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Saving for College

College is an investment in your future. With few exceptions you are going to have to contribute some amount of your own money to pay for it. While it is always better to get free cash from scholarships and financial aid, the reality is that the more you save, the more options you'll have.

Your personal savings is your best ally when it comes to paying for college. Scholarships are still contests with no guarantees that you'll win. Financial aid changes each year depending on the budgets of the government and college. There is also no guarantee, even if you deserve it, that you will receive all of the financial aid that you need to pay for school.

Plus if you are like most students and need to take out a student loan, your savings will multiply in value. For example, let's say that you need to borrow $50,000 to pay for college. At 6.8 percent interest over 10 years (the typical term for a student loan) you would end up paying more than $19,048 in interest. But if you were able to save half of that amount and borrowed only $25,000, you would pay only $9,524 in interest. That means your personal savings just helped you to avoid $9,524 in additional interest payments. For each dollar that you save you not only need to borrow one less dollar but you also save on the interest that you would have to pay.

The bottom line is that your savings is your money. You have total freedom to use it at whichever college you want. Nothing is as flexible as your own money.

One way to supercharge your saving is to take advantage of Individual Development Accounts. IDAs are designed for low-income workers to quickly save money for school by matching their savings. The idea is that if you are low income and working, the best way for you to improve your status is to build your savings, which can then be used to purchase an asset such as a house, business or education. To help speed this process, the Individual Development Account was established and is managed by a network of non-profit organizations. If you qualify for the IDA program you will set up a goal such as saving $2,000 for college. When you reach that goal, the IDA network will match what you saved by a ratio of two, three or even seven times that amount. Matched funds come from financial institutions, foundations, religious congregations and state and local governments.

For example, if you receive a 2:1 match, which is the most common, each time you deposit $10, you will get an additional $20 credited to your goal. When you reach your goal, the money is released directly to the college to pay for your tuition. Having your savings matched speeds up the time it takes for you to reach your goal.

IDA programs usually set their own specific participation requirements. In general, you must be within 200 percent of poverty. This works out to less than $21,660 for an individual or $44,100 for a family of four. (Be sure to check with your participating IDA program since these levels do vary.) IDA participants must also be employed and agree to take financial planning classes sponsored by the nonprofit organization.

The hardest part of participating in an IDA program is finding them. Since the network of IDA providers is composed of a hodgepodge of agencies, there is no national directory. You will have to do some digging. Start with all of the foundations and nonprofits in your area. Also try contacting the manager at your local banks. Visit the IDA Network website (www.idanetwork.org) to find the contact information for various IDA programs in your state. This will give you an idea of what you are looking for.

Once you find one in your area, make sure you understand the participation guidelines. If you qualify, you can definitely speed your way to your educational goal.