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Posts from the ‘College/Education Planning’ Category

21
Sep

2022-2023 School Year Opens on October 1 for FAFSA

Financial aid kickoff season begins in October. Incoming and returning college students can start filing the Free Application for Federal Student Aid, or FAFSA, for the next academic year. The FAFSA is a prerequisite for federal student loans, grants, and work-study, and may be required by colleges before they distribute their own institutional aid to students.

How do I submit the FAFSA?

The FAFSA for the 2022-2023 school year opens on October 1, 2021. Here are some tips for filing it.

  • The fastest and easiest way to submit the FAFSA is online at studentaid.gov. The site contains resources and tools to help you complete the form, including a list of the documents and information you’ll need to file it. The online FAFSA allows your tax data to be directly imported from the IRS, which speeds up the overall process and reduces errors.
  • Before you file the FAFSA online, you and your child will each need to obtain an FSA ID (federal student aid ID), which you can also do online by following the instructions. (Once you have an FSA ID, you can use the same one each year.)
  • The FAFSA can also be filed in paper form. But it will take much longer for the government to process it.
  • You don’t need to complete the FAFSA by October 1. But it’s a promising idea to file it as early as possible in the fall because some federal aid programs operate on a first-come, first-served basis. Colleges typically have a priority filing date for both incoming and returning students; the priority filing date can be found in the financial aid section of a college’s website. You should submit the FAFSA before that date.
  • Students must submit the FAFSA every year to be eligible for financial aid (along with any other college-specific financial aid form that may be required, such as the CSS Profile). Any colleges you list on the FAFSA will also get a copy of the report.
  • There is no cost to submit the FAFSA.

How does the FAFSA calculate financial need?

The FAFSA looks at a family’s income, assets, and household information (for example, family size) to calculate what a family can afford to pay. This figure is known as the EFC or expected family contribution. All financial aid packages are built around this number.

Tip: Starting with the 2023-2024 FAFSA (which will be available next year starting October 1, 2022), the EFC will be renamed the SAI, or student aid index.

When counting income, the FAFSA uses information in your tax return from two years earlier. This year is often referred to as the “base year” or the “prior-prior year.” For example, the 2022-2023 FAFSA will use income information in your 2020 tax return, so 2020 would be the base year or prior-prior year.

When counting assets, the FAFSA uses the current value of your and your child’s assets. Some assets are not counted and do not need to be listed on the FAFSA. These include home equity in a primary residence, retirement accounts (e.g., 401k, IRA), annuities, and cash-value life insurance. Student assets are weighted more heavily than parent assets; students must contribute 20% of their assets vs. 5.6% for parents.

Your EFC remains constant, no matter which college your child attends. The difference between your EFC and a college’s cost of attendance equals your child’s financial need. Your child’s financial need will be different at every school.

After your EFC is calculated, the financial aid administrator at your child’s school will attempt to craft an aid package to meet your child’s financial need by offering a combination of loans, grants, scholarships, and work-study. Keep in mind that colleges are not obligated to meet 100% of your child’s financial need. If they don’t, you are responsible for paying the difference. Colleges often advertise on their website and brochures whether they meet “100% of demonstrated need.”

Should I file the FAFSA even if my child is unlikely to qualify for aid?

Yes, probably. There are two good reasons to submit the FAFSA even if you don’t expect your child to qualify for need-based aid.

First, all students attending college at least half-time are eligible for unsubsidized federal student loans, regardless of financial need or income level. (“Unsubsidized” means the borrower, rather than the federal government, pays the interest that accrues during school and during the grace period and any deferment periods after graduation.) If you want your child to be eligible for this federal loan, you’ll need to submit the FAFSA. But don’t worry, your child won’t be locked in to taking out the loan. If you submit the FAFSA and then decide your child doesn’t need the student loan, your child can decline it through the college’s financial aid portal before the start of the school year.

Second, colleges typically require the FAFSA when distributing their own need-based aid, and in some cases as a prerequisite for merit aid. So, filing the FAFSA can give your child the broadest opportunity to be eligible for college-based aid. Similarly, many private scholarship sources may want to see the results of the FAFSA.

17
Aug

Student Loan Payment Pause Extended Through January 2022

On August 6, 2021, the U.S. Department of Education announced an extension of the pause on federal student loan payments to January 31, 2022. The payment moratorium, currently in effect for millions of federal student loan borrowers, was set to end on September 30, 2021.

The Department noted that this extension would be the last one. U.S. Secretary of Education Miguel Cardona stated: “As our nation’s economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment.”1

How many payment pauses have there been?

There have been four pauses to federal student loan repayment since the start of the coronavirus pandemic. The first pause was instituted in March 2020 for six months (through September 2020) when Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The second and third pauses came via presidential executive order and extended the payment pause through January 2021 and through September 2021, respectively. The fourth and “final” extension is now scheduled through January 31, 2022. This means federal student loan payments will resume beginning February 1, 2022.

The Department of Education will begin notifying borrowers about this final extension in the coming days, and it will release resources and information about how to plan for repayment as the end of the pause approaches.

Does interest continue to accrue during the moratorium period?

No, interest does not accrue during the moratorium period. Essentially, the interest rate is set at 0%.

Can borrowers make payments if they want to during this time?

Yes. Borrowers can choose to keep making their monthly student loan payments during the moratorium period if they wish. The full amount of a borrower’s payment will be applied to principal. Borrowers can also choose to make partial payments during this time.

Do private student loans qualify for the payment pause?

No, private student loans aren’t eligible. Only student loans held by the federal government are eligible. This includes Federal Direct Loans (which includes PLUS Loans), along with Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans held by the Department of Education.

Is student loan forgiveness likely when the payment pause ends?

Probably not. While some legislators have gone on record in favor of forgiving a certain amount of federal student loan debt per borrower, the Biden administration has not taken any steps in this direction and has given no indication that it will do so. Borrowers should be ready to start repaying their loans when the pause ends on January 31, 2022. In the case of continued financial hardship at that time, borrowers should contact their loan servicer to inquire about requesting an individual deferment or forbearance.

For more information, visit the Federal Student Aid website.

1) U.S. Department of Education, 2021

11
Nov

New College Cost Data for 2020-2021 School Year

Every year, the College Board releases updated college cost data and trends in its annual report. Although costs can vary significantly depending on region of the country and college, the College Board publishes average cost figures, which are based on a survey of approximately 4,000 colleges across the country.

Following are cost highlights for the 2020-2021 academic year.(1) Because many residential colleges shifted to an online model this year, the College Board estimated 2020-2021 room and board figures to be the same as 2019-2020, adjusted for a 1% inflation rate.

Total cost of attendance” includes 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 1.1% to $10,560
  • Room and board increased 1% to $11,620
  • Total cost of attendance: $26,820

Public college costs (out-of-state students)

  • Tuition and fees increased 0.9% to $27,020
  • Room and board increased 1% to $11,620 (same as in-state)
  • Total cost of attendance: $43,280

Private college costs

  • Tuition and fees increased 2.1% to $37,650
  • Room and board increased 1% to $13,120
  • Total cost of attendance: $54,880

Over the past decade, the average published tuition, fees, room, and board at private 4-year colleges increased by 17% beyond increases in the Consumer Price Index, and at 4-year public colleges increased 15% beyond increases in the Consumer Price Index.(2)

FAFSA opened October 1st

The FAFSA for the next school year, 2021-2022, opened on October 1, 2020. The 2021-2022 FAFSA  relies on income information from your 2019 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 your expected family contribution (EFC) is calculated:(3)

  • 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 the student’s income protection allowance ($6,970 for the 2021-2022 year)
  • Parent assets over the asset protection allowance are counted at 5.64% (home equity, retirement accounts, cash value life insurance, and annuities are not counted at all)
  • Student assets are counted at 20%

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 of a specific college. Because costs vary at each college, your child’s financial need will vary by college.

Just because your child has financial need doesn’t automatically mean that colleges will meet 100% of that need. Colleges that do meet 100% of “demonstrated need” usually advertise this; not all colleges do. If a college doesn’t meet 100% of your child’s financial need, you’ll have to make up the gap, in addition to paying your EFC.

To get an estimate ahead of time what your out-of-pocket cost might be at a particular school, run a college’s net price calculator, which is available on every college website. You input income, asset, and general family information and the net price calculator provides an estimate of the grant aid your child might expect at that particular college. The cost of the college minus this grant aid equals your net price, hence the name “net price calculator.”

Reduced asset protection allowance

Over the past two decades, a stealth change in the FAFSA has been negatively impacting a family’s eligibility for financial aid. The asset protection allowance, which lets parents shield a certain amount of assets from consideration (in addition to the assets listed above that are already shielded), has been steadily declining for years, resulting in higher EFCs. Ten years ago, the asset protection allowance for a 48-year-old married parent with a child about to enter college was $46,200. For 2021-2022, that same allowance is $6,600, resulting in a $2,233 decrease in a student’s aid eligibility ($46,200 – $6,600 x 5.64%).(4)

Student loan debt

Student debt is the  second-highest consumer debt category after mortgage debt, ahead of both auto loans and credit card debt.(5) More than six in ten (62%) college seniors who graduated  in 2019 had student loan debt, owing an average of $28,950.(6) Paying careful attention to costs at college time might help you and/or your child avoid excessive student loan debt.

1-2) College Board, 2020

3-4) U.S. Department of Education,  The EFC Formula, 2021-2022, 2011-2012

5) Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, August 2020

6) Institute for College Access & Success, Student Debt and the Class of 2019, October 2020

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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