Dear Joe, Katie and both sets of parents,
It was a pleasure meeting you and your families on today’s campus tour. As you know from the introductions we all gave at the beginning of the tour, we are college advisors, and our desire is for every child to attend a great school for them at a great price. You’ve probably received some good advice from your parents in your 17 or so years before taking the campus tour today, and I’m writing this letter to you and your parents to give each of you some more advice, because you all really missed a great opportunity today. PLEASE prepare better for your next campus visit!
Mistake #1 – Your personal introductions were really weak. Joe and Katie, you both mumbled your names, gave no information on yourselves, and did not introduce your family members. It’s understandable why – you probably have never been in the situation before. You both need to understand something – that’s not okay! It’s not okay just because everyone else your age does it that way. It’s not okay because your parents will fix it and just pay full price for your college education. Parents – please do some role playing with Joe and Katie. It will really make a difference in their self-esteem, and will put more money in your wallet when the school wants them more than the other kids who stumbled. Have your kids introduce themselves to neighbors, or to your friends. Help them get comfortable. Hire a coach. This is real life!
Mistake #2 – Joe and Katie, you both took the wrong attitude during the tour. Of course you are there to get a feel for the school, but you missed an even greater opportunity – selling yourself to the school. You both came from out-of-state, and are both spending Spring Break touring schools, but that won’t earn you special consideration. For goodness’ sake, ask some questions! Take an active interest! Make yourself memorable to the tour guide! Did you both know that she was an admissions counselor and has a very strong say in who gets admitted and who gets merit aid? Did you know that the school we toured today bases merit aid decisions on some very subjective elements? I do, because I asked her. What an awesome opportunity you both had, and missed it altogether. This is your time to shine. If you want to build a group of colleges that are really interested in having you attend their school, and you have an opportunity to sell yourself to a decision-maker, get in there and do some selling! Parents, the idea of your child reaching out and building a relationship cannot be foreign to them. Help them. Coach them. Hire a coach.
Mistake #3 – You didn’t know what you didn’t know. The whole process of searching, selecting and applying to colleges is confusing, I know. Joe and Katie, this is the biggest decision you have ever made, and it takes careful thought and planning. This is an exciting, important time, and you need to get right in the middle of this process. Find people who can give you sound advice, and run those people and resources past your parents for approval. Parents, be in a position to give Joe and Katie the best advice possible, in a timely manner. Challenge them. Prepare them. That did not happen today. If you parents are the ones giving the advice, read books, get the high school counselor to give you as much time as possible, seek out people whose kids have graduated on-time with minimal debt, actively coach your kids and keep them on track. If you are not the best person to give advice, find someone who knows what they are doing.
Joe and Katie (and each of your parents), I want to help you all by sharing a final observation with you. The problem is that you are going through this process just like everyone else, and will probably get everyone else's results. There’s a 33% chance that you will transfer schools. If you are average, it will take you 5 ½ years to earn your degree. Joe and Katie, you will each have about $26,000 in debt when you graduate, and your parents will probably have added at least five more years to their working lives. It doesn’t have to be this way.
Wednesday, March 13, 2013
Tuesday, March 12, 2013
How do Federal College Loans Work?
If you file financial aid paperwork for the colleges in which you have applied, you will receive an award letter. The financial aid award letter tells you how much financial support the school is willing to give you for the coming year. Financial aid can come in a variety of forms, including grants, scholarships and loans. Schools tend to have financial aid policies through which they pledge to find ways to meet some or all of your financial need. The statistic schools get measured by when providing this additional help is called % of need met.
In understanding a family's real cost in their child attending school, it is important to understand that the sticker price of a school (Cost of Attendance) and their ultimate price are two different numbers altogether. Some students will apply to $40,000/yr COA schools and end up having a net cost (or out-of-pocket cost) of $20,000/yr, and get award letters from colleges with a COA of $60,000 that may be able to offer you a OOP cost of only $15,000 per year. We will leave the reasons behind this math for another day; right now, let's focus on some of the line items you might see on the award letter - the loans which comprise a portion of the family need being met.
A student's eligibility for loans is interpreted by each individual school, as a result of information provided by the family on the Free Application for Federal Student Aid (FAFSA) form, and/or information provided by the family on the PROFILE form, as required by the school. Imagine a pot of money available to each school to dole out each year as they decide. This decision is made annually by schools for incoming freshmen and any active qualifying students at the school who provide timely information each year. It never hurts a family to provide this information, even if they received no federal need-based aid the year before. The students who submit these forms the soonest in the process (earliest date for submitting FAFSA is January 1 of each year) get in line early for consideration for limited federal aid funds.
Here are the questions we will answer:
Stafford loans are federal government-funded monies given to schools for use as they see fit. Stafford loans can be offered two ways - as subsidized loans, or as unsubsidized loans. The U.S. Department of Education pays the interest on subsidized loans until the first payment is due, generally six months after the student leaves the school (including graduation), or becomes considered a less than half-time student. Unsubsidized loan payments are due on the same schedule as subsidized loans, but the interest accrues from the time the first payment is made to the school. According to College Board, of all federal loans, 35% are subsidized Stafford loans and 40% are unsubsidized Stafford loans. Stafford loans are in the student's name.
Currently, subsidized Stafford loans have a fixed interest rate of 3.4%, and unsubsidized Stafford loans have a fixed rate of 6.8%. In awarding subsidized loans (clearly the preferred loan), 67% of loan recipients' parents had an adjusted gross income (AGI) of less than $50,000 per year, 25% had an AGI between $50,000 and $100,000, and the remainder had an AGI in excess of $100,000 per year. It is not uncommon for a school to offer a combination of both types of loans, depending on a student's need. this delineation is made on the award letter. Stafford loans have a 4% fee, with 3% being an origination fee, and 1% being a default fee. Generally, there is a maximum loan amount (between both types of Stafford loans) of $5,500 per year. See Stafford Loan Site for more details.
PLUS Loans
PLUS loans are the second-most popular type of federal education loans offered. PLUS loans are most often made to the parents of the students, and like the Stafford loan, are contemplated by each individual school as a result of information provided by families on the FAFSA or PROFILE form, as required by each school. The loans are decided upon each year for incoming freshmen as well as active students who have at least half-time status. Of all federal education loans, 10% are PLUS loans.
Currently, PLUS loans have a fixed interest rate of 7.9%. The limit on the amount of the loan is the difference between the cost of attendance and any other financial aid received. The loans have a 4% origination fee, and payments on the loan start immediately after the first loan payout. On occasion, parents can qualify for a deferment of payments, with payments starting six months after the child leaves school (including graduation), or goes to less than half-time status. See PLUS Loan Site for more details.
Perkins Loans
Of all federal education loans to undergraduate students, Perkins loans are the least used. Of all loans offered, 1% are Perkins loans, and are offered to students. Schools use the FAFSA and/or PROFILE form that families file each year.
Perkins loans have a 9-month grace period to start making payments after the student leaves school (including graduation) or goes to less than half-time status, have a 10-year repayment period, and are always subsidized, meaning that interest is paid by the Department of Education on the loan until payments begin by the student after the grace period.. Currently, Perkins loans have a fixed 5% interest rate and no origination fees. Limits are $5,500 per year for undergraduates, with a cumulative limit of $27,000. For more info, see the Perkins Loan Site.
In understanding a family's real cost in their child attending school, it is important to understand that the sticker price of a school (Cost of Attendance) and their ultimate price are two different numbers altogether. Some students will apply to $40,000/yr COA schools and end up having a net cost (or out-of-pocket cost) of $20,000/yr, and get award letters from colleges with a COA of $60,000 that may be able to offer you a OOP cost of only $15,000 per year. We will leave the reasons behind this math for another day; right now, let's focus on some of the line items you might see on the award letter - the loans which comprise a portion of the family need being met.
A student's eligibility for loans is interpreted by each individual school, as a result of information provided by the family on the Free Application for Federal Student Aid (FAFSA) form, and/or information provided by the family on the PROFILE form, as required by the school. Imagine a pot of money available to each school to dole out each year as they decide. This decision is made annually by schools for incoming freshmen and any active qualifying students at the school who provide timely information each year. It never hurts a family to provide this information, even if they received no federal need-based aid the year before. The students who submit these forms the soonest in the process (earliest date for submitting FAFSA is January 1 of each year) get in line early for consideration for limited federal aid funds.
Here are the questions we will answer:
- What are Stafford Loans, and how do they work?
- What are PLUS Loans, and how do they work?
- What are Perkins Loans, and how do they work?
Stafford loans are federal government-funded monies given to schools for use as they see fit. Stafford loans can be offered two ways - as subsidized loans, or as unsubsidized loans. The U.S. Department of Education pays the interest on subsidized loans until the first payment is due, generally six months after the student leaves the school (including graduation), or becomes considered a less than half-time student. Unsubsidized loan payments are due on the same schedule as subsidized loans, but the interest accrues from the time the first payment is made to the school. According to College Board, of all federal loans, 35% are subsidized Stafford loans and 40% are unsubsidized Stafford loans. Stafford loans are in the student's name.
Currently, subsidized Stafford loans have a fixed interest rate of 3.4%, and unsubsidized Stafford loans have a fixed rate of 6.8%. In awarding subsidized loans (clearly the preferred loan), 67% of loan recipients' parents had an adjusted gross income (AGI) of less than $50,000 per year, 25% had an AGI between $50,000 and $100,000, and the remainder had an AGI in excess of $100,000 per year. It is not uncommon for a school to offer a combination of both types of loans, depending on a student's need. this delineation is made on the award letter. Stafford loans have a 4% fee, with 3% being an origination fee, and 1% being a default fee. Generally, there is a maximum loan amount (between both types of Stafford loans) of $5,500 per year. See Stafford Loan Site for more details.
PLUS Loans
PLUS loans are the second-most popular type of federal education loans offered. PLUS loans are most often made to the parents of the students, and like the Stafford loan, are contemplated by each individual school as a result of information provided by families on the FAFSA or PROFILE form, as required by each school. The loans are decided upon each year for incoming freshmen as well as active students who have at least half-time status. Of all federal education loans, 10% are PLUS loans.
Currently, PLUS loans have a fixed interest rate of 7.9%. The limit on the amount of the loan is the difference between the cost of attendance and any other financial aid received. The loans have a 4% origination fee, and payments on the loan start immediately after the first loan payout. On occasion, parents can qualify for a deferment of payments, with payments starting six months after the child leaves school (including graduation), or goes to less than half-time status. See PLUS Loan Site for more details.
Perkins Loans
Of all federal education loans to undergraduate students, Perkins loans are the least used. Of all loans offered, 1% are Perkins loans, and are offered to students. Schools use the FAFSA and/or PROFILE form that families file each year.
Perkins loans have a 9-month grace period to start making payments after the student leaves school (including graduation) or goes to less than half-time status, have a 10-year repayment period, and are always subsidized, meaning that interest is paid by the Department of Education on the loan until payments begin by the student after the grace period.. Currently, Perkins loans have a fixed 5% interest rate and no origination fees. Limits are $5,500 per year for undergraduates, with a cumulative limit of $27,000. For more info, see the Perkins Loan Site.
Sunday, March 10, 2013
College Student Tax Deductions
Parents ask us often about any tax breaks for which they are eligible when they have a student with qualified college expenses. As we are in the middle of tax season, here is a quick review. This is for overview purposes only. Please consult your financial or tax adviser to understand how this specifically applies to your situation.
There are four different tax breaks for which you may qualify - American Opportunity Credit, Lifetime Learning Credit, Student Loan Interest Deduction and Tuition and Fees Deduction. A credit is different than a deduction. Remember that with a credit, you are deducting the amount of your tax. With a deduction, you are reducing the income being taxed. Below, we'll cover each in some detail, and before doing so, here is what you need to keep in mind for all of these credits: The government will give you breaks, but only once. If you have taken a tax break on something you paid, you cannot take another break on the same expense.
American Opportunity Credit
This is a maximum $2,500 credit per eligible student. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $180,000 if married filing jointly, or under $90,000 if single, head of household or a widow or widower. The student must be enrolled at least half time and pursuing a program leading to a degree or other recognized education credential. This credit can only be claimed a maximum of four times, including any year that the Hope credit was claimed. Qualifying expenses include tuition, enrollment fees and course materials.
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Lifetime Learning Credit
This is a maximum $2,000 credit per return. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $124,000 if married filing jointly, or under $62,000 if single, head of household or a widow or widower. This credit is available for all years of postsecondary education and for courses to acquire or improve job skills. This credit can be claimed an unlimited number of years. Qualifying expenses include tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies and equipment).
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Student Loan Interest Deduction
This is a maximum income reduction of $2,500. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $155,000 if married filing jointly, or under $75,000 if single, head of household or a widow or widower. The loan must have been taken out solely to pay qualified education expenses, and cannot be from a related person or made under a qualified employer plan. The student must be you, your spuse or your dependent, and enrolled at least half-time in a degree program. This credit can be claimed as long as there is a loan balance.
You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest).
Tuition and Fees Deduction
This is a maximum income reduction of $4,000. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $180,000 if married filing jointly, or under $80,000 if single, head of household or a widow or widower. Qualifying expenses include tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.. The student must be you, your spouse or your dependent, for whom you claim an exemption.
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Here is the document giving additional detail for these tax breaks: IRS Education Tax Credits Publication.
There are four different tax breaks for which you may qualify - American Opportunity Credit, Lifetime Learning Credit, Student Loan Interest Deduction and Tuition and Fees Deduction. A credit is different than a deduction. Remember that with a credit, you are deducting the amount of your tax. With a deduction, you are reducing the income being taxed. Below, we'll cover each in some detail, and before doing so, here is what you need to keep in mind for all of these credits: The government will give you breaks, but only once. If you have taken a tax break on something you paid, you cannot take another break on the same expense.
American Opportunity Credit
This is a maximum $2,500 credit per eligible student. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $180,000 if married filing jointly, or under $90,000 if single, head of household or a widow or widower. The student must be enrolled at least half time and pursuing a program leading to a degree or other recognized education credential. This credit can only be claimed a maximum of four times, including any year that the Hope credit was claimed. Qualifying expenses include tuition, enrollment fees and course materials.
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Lifetime Learning Credit
This is a maximum $2,000 credit per return. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $124,000 if married filing jointly, or under $62,000 if single, head of household or a widow or widower. This credit is available for all years of postsecondary education and for courses to acquire or improve job skills. This credit can be claimed an unlimited number of years. Qualifying expenses include tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies and equipment).
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Student Loan Interest Deduction
This is a maximum income reduction of $2,500. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $155,000 if married filing jointly, or under $75,000 if single, head of household or a widow or widower. The loan must have been taken out solely to pay qualified education expenses, and cannot be from a related person or made under a qualified employer plan. The student must be you, your spuse or your dependent, and enrolled at least half-time in a degree program. This credit can be claimed as long as there is a loan balance.
You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest).
Tuition and Fees Deduction
This is a maximum income reduction of $4,000. You may be able to claim this credit if your modified adjusted gross income (MAGI) is under $180,000 if married filing jointly, or under $80,000 if single, head of household or a widow or widower. Qualifying expenses include tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.. The student must be you, your spouse or your dependent, for whom you claim an exemption.
The expenses you are claiming cannot be claimed under any other tax credit, and cannot be paid with tax-free funds (529 plan, Coverdell Plan, etc), nor can these expenses be claimed as business expenses in addition to claiming them for this tax break.
Here is the document giving additional detail for these tax breaks: IRS Education Tax Credits Publication.
Sunday, March 3, 2013
37 Ideas to Control or Reduce College Costs
Over and above the rise in consumer prices, the cost of a college education in the last decade has risen by 2.4% per year at private four-year schools, and 5.2% per year at public four-year schools, according to College Board's Annual Survey of Colleges. As a result, the gross cost of tuition, room and board at a private four-year college has outpaced inflation by 30%, and at a public four-year college, prices have outpaced inflation by 75%. How can you bring the net cost of a college education down?
This brief article will give you an overview of a number of ways that families can potentially attain a lower education cost for their children. As you read, consider the following:
Below, I have listed a variety of options to consider when attempting to control the cost of college.
This brief article will give you an overview of a number of ways that families can potentially attain a lower education cost for their children. As you read, consider the following:
- I do not necessarily endorse any or all of these ideas for you specifically.
- Your individual situation may make some of these ideas inappropriate for you - consult a specialist regarding strategies that are right for you.
- I am not a licensed financial adviser, I am a college adviser; if appropriate, consult your financial adviser for more details regarding how some of these ideas might work for you.
- Each point listed can be a topic in and of itself. I have purposefully only given you the "what" and not the "why" behind each strategy. The context of the "why" can only be given when there is a better understanding of your individual situation.
Below, I have listed a variety of options to consider when attempting to control the cost of college.
- Have your student apply themselves and attain the highest GPA possible. Maintain this focus through the second semester of their senior year.
- Have your student study for and achieve the best possible PSAT exam score. There are a variety of online courses becoming available for this purpose. Excellent exam results may result in National Merit Scholarship money at select schools.
- Have your student study for (including prep classes) and achieve the best possible SAT and ACT scores they can.
- Student should build a competitive high school transcript which includes challenging courses and depth in extracurricular activities.
- Achieving a "3" or higher on advanced placement (AP) credit, may transfer to offset college credit.
- Student should participate in volunteer activities, leadership opportunities and pursue internships with companies in their desired field of study.
- Consider "dual enrollment," if available. Student takes college courses while in high school. Often, these courses only transfer to specific colleges near the high school. Courses are typically offered at a big discount to high school students. Check with high school counselor for availability.
- Student should start looking into scholarship opportunities during their junior year of high school. Regularly seek out and apply for scholarships until the bachelors degree is obtained (and beyond, if additional degrees are desired). Sites to visit include Zinch.com, Fastweb.com, ScholarshipPoints.com, Scholarships.com, Cappex.com, StudentScholarships.org, SuperCollege.com, ScholarshipExperts.com and NextStudent.com.
- Spend time on the college search and selection process. Consider engaging outside help. It takes the average student 5 years to earn their degree, because 1 in 3 students transfer schools. Pick the right school the first time. Achieving a degree in 4 years can save up to 20% of the cost of the typical college graduate today.
- Where possible, establish and regularly contribute to a 529 college savings plan in the parents' names. 529 Info Link
- If grandparents establish a savings plan or gifts for the student, funds are best kept in the grandparents' or the parents' name.
- Families should complete the FAFSA form each year on time, for each student enrolled in college, regardless of family income. FAFSA typically needs to be filled out prior to other financial aid consideration by a school. FAFSA link
- For purposes of FAFSA, CSS Profile and Consensus (Section 568), families MAY consider moving non retirement-related assets, to possibly qualify for more financial aid by lowering their expected family contribution. Timing is important.
- For those schools that apply, complete the CSS Profile each year, in addition to filling out FAFSA. CSS Profile link
- For those schools that apply, complete the Consensus process (Section 568) in addition to FAFSA.
- For those schools that apply, complete all requested individual financial verification forms.
- For purposes of FAFSA, CSS Profile and Section 568, family MAY consider moving student assets to parents. Timing is important.
- Discuss a realistic budget upfront, to define the scope of schools to consider. Many families consider this too late, and overextend.
- Apply to "best value" schools.
- Apply to a number of schools to be able to compare net cost offers.
- If transferring schools to reduce cost, make sure to discuss how your credits would transfer to the new school with an academic adviser after you are accepted and before you decide to attend.
- Introduce yourself to the financial aid office at each college you visit. Have the school explain the opportunities for aid.
- Consider having student live at home while attending school.
- Purchase used textbooks, or rent textbooks. Sites to visit include Chegg.com, Bkstr.com, Bigwords.com, Campusbooks.com, Amazon.com and BarnesandNoble.com.
- Look in to the options available for work study and coop programs at prospective colleges.
- When enrolled in college, form a relationship quickly with your academic adviser. If considering changing majors, map out the plan for finishing your degree on-time with your adviser.
- Parents and students should look into benefits of the student taking out a Stafford loan and if the loan makes sense based on the family's college financial plan. Have a realistic goal for total student and parent debt at graduation. Stafford Loan Info link
- Do you qualify for a Pell grant? Pell Grant Info link
- Do you qualify for a MAP grant (Illinois)? MAP Grant Info link
- Not an option for everyone, but families sometimes consider a cash-out refinancing of their home to help offset the cost of college.
- Consider enlisting in the military service, or applying for a ROTC scholarship.
- Attend a community college, and then transfer to a four-year school. Understand how your credits transfer by discussing with the four-year school's academic adviser after being accepted and before deciding to attend.
- Consider in-state public schools. Compare net costs to other schools before agreeing to attend. This option is not always the best option.
- Pay at least $4,000 of the bill for tuition, fees, and books from an ordinary checking, savings, or taxable investment account -- even if you have money specifically earmarked for this purpose in a 529 college savings account, advises Kal Chany, author of "Paying for College Without Going Broke." That way you can claim the American Opportunity Tax Credit, worth up to $2,500, on your 2012 return (to qualify, your income must be below $180,000) - See more at: http://money.cnn.com/2012/03/27/pf/college/tuition-costs.moneymag/index.htm#sthash.C2FM3dnF.dpufFor students already enrolled in college and if the parents make less than $180,00 annually, or $80,000 individually, pay at least $4,000 of the bill for tuition, books and fees from a regular savings, checking or taxable investment account, to claim the American Opportunity Tax Credit, worth up to $2,500 annually. American Opportunity Tax Credit link
- Parents who earn less than $124,00 annually ($62,000 for individuals) can deduct up to $2,000 in college loan interest from their taxable income through the Lifetime Learning Credit. Lifetime Learning Credit link
- The tuition and fees deduction is available if the couple's MAGI (maximum adjusted gross income) is less than $130,000, or $65,000 for individuals. The credit is up to $4,000. Tuition and Fees Credit linkPay at least $4,000 of the bill for tuition, fees, and books from an ordinary checking, savings, or taxable investment account -- even if you have money specifically earmarked for this purpose in a 529 college savings account, advises Kal Chany, author of "Paying for College Without Going Broke." That way you can claim the American Opportunity Tax Credit, worth up to $2,500, on your 2012 return (to qualify, your income must be below $180,000) - See more at: http://money.cnn.com/2012/03/27/pf/college/tuition-costs.moneymag/index.htm#sthash.C2FM3dnF.dpuf
- Know that there are a handful of schools that offers three-year degree programs. Do your research and see if they are a "fit" for the student.
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