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Evaluate College Savings vs. Costs Before Transferring

Tuition differences and other college expenses can affect how transfer students should use 529 savings.

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The cost of transferring colleges can sneak up on you.

Families often expect a difference in the price of tuition when a student transfers, but students also face changes in scholarship funding and financial aid, as well as the possibility of extending their time in school by an extra semester – or more.

Parents should take the following steps to figure out how much extra college savings they'll need if their son or daughter transfers schools.

1. Evaluate prepaid plan cost differences: Students with prepaid tuition plans might find the plan covers a different number of credits at their new school. For families who have these plans, the amount of money paid out can vary widely from school to school.

State colleges are generally covered up to the full value of the number of units or years bought, says Betty Lochner, director of Washington's Guaranteed Education Tuition program and the vice chairwoman of the College Savings Plans Network.

However, families who choose private or out-of-state schools will usually have to pay the difference between the new cost and in-state tuition and fees. For instance, if a family bought a one-year contract and in-state tuition and fees were $12,000 for the year, the family would need to come up with $9,000 if the student transferred to a school where tuition and fees are $21,000.

Since the exact way plans calculate differences may vary, Lochner recommends families contact the plan representative to find out exactly how much they will have to pay.

[Learn how to get money out of a prepaid tuition plan.]

2. Calculate commuting costs: Commuting costs may be cheaper or more expensive at a new school, says David Bendix, a New York-based certified public accountant and financial planner.

The first consideration in evaluating those costs is seeing if a student will need a car on the new campus, he says. Students should research whether there's good public transportation if they choose to work off campus and what options there are to visit home.

While transportation expenses can't be withdrawn from 529 plans, tax-advantaged college investment accounts, these costs could deplete other resources families have, making students dip further into 529 plans earlier in their academic career.

For instance, say parents can afford to chip in $100 per month out of current income.

If transportation costs doubled from $400 to $800 per school year, parents wouldn't be able to use that current income to help with groceries, which are a qualified education expense. Food costs would be withdrawn from the 529 plan account, reducing the amount available for future years.

[Understand what 529 plan funds can pay for.]

3. Compare financial aid packages and overall college costs: Paying for college can involve savings, part-time work, student loans, grants or scholarships. If transferring means a student loses scholarships or university grants, other resources such as savings or student loans have to fill the gap.

Look carefully at financial aid packages before making a transfer decision. School-specific scholarships won't transfer, but a community scholarship might. Students should ask community scholarship representatives about rules on transferring schools, Bendix says.

The new school may also offer scholarships that weren't available at the previous one, he says. Contact the financial aid office at the new school to see what scholarships might be available and apply before making a final decision to transfer.

When all the financial aid forms are added together for both the old and potential schools, families can evaluate the total cost and how much of available 529 plan funds will be needed. If there's not enough money in college savings plans, students may have to consider part-time jobs or student loans.

[Check out scholarships specifically for transfer students.]

If part-time jobs aren't available near the school that allow a student to make enough to cover the difference, families have to decide if it's worth it to borrow student loans, says Dina Lee, a certified public accountant and financial planner in New York.