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A 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.

  • Basis
    The basis is the actual principal of the account.

  • Beneficiary
    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
    Distribution refers to a withdrawal from a 529 plan account, consisting of both earnings and principal.

  • Earnings
    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 plus interest.

  • 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, short-term securities.

  • Mutual fund
    Mutual funds have a specific investment objective that invests money from many investors into a diversified portfolio of stocks, bonds or other securities.

  • 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 expenses.

  • Portfolio
    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” student.

  • 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
    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.

  • Tax-deferred
    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 educational expenses.

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.

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