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Posts from the ‘College/Education Planning’ Category

20
Nov

College Cost Data for 2019-2020 School Year

Each year, the College Board releases its annual Trends in College Pricing report that highlights current college costs and trends. While costs can vary significantly depending on the region and college, the College Board publishes average cost figures, which are based on a survey of nearly 4,000 colleges across the country.

Following are cost highlights for the 2019-2020 academic year. 1) Note that “total cost of attendance” figures include direct billed costs for tuition, fees, room, and board, plus a sum for indirect costs that includes books, transportation, and personal expenses, which will vary by student.

Public college costs (in-state students)

  • Tuition and fees increased 2.3% to $10,440
  • Room and board increased 2.9% to $11,510
  • Total cost of attendance: $26,590

Public college costs (out-of-state students)

  • Tuition and fees increased 2.4% to $26,820
  • Room and board increased 2.9% to $11,510 (same as in-state)
  • Total cost of attendance: $42,970

Private college costs

  • Tuition and fees increased 3.4% to $36,880
  • Room and board increased 3.0% to $12,990
  • Total cost of attendance: $53,980

Reminder on FAFSA timeline

Families were able to begin filing the 2020-2021 FAFSA (Free Application for Federal Student Aid) on October 1, 2019. The earlier timeline was instituted a few years ago to better align the financial aid process with the college admissions process and to give parents information about their child’s aid eligibility earlier in the process.

The 2020-2021 FAFSA relies on income information from your 2018 federal income tax return and current asset information. Your income is the biggest factor in determining financial aid eligibility. A detailed analysis of the federal aid formula is beyond the scope of this article, but generally here’s how it works: 2)

  • Parent income is counted up to 47% (income equals adjusted gross income, plus untaxed income/benefits minus certain deductions)
  • Student income is counted at 50% over a certain amount ($6,840 for the 2020-2021 academic year)
  • Parent assets are counted at 5.64% (home equity, retirement accounts, cash value life insurance, and annuities are excluded)
  • Student assets are counted at 20%

The result is a figure known as your expected family contribution, or EFC. Your EFC remains constant, no matter which college your child attends.   Your EFC is not the same as your child’s financial need. To calculate financial need, subtract your EFC from the cost at a specific college. Because costs vary at each college, your child’s financial need will vary depending on the cost of a particular college.

One thing to keep in mind: Just because your child has financial need doesn’t automatically mean that colleges will meet 100% of that need. In fact, it’s not uncommon for colleges to meet only a portion of it. In this case, you’ll have to make up the gap, in addition to paying your EFC.

To get an estimate ahead of time of what your out-of-pocket costs might be at various colleges, run the net price calculator on each college’s website. A net price calculator asks for income, asset, and general family information and provides an estimate of grant aid at that particular college. The cost of the school minus this grant aid equals your estimated net price, hence the name “net price calculator.”

Reduced asset protection allowance

Behind the scenes, a stealth change in the FAFSA has been quietly and negatively impacting families. The asset protection allowance, which lets parents shield a certain amount of their  assets from consideration (in addition to the assets listed above that are already shielded), has been steadily declining for years, resulting in higher EFCs. Fifteen years ago, the asset protection allowance for a 48-year-old married parent with a child about to enter college was $40,500. For 2020-2021, that same allowance is $6,000, resulting in a $1,946 decrease in a student’s aid eligibility ($40,500 – $6,000 x 5.64%). 3)

Higher student debt

Student loan debt continues to grow and student debt is now the  second-highest consumer debt category, ahead of both credit cards and auto loans and behind only mortgage debt. 4) About 65% of U.S. college seniors who graduated in 2018 had student debt, owing an average of $29,200. 5) And  it’s not just students who are borrowing.  Parents are borrowing, too. There are approximately 15 million student loan borrowers age 40 and older, and this demographic accounts for almost 40% of all student loan debt. 6)

1) College Board, 2019

2-3) U.S. Department of Education,  The EFC Formula, 2020-2021, 2005-2006

4) Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, August 2018

5) Institute for College Access & Success, Student Debt and the Class of 2018, September 2019

6) Federal Reserve Bank of New York, Student Loan Data and Demographics, September 2018

9
Dec

Prioritizing Savings for College and/or Retirement

The November 2018 AAII Journal, American Association of Individual Investors, included an interview with Harold Pollack. The discussion was about “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated” (Portfolio, 2016). He wrote it with Helaine Olen.

The following passage is from a response to a question about prioritizing where to direct money.

There are different ways that people can do this. You should match your method with what gives you the mojo to actually do it.” … “Suppose I’m a young parent and I’m choosing between prioritizing my retirement and savings for my kid’s college. Mathematically, retirement tends to be the answer for most people, but your kid’s college gives you mojo in a different way. If you’re walking with your seven-year-old daughter in a store and you see a sweet $500 camera lens, you can point to it, and tell your daughter: “I really want that lens, I’m going to put that $500 toward paying for your college. Maybe some day you’ll do that for your daughter.’ That’s powerful and motivating.”  

2018 Nov.Beyond-the-Index-Card-Implement

 

20
Jun

Interest Rates Rise on Federal Student Loans for 2018-2019

Interest rates on federal student loans are set to rise for the second year in a row. This table shows the interest rates for new loans made on or after July 1, 2018, through June 30, 2019. The interest rate is fixed for the life of the loan.

New rate 2018-2019 Old rate 2017-2018 Available to Borrowing limits

Direct Stafford Loans: Subsidized

Undergraduates

5.045%

4.45%

Undergraduate students only

Subsidized loans are based on financial need as determined by the federal aid application (FAFSA)

For dependent undergraduates:

1st year: $5,500 ($3,500 subsidized)

2nd year: $6,500 ($4,500 subsidized)

3rd, 4th, 5th year: $7,500 ($5,500 subsidized)

Max: $31,000 ($23,000 subsidized)

Direct Stafford Loans: Unsubsidized

Undergraduates

5.045%

4.45%

Undergraduate students only; all students are eligible regardless of financial need

For dependent undergraduates:

1st year: $5,500 ($3,500 subsidized)

2nd year: $6,500 ($4,500 subsidized)

3rd, 4th, 5th year: $7,500 ($5,500 subsidized)

Max: $31,000 ($23,000 subsidized)

Direct Stafford Loans: Unsubsidized

Graduate or Professional Students

6.595%

6%

Graduate or professional students only; all students are eligible regardless of financial need

Unsubsidized loans only

$20,500 per year (unsubsidized only); max $138,500 ($65,500 subsidized)

Direct PLUS Loans:

Parents and Graduate or Professional Students

7.595%

7%

Parents of dependent undergraduate students and graduate or professional students

Unsubsidized loans only

Total cost of education, minus any other aid received by student or parent

Subsidized vs. unsubsidized

What’s the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

2
Nov

College Board releases 2016/2017 college cost data.

The College Board has released college cost figures for the 2016/2017 college cost data in its annual Trends in College Pricing report. “Total average cost” includes tuition and fees, room and board, books, transportation, and personal expenses. Here are the highlights:

Public colleges (in-state students):

  • Tuition and fees increased an average of 2.4% to $9,650
  • Room and board increased an average of 2.9% to $10,440
  • Total average cost for 2016/2017: $24,610 (up from $24,061 in 2015/2016)

Public colleges (out-of-state students):

  • Tuition and fees increased an average of 3.6% to $24,930
  • Room and board increased an average of 2.9% to $10,440
  • Total average cost for 2016/2017: $39,890 (up from $38,544 in 2015/2016)

Private colleges:

  • Tuition and fees increased an average of 3.6% to $33,480
  • Room and board increased an average of 3.0% to $11,890

Total average cost for 2016/2017: $49,320 (up from $47,831 in 2015/2016)

Link to “Trends in College Pricing 2016” https://trends.collegeboard.org/sites/default/files/2016-trends-college-pricing-web_0.pdf

College costs are a major expense. Understanding the current cost will help to plan how to meet the costs in the future. The information can also be helpful to grandparents in their gift planning.

One way to fund college expenses is to use a  “529” plan. These are offered by state or educational institutions. Earnings are not subject to federal tax and generally are not subject to state tax when used for “qualified education expenses” of the “designated beneficiary”. Some states offer tax incentives for state residents that  contribution to the plans in their states.

Not everyone should use a 529 plan.  Review the alternatives, benefits and drawbacks to determine if 529 plans should be part of your planning.

12
Mar

What priority do you place on your retirement?

The New York Times Feb. 28, 2014 article, “Save for Retirement First, the Children’s Education Second”, applies to other financial goals also.  Two critical financial planning steps are to identify your financial goals and determine the priority of each.  The cost of each goal and when you want to achieve the goal are also needed.

One objective in financial planning is to determine how much is needed to achieve your goals.  Saving is almost always the way to have the funds needed.    The longer you wait to start to save for financial goals, the harder it is to achieve.  That is because more needs to be saved each year.   

The challenge to be able to save for retirement becomes more difficult as the number of goals increase.    You can borrow for some goals.   Borrowing for retirement is generally not an alternative.  Financing goals before retirement may decrease the ability to borrow in the future and increases future cash needs. 

Children’s education, helping a child with the purchase of a home, helping children with their loans could reduce the amounts needed to maintain a comfortable retirement. 

Possibly the expenses can be reduced.   Attending local and in-state colleges are generally less expensive than private colleges.  Having the children take out student loans also reduces the amount the parents will have to pay. 

Contributing less into qualified retirement plans, including IRAs, (Plans) and borrowing from Plans reduces the amount that can be saved for retirement.  Contributing to Plans allows the funds to grow free of annual income tax.  This allows the income and growth to grow faster in Plans.  Borrowing from a Plan reduces the potential return on the amount in the Plan.  If the interest rate charged by the Plan is less than the amount a financial institution would charge, the amount of income in the Plan will be reduced. 

A reserve account for the unexpected and emergencies should be given a very high priority.  Without reserves, these types of expenditures could require the liquidation of investment when their values are low. 

There are unintended consequences of not saving for retirement first.  Your children may need to support their parents in retirement.  A child may need to give up a job to care for a parent if the funds are not available for health care.

Set your priorities for yourself first.  Any excess can be left to your heirs.
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31
Oct

College Costs 2013/2014: Increases Slow, but So Does Growth in Grant Aid

Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases for the current academic year along with trends in the world of higher education. While costs can vary significantly depending on the region and individual college, the College Board publishes average cost figures, which are based on its survey of nearly 4,000 colleges across the country.

In its report, the College Board noted that even though this year’s increases in tuition and fees were the smallest in many years, the growth in student grant aid from previous years has not kept pace. As a result, many students will be facing higher costs, even in the face of smaller price increases.

To read the full Trends in College Pricing 2013 report, go to trends.collegeboard.org.

 Following are cost highlights. Note that total cost figures include tuition and fees, room and board, books and supplies, and a sum for transportation and personal expenses. Together, these items are officially referred to as the “total cost of attendance.”

Public colleges (in-state students)
Tuition and fees increased an average of 2.9% this year to $8,893
Room-and-board costs increased an average of 3.6% this year to $9,498
Total cost of attendance for 2013/2014 is $22,826 (up from $22,261 last year)

Public colleges (out-of-state students)
Tuition and fees increased an average of 3.1% this year to $22,203
Room-and-board costs increased an average of 3.6% this year to $9,498
Total cost of attendance for 2013/2014 is $36,136 (up from $35,312 last year)

Private colleges 
Tuition and fees increased an average of 3.8% this year to $30,094
Room-and-board costs increased an average of 3.5% this year to $10,823
Total cost of attendance for 2013/2014 is $44,750 (up from $43,289 last year)

Cost trends 
In its Trends in College Pricing 2013 report, the College Board noted that college prices have been rising more rapidly than the prices of other goods and services over the last three decades and that “the increasing economic inequality in the United States over recent decades has exacerbated the difficulty in paying for college for many students, in addition to straining federal, state, and institutional budgets.”

The College Board noted that even though this year’s increases in tuition and fees were the smallest in many years, the growth in student grant aid from previous years has not kept pace. As a result, many students will be facing higher costs, even in the face of smaller price increases.

 

 
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26
Jan

Key Numbers for 2012 and 2011

The 2011 key numbers will help in preparing your tax return.  For those of you that use a tax preparer it will help in organizing your information.  It may also generate questions that you should discuss with your tax return preparer.  the 2012 Key numbers will help you in your planning for 2012.  
Key Numbers for 2012 and 2011

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19
Sep

There is more to college planning than meets the eye

Today’s Wall Street Journal has an article about how to avoid the cognitive traps.  The approach suggested is similar to the approach required for financial planning.
I will highlight a few concepts from the article.  The first suggestion is to understand how you think.  How the information is presented does influence you.  You can reorganize the information to help make an objective evaluation of the alternatives.
Generally we all are influenced by short-term thinking.  However, college planning is about the long-term.  If you focus on only the cost, you may overlook other information.  In obtaining the lowest out of pocket cost, you may not consider the long term financial ramifications.  Will the monthly payments be affordable?  Will they impact what is available for other children?  Will the required work hours reduce the chances of keeping current with academic pursuits?
Projecting future benefits on first year salaries may dramitically understate the potential benefits.  Starting at a community college with the intent of transferring in the future to a bachelor’s program may reduce the chances of obtaining the bachelor’s degree.
“…for the great majority of students, the time spent in college, forgoing full-time work, has a bigger monetary value than the tuition you pay.”  READ MORE     

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24
Mar

Finding a qualified independent financial advisor

There are many people who look for a financial planner when they have a specific question or problem.  Too often the person they contact concentrates on the question or problem presented without really looking for the cause of the problem or question. 

I believe that is why the solutions do not always work out.  Without trying to identify the problem and identify the consequence the solutions do not provide adequate flexibility.  Sometime they result in worse problems or not enough time to overcome the problem.  We have seen evidence of this in the headlines since 2007.

Fear is often used to create action.  Humans tend to do the wrong thing financially when they are reacting to fear.  This is evident when so many are buying investments when prices are high and selling investments when prices are low. 

The National Association of Personal Financial Advisors (NAPFA) recently released “Pursuit of a Financial Advisor – Field Guide.  It provides advice on how to find a qualified independent financial advisor.  
READ MORE

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