Glossary of College Savings Fund Terms & Definitions Save Now
or Pay Later
College savings funds defined
By Gareth Marples
So you want an education? Well, you’ve come to the right place. And if
you need a college savings fund to get you through…well, you don’t need
that here. This education is free. Which is a lot more than you can say
for higher education these days. So if you’re going for a college or university
degree, you’ll need a college savings fund to help pay for it. And to
get one, you’ll need to do your homework first. Because, as you’ll find,
there are a whole lot of terms that’ll be fired at you – terms you may
not understand. And how can you expect to do your homework without a lesson
first? Hence – this lesson. This glossary of terms will guide you through
the process. If you pay attention, you should get an “A”.
- 529 Plan
The 529 is a type of college savings plan that provides tax advantages
to those who save for an education through a mutual fund-based investment
portfolio. The earnings from the fund grow tax-deferred and can be used
for education costs at any eligible college, university or graduate
school in the U.S.
- Asset allocation
Asset allocation refers to where your assets are distributed within
a fund, for example, 40% equity, 40% fixed income and 20% money market.
- Asset classes
Asset classes are the different types of investments you can take advantage
of, such as equities, fixed income, and money market securities.
The basis is the actual principal of the account.
The beneficiary is the person who’s entitled to the assets of the account.
- College Board
The College Board is a non profit educational organization that writes
and processes Financial Aid profile forms, as well as SAT exams.
- College savings plan
A 529 plan is a college savings plan in which contributions are invested,
and grow based on their investment performance.
- Cost of attendance
The cost of attendance, sometimes referred to as the student budget,
is estimated by a school, and includes the cost of tuition, fees, room
and board, books and supplies, as well as an allowance for transportation
and personal expenses.
Distribution refers to a withdrawal from a 529 plan account, consisting
of both earnings and principal.
Earnings refers to the investment gain on an account.
- Eligible education institution
Eligible education institutions are any public or private colleges or
universities, graduate or post-graduate programs, community colleges,
and certain proprietary or vocational schools that are eligible to participate
in the U.S. Department of Education financial aid programs.
- Expected family contribution (EFC)
EFC refers to the amount a family is expected to contribute for the
year, towards a student’s cost of attendance.
- Federal methodology
Federal methodology is the method used to determine a family’s expected
contribution towards college costs for federal financial aid purposes.
- Fixed income securities
Fixed income securities are issued by governments or corporations, and
have a maturity date, when the issuer has to pay the investor the principal
- Higher education expenses
Higher education expenses consist of tuition, room and board, fees,
books, supplies and equipment needed for enrollment or attendance at
any eligible institution.
- Hope Scholarship credit/Lifetime Learning credit
The Hope Scholarship credit and the Lifetime Learning credit are U.S.
federal income tax credits that subsidize education.
- Member of the family
A member of the family is defined as someone related to the beneficiary.
- Money market fund
A money market fund is a mutual fund that invests in highly liquid,
- Mutual fund
Mutual funds have a specific investment objective that invests money
from many investors into a diversified portfolio of stocks, bonds or
- National Association of Securities Dealers (NASD)
The NASD represents all the firms dealing in the over-the-counter market.
- Non-qualified withdrawal
A non-qualified withdrawal is one that isn’t used for higher education
Your portfolio is the combined holding of one or more stocks, bonds
or other assets, and is designed to reduce investment risk by diversifying.
- Qualified higher education expenses
Qualified higher education expenses include tuition, room and board,
fees, books, supplies, and equipment needed for enrollment or attendance
at an eligible institution, plus certain expenses for a “special needs”
- Qualified withdrawal
Death or disability of the beneficiary, receipt of a scholarship, or
a Rollover Distribution to another 529 plan, are all qualified withdrawals.
Securities are investment vehicles such as stocks, government obligations
and corporate bonds.
- Series EE Savings Bonds
Series EE savings bonds were developed to help people finance their
child’s education. They’re federally tax exempt.
Money that’s tax-deferred isn’t subject to taxes until it’s withdrawn.
- Tax-free withdrawals
Tax-free withdrawals are those from a 529 plan that are used for qualified
Did you get all that? Did you take notes? Ok, now go home and do your
homework. Remember your lesson. Study your notes. There won’t be a test,
but we don’t think you’ll need one. We’re sure you’ll get an “A”. So sure,
in fact, that we’re sending you out, as a qualified investor, to get the
college savings fund that’s just right for you and your children. Now
you’ll both be properly educated. And that can only lead to success!
Gareth Marples is a successful freelance
writer providing valuable tips and advice for consumers applying for direct
college loans, student credit cards or looking for quick cash til payday
loans. His numerous articles offer moneysaving tips and valuable insight
on typically confusing topics. This "Glossary
of College Savings Fund Terms & Definitions" reprinted with permission.