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What Is a College Trust Fund?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 11 April 2014
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    Conjecture Corporation
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A college trust fund is a designated account used to pay for education. Parents preparing for children's educational expenses can establish a college trust fund, or such funds can be created by family members and other interested parties. In addition to funding individuals, trusts can be used in conjunction with a scholarship initiative, where applicants for funding can receive payments out of the trust. Such funds may be supplied by donations for alumni, charities, and other organizations, depending on the nature of the scholarship.

For financial aid purposes, managing finances carefully is important. Conventional savings and trusts can count against people when they apply for assistance because they will be considered a potential source of payments for school. Setting up a designated college trust fund protects the money, and allows it to be treated differently on financial aid applications. People establishing a trust in the name of someone else may want to consider this, as the attempt to provide financial assistance could backfire if the trust isn’t set up carefully.

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In funds specifically designated for college, the grantor can make as many payments as desired into the trust. The money is held until the beneficiary goes to college, at which point payments can be made to provide education assistance. Stipulations may require that money only goes to pay tuition and fees, while other funds provide payments directly to beneficiaries to help with expenses like housing and books. Some areas have a special kind of designated college savings plan that can be used as a college trust fund, and banks can assist customers with establishing one so they can benefit from protections while saving money for college.

Trusts can earn interest over time, building funds to make more money available for college. This can be important, because tuition costs increase over time, especially during periods of inflation. Sufficient funds at the time of a child’s birth might not be adequate by age 18 without growth in the college trust fund. It is also critical to be aware that once established, the trust cannot be dissolved, and the money is designated for educational purposes.

The second sense of a trust, to fund a scholarship or grant program, can be seen at many educational institutions. Scholarship organizations can make payments out of the fund, as long as they comply with the terms, to assist people with college costs. They can also accept donations to rebuild the principal. Trusts often provide support to low-income students who might have difficulty affording college without help.

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