of touch screens. — Bill Saporito, Time assistant managing editor, car reviewer at Money.com

  • Best Online Security Fix

    Two-Factor Verification

    Worrying about bank and brokerage hacks is understandable. But money can be replaced—and you have legal protections. What you should worry about is a hacker mining your more vulnerable iCloud photos, Facebook page, or email account and impersonating you. Two-factor verification, a login protocol, makes it vastly harder for hackers to steal your digital life. Here’s what you need to do to set it up:

    Select “login approval” or “two-factor verification” under settings at sites you want to protect. The first time you visit that site on a new computer, you will have to enter a code that’s texted to your phone. (You only need to enter this code the first time you log in from a new computer.) In case you lose your phone, you can print out backup codes, which work once. Once you’ve done this, a hacker would need to guess your password and have physical access to your computer in order to steal your data.

  • Best Apps to Get Before You Travel

    Chi Birmingham

    Taxi Apps

    It’s not always easy to scare up a cab in an unfamiliar city. (Where are the best streets to try to hail one? Should I find a taxi stand? Call ahead?) But smartphones are making it much easier to get around. The Uber app can summon a for-hire private car in numerous cities in 45 countries (though the service has recently come under fire in a few cities). In some big towns, like New York, it will also hail a traditional taxi. Curb and Flywheel also grab regular cabs—check first if they work in the town you are visiting. Want help navigating subways and metros? Hopstop has stop-by-stop directions and travel times, as do the transit directions on the Google Maps app.

MONEY College

The Best and Worst Places to Live for a Low-Cost College Education

Classroom with map of United States on chalkboard. Wyoming is shaded pink.
Want to save $50,000 on your kids' college education? Move to Wyoming. Sarina Finkelstein (photo illustration)—John Kuczala/Getty Images (classroom); Tuomas Kujansuu (chalkboard)

With a wide spread in tuition and tax burdens, the cost of sending your children to local public schools can come to just over $40,000 for four years—or more than $130,000—depending where you live. See where your state ranks.

Want to cut your family’s college tuition bills by more than $50,000? Bring up your kids in Wyoming. Or Florida. Or even New York. But not New Hampshire.

Using new College Board data on the average cost of tuition and fees at public colleges in all 50 states and the average amount of state tax dollars that go toward higher education, MONEY calculated where parents would spend the most and least to raise two children and send both to an in-state public university.

Wyoming, which the Tax Foundation reports has the lowest total tax burden in the country, is also the nation’s best bargain in higher education, thanks to the lowest public-college tuition in the U.S. Yet low taxes alone aren’t enough to make a state a good deal. Although New Hampshire has the sixth-lowest tax burden in the nation, Granite State parents face the highest college-related bills.

To estimate the total cost of a public education in each state, MONEY calculated how much a family earning $50,000 a year would likely pay in state taxes earmarked for higher education over 25 years, and added that to four years of in-state tuition for two children. This back-of-the-envelope analysis, of course, assumes no change in prices or taxes, nor any financial aid.

The results, while rough, do a reasonable job of showing the impact of different philosophies toward government services, says Andy Carlson, senior policy analyst at the State Higher Education Executive Officers Association.

You’ll generally pay more if you live in a state where the students who earn the benefits of the degree have to pay the bulk of the costs, Carlson says. And you’ll usually—though not always—face lower overall college costs in states that view access to higher education as a public good, and as a result direct significant tax support to public universities.

The Best Places to Live

For families, how this difference usually plays out is in higher or lower in-state tuition. And you’ll end up paying the most for your kids’ education in states with high in-state tuition, even if those states have comparatively low college-related taxes.

New Hampshire has no tax on earned income. It funds government services with taxes on things like investment income, real estate, and liquor. For a family earning $50,000, the amount of state revenues that support the state’s colleges equates to about $82 this year, or a little more than $2,000 over 25 years. Not surprisingly, New Hampshire has the highest average public college tuition in the country—$14,712 this year—pushing total higher education tuition and tax spending for parents of two children to more than $132,000 over two decades.

Wyoming, which has low direct taxes on its residents, funds much of its government services with taxes on mineral and energy mining. Out of those revenues, it allocates the equivalent of nearly $600 a year per family to higher education, the highest subsidy in the nation. As a result, tuition and fees at the University of Wyoming are just $4,646. The total higher education taxes and tuition costs for a typical Wyoming family adds up to just $42,000—or $90,000 less than New Hampshire families pay.

Some high-tax and high-subsidy states are bad deals for parents, however. Illinois taxpayers, for example, spend 13% more than the national average on higher education support—about $340 a year per middle-class family. And Illinois public colleges charge some of the highest tuition in the U.S. As a result, Illinois has the nation’s fifth-highest combined tax-and-tuition bill for a typical family—$115,000.

In contrast, a middle class household North Carolina contributes about $500 worth of state taxes to higher education annually. That high level of taxpayer support helps keep North Carolina’s in-state tuition, $6,700 this year, below the national average. The total higher education tax and tuition costs for parents with two children comes in at about $60,000.

One last surprising note: You don’t have to travel far to reap big savings. Moving across the river from high-tax New Jersey, for example, to slightly higher-tax New York cuts the public college tuition you’re likely to pay by about $5,000 a year, and a family’s total lifetime higher education bill by more than $50,000.

The 50-State Ranking

Here’s how the math plays out in all 50 states. For more on finding a great college value, check out our Best Colleges rankings, including the 25 Best Public Colleges.

State State higher-ed spending per $1,000 in personal income 25-year total state higher-ed spending for families earning $50,000 Average in-state tuition 2014-15 Estimated total tuition costs for two children Total estimated tuition + taxes
1. Wyoming $11.92 $14,896 $4,646 $37,168 $41,814
2. Alaska $10.48 $13,101 $6,138 $49,105 $55,243
3. Utah $7.63 $9,537 $6,177 $49,416 $55,593
4. New Mexico $11.51 $14,387 $6,190 $49,523 $55,714
5. Montana $5.70 $7,125 $6,279 $50,233 $56,512
6. Florida $4.84 $6,048 $6,351 $50,808 $57,159
7. Nevada $4.49 $5,616 $6,418 $51,341 $57,759
8. Idaho $6.59 $8,236 $6,602 $52,816 $59,418
9. West Virginia $7.80 $9,753 $6,661 $53,292 $59,953
10. North Carolina $9.62 $12,027 $6,677 $53,418 $60,096
11. Mississippi $9.50 $11,877 $6,861 $54,888 $61,749
12. Oklahoma $6.52 $8,145 $6,895 $55,157 $62,052
13. New York $4.91 $6,134 $7,292 $58,338 $65,631
14. Louisiana $5.98 $7,471 $7,314 $58,510 $65,824
15. Nebraska $8.07 $10,093 $7,404 $59,234 $66,638
16. North Dakota $10.02 $12,522 $7,513 $60,106 $67,620
17. Arkansas $8.01 $10,013 $7,567 $60,535 $68,102
18. South Dakota $5.04 $6,303 $7,653 $61,224 $68,877
19. Iowa $5.92 $7,402 $7,857 $62,857 $70,714
20. Kansas $6.06 $7,577 $8,086 $64,684 $72,770
21. Georgia $7.31 $9,139 $8,094 $64,753 $72,847
22. Missouri $4.02 $5,023 $8,383 $67,068 $75,451
23. Tennessee $6.25 $7,810 $8,541 $68,324 $76,865
24. Maryland $5.42 $6,771 $8,724 $69,790 $78,514
25. Wisconsin $4.51 $5,632 $8,781 $70,248 $79,029
26. Texas $5.78 $7,226 $8,830 $70,637 $79,467
27. Oregon $4.01 $5,018 $8,932 $71,453 $80,385
28. Indiana $6.69 $8,363 $9,023 $72,182 $81,205
29. California $5.84 $7,306 $9,173 $73,381 $82,554
30. Kentucky $7.44 $9,301 $9,188 $73,508 $82,696
31. Maine $4.99 $6,243 $9,422 $75,378 $84,800
32. Alabama $8.18 $10,220 $9,470 $75,759 $85,229
33. Colorado $2.78 $3,479 $9,487 $75,897 $85,384
34. Hawaii $8.08 $10,106 $9,740 $77,921 $87,661
35. Ohio $4.42 $5,526 $10,100 $80,799 $90,898
36. Arizona $3.57 $4,468 $10,398 $83,181 $93,578
37. Minnesota $5.42 $6,780 $10,527 $84,217 $94,744
38. Connecticut $4.63 $5,782 $10,620 $84,957 $95,577
39. Washington $4.81 $6,017 $10,846 $86,765 $97,610
40. Virginia $4.40 $5,503 $10,899 $87,192 $98,091
41. Rhode Island $3.45 $4,316 $10,934 $87,469 $98,403
42. Massachusetts $2.88 $3,605 $10,951 $87,608 $98,559
43. Delaware $5.44 $6,798 $11,448 $91,581 $103,029
44. South Carolina $5.38 $6,729 $11,449 $91,594 $103,044
45. Michigan $4.31 $5,386 $11,909 $95,271 $107,180
46. Illinois $6.77 $8,467 $12,770 $102,156 $114,926
47. New Jersey $3.99 $4,993 $13,002 $104,020 $117,022
48. Pennsylvania $3.02 $3,775 $13,246 $105,967 $119,213
49. Vermont $3.21 $4,018 $14,419 $115,353 $129,773
50. New Hampshire $1.64 $2,050 $14,712 $117,698 $132,411

Sources: College Board, MONEY calculations

MONEY College

Average College Grad Now Leaves School With $28,400 in Debt

man overboard waving arms in the air for help
Gary John Norman—Getty Images

A new report from the Project on Student Debt shows that many recent grads are drowning in student loans, but also offers advice for avoiding this destiny.

Student debt has hit another record—with the typical 2013 college grad who borrowed commencing post-collegiate life with loan bills totaling $28,400, according to a Project on Student Debt report released Thursday.

That number is up 2% over the class of 2012, who owed $27,850.

Not all the news was so grim: a new College Board study of financial aid also released Thursday indicated that the total amount of undergraduate federal student loans fell by about 7% in 2014, while enrollment only fell about 1%.

But several debt experts warned against celebrating this as a herald to the end to the student debt crisis.

The recent decline in federal borrowing may simply reflect parents’ shift to other kinds of borrowing, like home equity loans, noted Lauren Asher, president of The Institute for College Access and Success, which runs the Project on Student Debt.

Also, nearly one-fifth of new graduates’ debt load is made up of private student loans, which charge much higher rates than federal loans and have much less flexible repayment plans, she added.

Mark Kantrowitz, publisher of Edvisors.com, attributes the recent dip in borrowing to the economic rebound. But since states continue to stint on funding for public colleges, and since college prices are rising faster than financial aid budgets and incomes, borrowing will likely soon bounce back up, he predicts.

State budget cuts “will continue to shift the burden of paying for college from the government to students and their families. Family income and savings do not increase enough to cover the added cost. This forces students to shift their enrollment to lower-cost colleges and to increase their debt at graduation,” Kantrowitz warns in his own recent analysis of student debt numbers.

The key takeaway for students, says Asher is that students should continue to pursue degrees—for the great advantage they provide in the job market—but should also be making sure to limit their debt loads.

Perhaps the single most important step: choosing a college with a net price you can afford using your family’s savings, earnings, your scholarships and no more than the maximum standard federal student loans: $5,500 a year for freshmen, $7,500 a year for upperclassmen. (Here’s more advice on how to avoid crushing student debt.)

The Project on Student Debt also noted that there were many low-debt schools students could choose from. These tend to have some combination of low tuition and/or generous financial aid. They range from private schools such as Princeton University and Berea, to the public campuses of the City Universities of New York and the California State Universities.

On the other hand, colleges that load students up with debt tend to have high tuition and small financial aid budgets. That list includes public schools such as the University of New Hampshire and private schools like the Ringling College of Art and Design.

You can also search for low-debt colleges using MONEY’s list of the 100 colleges with the lightest debt loads.

This story was updated on Nov. 14 to delete an incorrect description of the rate of borrowing by 2012 college graduates.

MONEY College

Why College Costs Keep Eating Up More Of Your Paycheck

141113_FF_College
Aydin Buyuktas / Alamy

Tuition is rising faster than incomes. But a new private college price war and the improved economy have meant lower prices for many students.

College became a little less affordable again for most students in 2014, as the typical school raised prices faster than financial aid—and faster than average income growth.

In its annual analysis of the state of college prices, the College Board found that most higher education charges continued to outpace the 1.5% average growth in incomes. The cost of attending the typical public university–including dorms, dining hall privileges, textbooks, and miscellaneous expenses—reached $23,410, up 2.6% from last year. Private college costs hit $46,272, up 3.4%.

Even after subtracting scholarships and grants, the average cost of a public education rose by 3.5%. The average net cost of attending a private college was up 4.1%.

A Few Bright Spots

With college costs continuing to eat up a higher percentage of most families’ incomes, “you can see why there is a lot of stress for people” says Sandy Baum, a co-author of the College Board report.

But, she added, “things are looking a little bit better” for some students. The lowest-cost option—attending a local community colleges while living at home—remained comparatively affordable. The total for tuition, fees, textbooks, and commuting to campus averaged $6,410 this year, a 3.1% increase over 2013. But since most of those students received grants or were able to take advantage of at least some of the $2,500 American Opportunity Tax Credit, the net cost of attending a community college averaged $1,320.

And the College Board noted that in real terms—in other words, after adjusting for inflation—private colleges are about 4% less expensive than they were in 2008. The reason: A decline in the number of 18-year-olds has sparked a scramble to fill seats at many small and non-prestigious private colleges, says Susan Fitzgerald, who analyzes college finances for Moody’s Investors Services.

Elite colleges are in such high demand that they can charge whatever they want. But schools without national reputations, Fitzgerald says, “are facing a very competitive environment, and one of the ways they are competing is on price.” So while such colleges typically hike published tuition prices, they are also raising the amount of financial aid they offer. As a result, the net prices charged to new freshmen have remained fairly flat.

A Pause at the Publics

In 18 states, the average cost of public college tuition rose by less than the 2% inflation rate, the College Board found. For example, after many years of dramatic tuition increases, the University of California, Berkeley charged tuition and fees of $12,972 this year. While that’s an 80% increase over 2007, it’s a rise of only 1% from last year. At the other end of the country, tuition and fees at the University of Maine averaged $10,606 this year, up only $6 from 2013, and $24 from the fall of 2011.

Many public universities have been able to moderate tuition inflation because the economic rebound has increased state tax coffers. And states have used some of those gains to at least partially alleviate the severe higher education budget cuts of the past few years, Baum says.

But, she notes, on average states are providing about 20% less funding per student to public colleges than they were prior to 2007.

A recovery in state budgets has put tuition inflation on pause in many states, she says. Unfortunately, there’s no guarantee that tuition hyperinflation won’t return. “We will again at some point experience tighter state budgets,” Baum warns.

In fact, in an ominous sign, some college leaders are already pushing for tuition hikes in 2015. Janet Napolitano, president of the University of California system, last week requested permission to raise tuition by 5% a year for the next five years.

Public universities: Sticker price Public universities: est. average net cost (after grants and tax aid) Private colleges: Sticker price Private colleges: est. average net cost (after grants and tax aid)
2013-14 $22,826 $16,717 $44,750 $33,710
2014-15 $23,410 $17,300 $46,272 $35,082
1-year $ increase $584 $584 $1,522 $1,372
1-year % increase 2.6% 3.5% 3.4% 4.1%

Source: The College Board

More on saving for college from Money 101:

MONEY college savings

One Foolproof Way to Earn More on Your College Savings

handing money over
PM Images—Getty Images

Tax breaks, matching grants, and scholarships can effectively boost your investment by an average of 6%.

Savers in many states don’t have to rely solely on the markets to build up a college fund. Grants or tax benefits can effectively boost the value of your investment in a 529 college savings plan by 10%, 20% or even 30%, according to a newly released analysis by Morningstar.

In the 32 states (plus the District of Columbia) that offer subsidies to college savers who contribute to their home state’s 529 plan, the average benefit is a one-time boost worth about 6%.

In New Jersey, parents who seed a NJ BEST 529 account with $1,200 when their kid is about six and kick in at least $300 a year after that will qualify the student for a one-time $1,500 freshman scholarship to an in-state public university. That’s a return of 31.5% on a total investment of $4,800.

Most states simply give parents a tax credit or deduction for a 529 contribution, which translate into a lower state tax bill and thus more money in your checking account. That’s money you can use for anything—including adding to your 529 or offseting the cost of saving for any college.

Residents of Indiana, for example, qualify for a state tax credit worth up to 20% of what they invest in the state’s 529 plan, which can reduce a typical family’s state tax bill by $480. Vermonters get tax breaks typically worth 10% of their investments in their local 529 plan.

Five states offer tax breaks for an investment in any 529, allowing residents to shop for the best plan anywhere. Two of those five states reward both choices: Maine offers a 1.7% tax benefit for any 529 investment, but also provides matching grants for saving in the state’s 529. Pennsylvania’s has tax breaks worth about 3% for any college savings, but it also offers scholarships to hundreds of mostly private colleges across the country for those who invest in-state.

Fifteen states either have no income tax or don’t offer any subsidy to college savers. Check out this 50-state map to see whether to invest in your state, or out of state.

Beware of the Gotchas

The author of the Morningstar report, Kathryn Spica, says you should watch for two big potholes when trying to maximize these freebies.

1. High fees: Some states charge such high fees in their 529 plans that any parent with a child younger than, say, 13 should probably forgo the tax benefit and choose a low-cost, highly-rated direct-sold plan. But for parents of teens close to college, the immediate tax benefits can outweigh only a few years of higher fees.

For example, D.C. offers tax breaks that amount to a one-time 8.5% effective boost to your college savings. But D.C.’s plan charges a high annual fee of 1.35% of assets. Utah’s plan, which gets the highest rating by Morningstar, charges only 0.2%. Within eight years, D.C.’s higher fees would likely eat up your tax benefit.

2. Changing rules: North Carolina cancelled its tax break for 529 savings last year. And Rhode Island has stopped enrolling new parents in its savings match program, Spica says. Parents in states that end or slash tax benefits should take a few minutes to run the numbers and see which investment option best meets their needs.

The Value of the Tax Breaks

The chart below lists the states that offer benefits for investing in the home state 529 as of fall 2014. Morningstar’s estimated value of the subsidy is based on a family earning $50,000 a year and saving $2,400 a year for college. The fees are those charged for an age-based fund for a 7- to 12-year-old that employs a moderate (as opposed to conservative or aggressive) investment strategy.

The final column is Money’s recommendation on whether parents of kids younger than 13 should stick with their state’s best 529 option, or risk giving up the state’s benefit and shop for the best plan nationally.

If your state is not listed here, you won’t be giving up anything if you simply pick the best plan available. Here are Money’s recommendations for the best 529s nationally, based on a combination of the fund’s fees, the state’s tax benefits, and the ratings given the plans by Morningstar and Savingforcollege.com.

State Est. value of state tax benefit on savings of $2,400 a year Effective yield on $2,400 investment Average fee for moderate equity plan for 7- to 12-year-old Should parents of kids under the age of 13 invest in-state or shop?
Indiana $480 20% 0.57% In-state
Vermont $240 10% 0.45% In-state
Oregon $216 9.0% 0.38% In-state
District of Columbia $204 8.5% 1.35% Shop
Idaho $178 7.4% 0.75% In-state
Arkansas $168 7.0% 0.60% In-state
South Carolina $168 7.0% 0.12% In-state
Montana $166 6.9% 0.88% Shop
Iowa $156 6.5% 0.26% In-state
New York $155 6.5% 0.17% In-state
Wisconsin $150 6.3% 0.23% In-state
Georgia $144 6.0% 0.33% In-state
West Virginia $144 6.0% 0.32% In-state
Maine $140 5.8% 0.30% In-state
Virginia $138 5.8% 0.61% In-state
Oklahoma $126 5.3% 0.51% In-state
Alabama $120 5.0% 0.32% In-state
Connecticut $120 5.0% 0.40% In-state
Illinois $120 5.0% 0.19% In-state
Mississippi $120 5.0% 0.65% Shop
Nebraska $120 5.0% 0.48% In-state
Utah $120 5.0% 0.22% In-state
New Mexico $118 4.9% 0.36% In-state
Maryland $114 4.8% 0.88% In-state
Colorado $111 4.6% 0.39% In-state
Michigan $102 4.3% 0.28% In-state
Louisiana $96 4.0% NA In-state
Ohio $90 3.8% 0.23% In-state
North Dakota $68 2.8% 0.85% Shop
Rhode Island $38 1.6% 0.20% In-state
Pennsylvania Variable N.A. 0.38% In-state
New Jersey Up to $1,500 N.A. 0.77% In-state can pay if student definitely will attend a participating college
MONEY 529 plans

Why the Best College Savings Plans Are Getting Better

stack of money under 5-2-9 number blocks
Jan Cobb Photography Ltd—Getty Images

Low-cost 529 college savings plans continue to rise to the top in Morningstar's latest ratings.

Competition is creating ever-better investment options for parents who want to save for their kids’ college costs through tax-preferred 529 college savings plans, according to Morningstar’s annual ratings of the 64 largest college savings plans.

In a report released today, the firm gave gold stars to 529 plans featuring funds managed by T. Rowe Price and Vanguard. The Nevada 529 plan, for example, which offers Vanguard’s low-cost index funds, has long been one of Morningstar’s top-rated college savings options. The plan became even more attractive this year when it cut the fees it charges investors from 0.21% of assets to 0.19%, says Morningstar senior analyst Kathryn Spica.

“In general, the industry is improving” its offerings to investors, Spica adds.

You can invest in any state’s 529. In many states, however, you qualify for special tax breaks by investing in your home-state 529 plan. If you don’t, you should shop nationally, paying attention to fees and investment choices.

Morningstar raised Virginia’s inVEST plan, which offers investment options from Vanguard, American Funds and Aberdeen, from bronze to silver ratings, in part because Virginia cut its fees from 0.20% to 0.15% early this year.

Virginia’s CollegeAmerica plan continued as Morningstar’s top-rated option for those who pay a commission to buy a 529 plan through an adviser. American Funds, which manages the plan, announced in June it would waive some fees, such as set-up charges.

But there are exceptions. Morningstar downgraded two plans—South Dakota’s CollegeAccess 529 and Arizona’s Ivy Funds InvestEd 529 Plan—to “negative” because of South Dakota’s high fees and problems with Arizona’s fund managers.

Rhode Island’s two college savings plans moved off the negative list this year after the state started offering a new investment option based on Morningstar’s recommended portfolio of low-cost index funds. Given the potential conflict of interest, Morningstar did not rate the plans in 2014.

Joseph Hurley, founder of Savingforcollege.com, which also rates 529 plans, says he hasn’t analyzed the Morningstar-modeled funds because they are new and don’t have enough of a track record. But, he adds, the Rhode Island direct-sold 529 plan offers several low-cost index fund options.

Here are Morningstar’s top-rated 529 plans for 2014:

State Fund company Investment method Expenses (% of assets) for moderate age-based portfolio (ages 7 to 12) Five-year annualized return for moderate age-based portfolio (ages 7 to 12)
Alaska T. Rowe Price Active 0.88% 11.25%
Maryland T. Rowe Price Active 0.88% 11.42%
Nevada Vanguard Passive 0.19% 8.65%
Utah Vanguard Passive 0.22% 8.01%

Related:

 

 

 

MONEY family money

This Company Will Give You $500 If You Have a Baby Today. Wait, What?

141017_FF_BabyMoney
Mike Kemp—Getty Images

It's no joke. As part of its rebranding campaign, investment firm Voya will give money to the newest of new parents.

Lucky for you if you’re in labor right now.

A company called Voya Financial has announced that it will give every baby born today—Monday, Oct. 20, 2014—500 bucks.

The promotion, timed to coincide with National Save for Retirement Week, is part of a marketing campaign to alert the public that the business that once was the U.S. division of ING is now a separate public company with a new name.

Get out the castor oil and order in Indian if you’ve already hit 40 weeks, because the offer is only available to those who exit the womb before midnight tonight—though soon-to-be-sleep-deprived new parents have until December 19 to register a child.

Voya estimates that it may have to kick in as much as $5 million, since there are about 10,000 babies born every day in the U.S.

While the company has promised that families will not have to sit through a marketing pitch to get the money, and that the baby’s information would be kept private, this special delivery still comes with a catch.

The money is automatically invested into Voya’s Global Target Payment Fund, which according to Morningstar has above-average costs and below-average performance.

Regarding the fees, Voya’s Chief Marketing Officer Ann Glover says that the funds Morningstar uses as comparison are not apples to apples. In any case, Glover says families are free to sell out of the fund if they so choose. “Of course, we would hope people would hold on to the investment,” she adds.

But hey, money is money, so if you’re due, you may as well take what you’re due.

And for those mamas and papas whose progenies aren’t quite ready to make their debuts? While you won’t get money from Voya, you may have other opportunities to get big bucks for your little one.

Start by checking in with your employer to see whether the company helps with college savings. A growing number do. Unum, for example, offers its workers with newborns $500 towards a college savings account.(Our Money 101 can help you find the best 529 college savings plan.)

Also, in several communities around the country, charitable or government programs seed savings accounts for kids. For example, residents of northern St. Louis County in Missouri can get $500 through the 24:1 Promise Accounts. Babies born in Connecticut get $100, plus $150 in matching funds by age four, thanks to the CHET Baby Scholars program.

“This is gaining significant momentum nationwide,” says Colleen Quint, who heads one of the nation’s most generous free savings program, the Harold Alfond College Challenge. Started by the founder of Dexter Shoes, the charity gives every resident newborn in Maine a $500 college savings account.

In fact, Mainers can get the most free money for their children according to a survey of such programs by the Corporate for Enterprise Development, which has gathered details on at least 29 free childrens’ savings programs.

Besides the $500 college savings account, a state agency will match 50¢ for every $1 parents contribute each year up to $100 a year and $1,000 over a child’s lifetime. So Mainers can, in theory at least, get up to $1,500 in free college savings money on top of any additional freebies they can get from companies.

That should be more than enough to buy a chemistry textbook in 2032.

MONEY College

This “Smart” Way to Pay for College Could End Up Costing You an Extra 3%

A senior at Western Kentucky University walks past flowering cherry trees on WKU's campus on his way home from class.
Western Kentucky University has one of the highest credit card surcharges. Alex Slitz—AP

A new study from CreditCards.com finds that colleges are increasingly adding surcharges for charging tuition. And these fees typically exceed any potential miles or cash back earned from your card.

It’s getting harder to turn junior’s college tuition bills into free vacations for Mom and Dad.

Wealthy parents have long tried to lessen the pain of paying their kids’ tuition bills by charging the costs to a credit card that pays rewards, with the hope of getting a bit of cash back or a roundtrip flight to Rome out of the deal.

But colleges are now making this strategy less profitable by adding fees for charging tuition, according to a study released Tuesday by Creditcards.com.

The survey of the largest public, private, and community colleges found that 90% of the 100 biggest public universities that accept credit cards charge convenience fees, and almost 70% of the 100 biggest private colleges. (Only 12% of the largest community colleges add credit card surcharges, but community colleges tuition tends to be quite low.)

In most cases, the fees now exceed the value of frequent flier miles or cash back that the parents can earn on a rewards card.

The average reward mile or point is worth less than 2¢, says Matt Schulz, senior industry analyst for CreditCards.com. Meanwhile, the average big college now charges 2.62% for processing tuition through a credit card, according to the survey.

And some schools charge much more. According to the CreditCards.com survey, the big colleges charging the highest fees are:

School State Type Convenience fee rate
Western Kentucky University KY Public 2.99%
Saint Joseph’s University PA Private 2.99%
Roger Williams University RI Private 2.99%
Kansas State University KS Public 2.90%
Ohio University-Main Campus OH Public 2.90%
Kent State University at Kent OH Public 2.90%
University of Akron Main Campus OH Public 2.90%
Bowling Green State University-Main Campus OH Public 2.90%

The Impetus for the Fees

Such fees have become increasingly common in the last decade. A separate survey last year by the National Association of College and University Business Officers had found that 44% of colleges charged a fee for using a credit card, up from 14% in 2003.

Colleges have been adding surcharges in part because they have come under pressure to pare expenses. And credit card companies charge all vendors—including colleges—for processing payments. In 2013, for example, MasterCard’s fees ran from 1.05% to 3.16%.

In addition, schools that do charge fees appear to be encouraging their competitors to follow suit.

“I get a lot of complaints from other schools” that charge fees, says Michael Reynolds, executive director of student financial services at Auburn University, which doesn’t add a surcharge. Reynolds says Auburn absorbs the surcharge—which he estimates at between 1% and 2% of the amount charged—as a cost of doing business.

He estimates that about half Auburn’s tuition bills are put on credit cards. In most cases, he says, it’s just a matter of convenience for the parent or student. But he added that some families do seem to be trying to build up rewards.

The Better Alternative for Most

The fees are just one of many reasons financial experts warn parents away from charging tuition.

Credit card interest rates are usually so high that parents who don’t have enough ready cash to pay off the bill immediately could end up paying thousands of dollars in extra interest, says Kevin Yuann, director of credit cards for NerdWallet.

Anyone who can’t pay cash up front for tuition would really be better off with federal student or parent loans.

Compared to the 15.66% average annual percentage rate on credit cards, federal student loans charge just 4.9% this year, after fees are added in. Parent PLUS loans have a total APR, including fees, of 8.1%.

The federal loans also have much more flexible repayment options, allowing borrowers to stretch out payments for up to 25 years or adjust the payments downwards if their incomes fall. Students working in public service jobs can also get some of their federal loans forgiven.

The Best Reward for the Rest

Absolutely sure you can pay off the big credit card balance quickly? Contact your school to find out whether there’s a fee for swiping.

While the majority have one, there are still several schools that do not charge students or parents extra. For example:

School State Type
Auburn University AL Public
DePaul University IL Private
St John’s University-New York NY Private
The University of Alabama AL Public
University of Nevada-Las Vegas NV Public

And then, assuming there is no charge, make sure you’re getting the most back you can.

Nick Ewen, a frequent business traveler who writes often on rewards at ThePointsGuy.com, says parents with lots of ready cash can turn tuition into valuable goodies.

One British Airways card, for example, offers a free companion ticket to those who spend at least $30,000 a year. And Southwest Airlines offers a year’s worth of free companion tickets to those who earn at least 110,000 points each calendar year.

Or, consider the winners of MONEY’s Best Credit Cards of 2014. The Barclaycard Arrival Plus World Elite offers two points per $1 spent and miles can be applied to your credit card bill to offset the costs of any kind of travel. Or if you prefer cash back, Citi Double Cash and Fidelity Investment Rewards American Express each give you 2% on every purchase.

With the latter, you can direct your earnings to a 529 college savings account—thereby reducing the amount you have to charge next semester.

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