COLLEGE CAMPUSES ARE GETTING more diverse—age-wise. Around 1.1 million Americans age 45 and older were enrolled in college undergraduate and graduate courses in 2014, according to the U.S. Census Bureau. They're not necessarily going back to study Plato. Many have a more practical goal in mind: getting a degree and increasing their skills as they transition to their second or third careers.
College degrees can come with a high price tag: For the 2015–2016 academic year, tuition and fees at private four-year schools rose 3.6% to $32,405, according to the College Board. And tuition costs are just the start. Going back to school may require you to take a leave of absence from your current job, and the cost of books and transportation can add up. But there are ways to manage these educational expenses without disrupting your financial planning.
Finding the Money
"Returning to school inevitably involves some costs and tradeoffs," says Richard J. Polimeni, director of Education Savings Programs for Bank of America Merrill Lynch. "You may have to adjust your priorities and find places to trim expenses so that you can afford to go back to school." If the program or specialty you want to pursue involves a large financial commitment, you may also want to explore the following three funding options, Polimeni says.
Tuition costs are just the start. Going back to school may require you to take a leave of absence from your current job.
A 529 college savings plan. A little-known fact: These college savings plans are not just for college-bound teens. A 529 college savings plan can be started to support your own continuing education goals too. In fact, if there's money left over from the 529 college savings plan you created for a child or grandchild after they've graduated, you can change the beneficiary to yourself.
Starting a 529 college savings plan for yourself may not make sense if you're planning to enroll in school in the next year or so. But for those with, say, five years of lead time, it may be worth considering. "The main advantage of a 529 college savings plan is that any money you contribute can compound tax-free," Polimeni says. "And, assuming you use it to pay for tuition or other approved expenses, your withdrawals are tax-free as well."1
A home equity line of credit. If you're willing to tap the equity you have in your home, this choice might make sense for you. You can use all or part of the line of credit—and pay interest only on the amount you borrow. Interest on such lines of credit may be tax deductible, and they are typically available with no annual fees or penalties for prepayment.
Leveraging your investments. You could trade in some of your investments to cover your tuition. But doing so risks putting a dent in your investment strategy. There is an alternative offered by some financial institutions—a secured line of credit. Here's how it works: Much as you use the equity in your home as collateral when you take out a home equity line of credit, your investments are used as collateral to establish a flexible line of credit. Such accounts provide access to money as you need it, often without application or maintenance fees. Lines of credit that leverage your investments as collateral do entail risks, Polimeni says. But this strategy can allow you to maintain your current investment strategy without disruptions.
Each of these choices has advantages and disadvantages; it's best to review them with your financial advisor as you look for ways to free up cash to help you meet your new educational and career goals.
New Diploma—Now What?
Congratulations—you're one step closer to your next act. Depending on the line of work you've decided to pursue, you might find valuable information at the AARP's Life Reimagined website. Increasingly, companies are recognizing the qualities that older workers bring to the workforce, and this program has created a pledge that identifies companies that do. Some of them might be looking for just the combination of education and experience you now have to offer.
3 Questions to Ask Your Advisor
- What's the most cost-effective way for me to pay for my continuing education?
- Could a tax-advantaged 529 college savings plan help meet my needs?
- How could a Bank of America Loan Management Account (LMA) help me pay for my education without disrupting my current investment strategy?
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1 To be eligible for favorable tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, such withdrawals must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax as well as state and local income taxes.
The investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance and investment goals.
Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
The Loan Management Account® (LMA® account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender.
The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval, and Bank of America, N.A., may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client; the client is not entitled to an extension of time on the collateral call, and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A., may demand full repayment at any time. A complete description of the loan terms can be found within the LMA agreement. Clients should consult their own independent tax advisors. Some restrictions may apply to purpose loans, and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A. For fixed-rate and term advances, principal payments made prior to the due date will be subject to a breakage fee.