Why It's Important to Save for College Now

More cost-effective than borrowing

MEFA and Fidelity are your Massachusetts college savings team on college financing expertise.

It may be hard to believe now, but your kids will be going from soccer balls to lecture halls, before you know it. No matter how far off college might seem today, the more you know, the better prepared you'll be to meet college costs. That's where MEFA and Fidelity Investments come in to help you become as prepared as you can be for saving towards the goal of saving and planning for college.

MEFA is a not-for-profit organization that works to make higher education more accessible and affordable for students and families in Massachusetts. MEFA offers community education programs, college savings plans and low-cost financing options. In our experience of nearly 30 years, we know there's no one way to pay for college, but there are many ways to plan ahead. Here are some of the most effective ways families have planned for college.

Save more now with the Massachusetts 529 plan. The U.Fund offers great advantages, including:

• Earnings that grow federal and state tax-deferred
• No annual account maintenance fees
• Flexibility - the money you save can be used at virtually any accredited college in the country
• Save as little as $15/month to start
• U.Fund assets have a low impact on financial aid

Even a small amount saved each month has the potential to add up and reduce the burden of college costs in the future (and the amount you may have to borrow and repay with interest). Parents who save for college with the U.Fund College Investing Plan instead of using education loans to cover college costs may earn a return on their investment instead of paying interest. For example, to accumulate $10,000 in 10 years at a seven percent rate of return, parents would need to invest $58 per month. To borrow $10,000 over 10 years at seven percent interest, they'd have to repay $116 per month.

Combination strategy

Most families cover college costs through a combination of savings, scholarships,financial aid and loans. Scholarships and financial aid can be awarded based on financial need, academic achievement, talent, leadership or any number of other criteria, depending on who is offering the award. It's great when a student receives free money, but it's rare for a family to cover all their costs exclusively through scholarships.¹

College savings and education loans can cover the costs that aren't paid by other means while a child is in college.

What's the real cost of borrowing?

Take a look at the results of saving $50 per month, earning a seven percent annual rate of return, versus borrowing $10,000 and paying it off over 10 years at a seven percent interest rate.

In this hypothetical example, parents made an initial investment of $6,960 and earned a $3,040 gain in their investment to reach $10,000 in savings. If they took out a loan for $10,000, they might pay an additional $3,920 in interest, for a total of $13,920. So repaying the loan instead of saving would cost them an additional $6,960.¹

Will saving reduce financial aid?

While savings, or assets, do have an impact on aid eligibility, for most families it is relatively small compared with the significant advantages of having some savings to assist with college costs. The current federal formula for financial aid includes no more than six percent of a parent's assets per year. For example, for parents saving $10,000 for college, the maximum amount that would impact their federal financial aid eligibility is $600.² Also, retirement accounts and a primary residence are not included in the current federal financial aid formula.

Saving is much more cost-effective than borrowing, no matter how you look at it.

The more you can save now, the less you'll have to borrow in the future and repay with interest.

Don't wait! Get started now. To receive more information the U.Fund, call 800.544.2776 or visit us online at www.fidelity.com/ufund

1. This example is an estimate only and market conditions may change. This hypothetical example is not intended to predict or project the investment performance of any security. Past performance is no guarantee of future results. Your performance will vary, and you may have a gain or loss when you sell your units. The results are based on a 7% annual rate of return with earnings compounded, and do not reflect the actual performance of any particular product or the interest rate of any particular loan. The loan assumes a 7% interest rate. Local and state taxes, inflation, fees, and expenses were not taken into account. If they had been deducted, performance would have been lower.

2. MEFA Early College Planning booklet, 2008.