For families who file US income tax, there are a host of other funding options. There are Federal loans that may or may not be needs-based. All are now offered only through the Federal “Direct Loan” programme. There are Stafford Loans that offer a 3.4 percent fixed rate for the 2011 to 2012 school year to those qualifying for aid. The non-needs based version has a higher rate. There is also a Perkins Loan with a five percent rate for lower income families. The annual loan amounts vary from $5,500 to $7,500 per year. A PLUS Loan will cover up to full cost of attendance, less other aid packages. None of these US Federal loans require payments until after graduation and no interest accumulates until payments start.

Higher net-worth families can create self-funded “tax scholarships” by annual gifting, shifting income and shifting assets to the lower income student. They are subject to a ‘kiddie tax’ rate up to $1,900 in unearned income until the age of 24. You can also hirer the student for pay. There is no tax deduction to the family for paying the student for household services. It is deductible to family business for bona-fide work. A tax-paying student will be in a 15 percent tax bracket up to $34,000 in earned income, after a $3,650 personal exemption and a standard deduction of $5,700. This equates to gross earned income of just over $43,000.

A major US tax-advantaged tool for saving for college is the Section 529 Savings Plan. A $65,000 lump-sum gift can be made and spread-out over five years for tax treatment. Other people can also gift funds. The Plan is treated as an asset of the parent in most cases. The types of investments in a Section 529 will depend upon the length of time until the funds are needed, more equity for younger children and more fixed income as they approach college age. Earnings can be withdrawn tax-free. Tax-free distributions are based on qualified education expenses. For more information read the IRS Publication 970.