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Tue May 12, 2009
Paying Your Fair Share
Even with financial aid and scholarships, your college bill may seem higher than you think you can afford. So, what can you do? The good news is that your family has more options than ever
before.
Do you and your family have a plan to pay for your "family share of costs," the bottom line on the college bill? Many financing options exist, so you'll want to consider each one carefully:
* Payment plans: Most colleges provide a variety of ways to spread out payments, such as monthly payment plans:
* Loans: Parents can borrow up to the cost of education, minus financial aid, with a federal PLUS Loan. Students also have the option of taking out federal unsubsidized Stafford Loans and private loans.
* Savings withdrawals: Now is the time to withdraw funds from personal savings and college savings plans such as 529 plans.
* Financial aid appeals: If your family has recently been affected economically, consider asking the financial aid office to reevaluate your aid package.
You're not required to borrow the full amount of loan aid shown in your offer letter. If you can reduce your expenses or increase your funds, you may be able to borrow less. Using money from savings, working more hours, or winning scholarships are all ways to keep your student-loan debt to a minimum.
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Fri Feb 13, 2009
Comparing financial aid award letters
It is important to remember that this letter only constitutes an “offering.” The student does not have to accept it. He or she can accept only certain parts of the aid being offered or even request a review and negotiate for a better package (more on that later).
Let’s work with an example. Our EFC is $9,000, for a private college and determined through Institutional Methodology. Assuming that the total cost of attendance at this private college is $25,000 a year, our student has established $16,000 in need. Since most private colleges cover 100% of the established need, the resulting aid package should be $16,000. About 60-70% of this amount should be in grants and scholarships (money the student doesn't have to pay back), 21% will be in the form of a subsidized Stafford Loan (the student doesn't make payments until after graduation), and the remainder will be covered by work/study (the student holds down a part time job and uses the pay to cover books and miscellaneous expense). Be aware that some schools may back off on the amount of grant and scholarship money and pad the award offering with a federal parent loan (PLUS Loan) .
At a public institution, because there is less private endowment and scholarship money to assist the student, less than 100% of the established need is normally met. In our example the Federal Methodology said the student's EFC was $7,500. Let's assume now that the student applies to a less expensive public university, which uses the federally determined EFC. The cost of this university is assumed to be $13,500 a year. The established need is now only $6,000. But the college can only cover 75% of the need, or $4,500. This now creates an out-of-pocket expense for the family of $2,500 ($6,000-$4,500), making the total cost $10,000 ($7,500+$2,500).
There's another difference. For the same reason that less of the established need is covered, the percentage of loans and work/study received in the aid package is noticeably higher than the amount of grants and scholarships. So in our example, the $4,500 would be covered by a loan first ($3,500 is the maximum for a Stafford loan for Freshman). The majority of the remainder would be provided in the form of a work/study program.
In this situation then, the student could go to a more prestigious private college for less than what it would cost the Family at a less expensive public institution. Keep in mind each circumstance is different, and each college and university has different policies on financial aid distribution and eligibility. But it is critical that this type of information is evaluated along with the scholastic benefits of the institutions the student is interested in attending. In that way the family can be assured of the best dollar value.
If the college is making full disclosure of out-of-pocket expenses, their letter will reflect the total cost of attendance. Then they will deduct the student’s EFC from the cost and show the difference as “financial aid eligibility,” or “demonstrated financial need.” A breakdown will then be given of the aid offered—grants, scholarships, loans, and college work/study.
On the other hand, colleges that want to keep financial aid a bit more mysterious will simply send a very upbeat letter with a listing of aid awards. The student has no clue as to the true cost to their family. A call to the college to get a copy of the “on-campus budget for 2007-2008” will provide the missing information with which to determine the real out-of-pocket expense.
A fair comparison of award letters can then be made. Check the EFC used by the school against the EFC reflected on the Student Aid Report. If the school is using Institutional Methodology to determine the EFC, then add about 5.6% of the family’s home equity to the federally calculated EFC. The two figures should be fairly close. Next look at how close the schools come to meeting your established need (the difference between what it costs and the student’s EFC). Also, compare the amount of loans necessary to complete the package. Remember, additional loans such as the PLUS for parents may be necessary to handle all or a portion of the family’s out-of-pocket expense.
Do a thorough analysis of the debt circumstance. How much debt can the family tolerate on the other end of four or five years of college? Is there a second student in the picture in the near future?
Another easy trap to fall into is college work/study. This money is not a gift. The student must earn it. If the student does not work, the family pays that amount as well.
Here is a list of tips to use in comparing packages:
1 Compare the debt first by adding up all the loans being offered.
2 Compare unmet need and the family contribution--the more need met may mean more family debt, the more gift aid may mean a larger family contribution.
3 Make sure books and miscellaneous are expenses are included in the cost the college used to figure the family's need.
4 Consider travel costs if institutions are some distance away.
5 Determine if any outside scholarships are renewable and if the college will allow self-help portions of the package to be reduced by them.
6 Compare the terms of any loans included--what the payments will be and the real cost to the family once they're paid off.
7 Check what aid is provided to upperclassmen—Freshmen award packages are often better.
8 Write it all down and look at the numbers--don't just guess which package will be less expensive.
9 Last, compare the economic benefit of your future career with the need to incur substantial debt. It may well be worth it. After all, that’s what it’s really all about—what are you willing to pay and what level of debt are you willing to endure to achieve a college education?
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Tue Nov 18, 2008
Paying for College in Today's Economy
• OCTOBER 16, 2008
College Savers Stuck in Stocks as Market Falls IRS Rule on 529 Plans Allows Just One Portfolio Shift a Year; Weighing a Cheaper School
By JANE J. KIM
A rule designed to protect investors in 529 college-savings plans is having the unintended side effect of preventing them from shifting to more-conservative investments as the stock market swoons.
When Charles Strawbridge of Ashtabula, Ohio, got nervous about the markets this past spring, he wanted to boost the bond allocations in the 529 plans he had set up for his 16- and 19-year-old sons. But because he and his adviser, Matt Olver of Cleveland, had already changed his investment mix in January, he had to keep his current allocation of 20% and 25% in equities for his older and younger sons, respectively.
Now, after watching the accounts drop in recent weeks, he’s telling his older son — who is in the process of transferring colleges — to consider less-expensive schools. “We do have to keep in mind the downturn that the market has had on his available funds,” says Mr. Strawbridge, a 55-year-old accountant. “It was unfortunate that we couldn’t have made the move. It takes a little bit off the table.”
With 529 plans, investors put after-tax dollars into an account that typically offers a range of mutual funds and other investments. Distributions and earnings are tax-free, as long as they’re used for higher education. The plans have grown in popularity in recent years — they held about $110 billion in assets at the end of the second quarter — although the pace of net new investments into the plans has started to slow, according to Citigroup Inc.’s Financial Research Corp..
Amid the current market turmoil, more investors like Mr. Strawbridge are running into one of the quirkier restrictions of these state-sponsored plans: an Internal Revenue Service rule that limits investors to one investment change per calendar year. The rule is intended to keep people from making knee-jerk reactions to market moves, but some investors and financial advisers say it makes the plans overly restrictive. Indeed, the College Savings Plan Network, a membership organization of state 529 officials, investment firms, program managers and others, is considering asking the Treasury Department to raise that limit to four times a year.
But that’s not the only feature of 529 plans that’s causing investors grief right now. Many investors use age-based portfolios that automatically shift to more conservative investments as the child nears college. Yet some of these conservative portfolios may actually hold a high percentage in stocks. North Carolina’s National College Savings Program has an age-based portfolio that can hold just over 50% in stocks, including real-estate securities, just one year before the child starts college. That portfolio, which is part of the state’s CollegeHorizonFunds managed by J.&W. Seligman & Co., was down 15.7% for the 12 months ended Sept. 30. Given the big market drops this month, the plan has likely posted additional losses.
Seligman’s age-based portfolios were designed to create “the opportunity for capital appreciation” while becoming “extremely conservative” in college, says Charles Kadlec, the firm’s managing director. The CollegeHorizonFunds move to 100% cash in the last two years of college, he says.
Other plans with more-aggressive portfolios include Nebraska’s broker-sold AIM College Savings Plan, which can have as much as 40% in equities when the child is one to three years away from college, and South Carolina’s Future Scholars direct-sold plan, which can have up to 33% in equities with college enrollment one to two years away.
Keeping Pace With Tuition
Such equity exposure may help investors keep pace with tuition increases, some investment managers say. “If you’re a senior in high school, you still have five years before you hit your senior year of college,” says Tom Kazmierczak, senior product manager for T. Rowe Price Group Inc.’s 529 unit, whose portfolios for students starting college in 2009 can hold up to 28% in stocks and up to 20% while the child is in college.
# # # #
Now more than ever, spending the time and effort to plan correctly for college is critical. Analyzing the family financial circumstance as it relates to the calculation of the Expected Family Contribution (EFC), which drives need-based assistance, shopping for the right college in terms of the student’s academic, financial and personal needs, maximizing the student’s achievements, and exploring alternative payment and financing options, are so important to increase the potential to receive a value education.
Choices become more limited and planning becomes paramount.
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Fri Sep 05, 2008
Student Loans
The following factors need to be considered when determining the best loan for the family:
1 Who will repay the loan
2 Repayment terms
3 Tax bracket
4 Cost of getting the loan
There are two loans the dependent student is legally obligated to repay: the Stafford and the Perkins loans. Any other loans are the parents' responsibility unless they have jointly co-signed a private loan from a commercial lender.
Federal Loan Programs
These are the Perkins, Stafford, and PLUS loans, all of which have very good repayment terms and interest caps. Currently the repayment period for federal loans is 10 years.
Here is what the monthly payments would look like:
LOAN
5% 6% 7% 8% 9%
$5,000 $53 $56 $58 $61 $63
$7,000 $74 $78 $81 $85 $89
$9,000 $95 $100 $105 $109 $114
$12,500 $133 $139 $145 $152 $158
Besides the standard payments available, there are other repayment options available. The family can consolidate loans and stretch payments out over 20 years. There are graduated repayment plans which have smaller payments in the earlier years and gradually increase over time (these have higher interest costs). Income contingent plans base the amount of payment on the level of income of the student after graduation. As income rises or falls so does the amount of payment.
Home Equity
Another viable alternative is a home equity line of credit where the family borrows only what they need, when they need it, paying interest only on the amount that's borrowed. There is a minimum monthly payment, and the interest is normally tax deductible, but also variable.
*Make sure to compare the benefit of a federal loan vs. a home equity line of credit. For example, a federal loan at 6% is equal to an equity line at 8.3% for someone in the 28% tax bracket because of the tax deductible nature of the equity line interest.
Second Mortgage
With a second mortgage a fixed amount is borrowed, and there is generally a fixed interest rate and repayment schedule. While it provides for a more consistent budget plan, the family is paying interest on money before it's needed and have higher payments before it's necessary.
401(k)
In some cases borrowing from the parents 401(k) retirement account is
possible. There are federal limits on the amount that can be borrowed. Also,
the loan must be repaid in 5 years or stiff tax penalties apply as it becomes reportable as a premature distribution if the owner is under 59 ½ years of age.
Life Insurance Policy
Borrowing against the cash value of life insurance policies is another option. The repayment terms are often very lenient and may provide the option to only repay the interest. The loan may affect the death benefit and the interest rate earned by the remaining cash value.
*Remember that with every loan there are processing fees. These charges should be considered as well when comparing loans.
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Mon Jul 28, 2008
Juniors Need to Start Planning
Sign up early to take the PSAT in October.
Start thinking about a career, a job, what you like to do. Make lists of your abilities, preferences, and personal qualities. List things you may want to study and do in college.
Do research to determine the future prospects of the career or job you're interested in. Maybe you don't know what your should be doing. That's okay, too. There are simple skill and interest inventory tests you can take to help point you in the right direction.
Use a college search service to find colleges with the right characteristics.
Talk to your parents about financial aid and do an estimated calculation of your Expected Family Contribution (your fair share of one year's cost of education). Being able to estimate how much need-based aid you might be able to receive by comparing the EFC to the cost of a particular college or university is ciritical to effective planning.
Also research the merit opportunities for the schools you're interested in to determine your chances of buying into merit-based scholarships.
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Tue Jul 08, 2008
The Don't of College Planning
1. Don’t procrastinate:
Career exploration should start during middle school.
There are private scholarships that high school freshman can apply for.
Shopping for the right school should begin as a sophomore in high school.
Planning for need-based aid should begin no later than fall of the junior
year of high school.
College applications should be filed before winter break of the senior year to get
a “better look.”
Financial aid applications should be submitted as soon as possible after Jan 1st of the
senior year.
2. Don’t rule out private colleges:
Depending on the numbers, it may be less expensive to attend a private college.
3. Don’t assume you’re not eligible for aid:
50% of students at public schools and 72% at private institutions receive aid.
You won’t know unless you apply. The formula is complex and there are many variables.
4. Don’t ignore deadlines:
Missed deadlines reflect poorly on the student and mean missed opportunities.
5. Don’t spin your wheels chasing private scholarships:
Less than 7% of all aid comes from private sources.
In most cases, if “need” is established, private scholarships will not reduce the family’s
share of the cost.
Maximize government and school resources, then look for private money.
6. Don’t accept attendance without a campus visit.
Every school is different. Spend time there. It will pay off.
Colleges sell education. Those glossy brochures can be misleading.
7. Don’t shy away from loans:
Government-backed loans are considered financial aid. Interest rates are capped and
they offer attractive repayment options.
Consider letting investments grow while using borrowed funds.
8. Don’t think you and the college have the same goal:
Their job is to use their resources to help as many students as possible. Your
job is to get as much aid as you can through marketing.
9. Don’t apply early decision:
Early decision locks you in and limits your ability to facilitate the financial aid offer.
Early Action is not binding and can be used to test a student’s perceived value.
10. Don’t ignore the process:
Filing for aid and letting the system take its course is like letting the IRS do your
taxes.
The forms ask for numbers. You need to let the college know if there are extenuating
or mitigating circumstances.
11. Don’t forgo filing the FAFSA:
Most schools will not offer you any aid unless you file the forms.
In order for the school to certify your student loan, you must file.
12. Don’t limit your applications to a couple of colleges:
Apply to at least six schools to increase your chances of being accepted.
Once accepted, you’ll have more than one offer of aid to consider.
13. Don’t forget the financial aid office:
Merit assistance is controlled by the admissions office. Need-based aid is controlled by
the financial aid office. Don’t assume they share information.
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Sun Jun 15, 2008
Application Essays - They take time and they take thought
Because so much of the colleges’ and universities’ non-need based scholarship and grant money is administered by the admissions offices, your first impressions, made with your application and accompanying essays, becomes critical, not only in getting “in” but also in “buying in” to merit-based assistance.
Write an essay about yourself? Sounds like a fairly easy task, even when they impose some restrictions. You can’t merely summarize your life. You must focus on a person or experience that profoundly effected you or speak to personality traits that portray who you are. Getting tougher?
Marketing yourself is so much a part of the process that it can’t be emphasized enough and the essay is your golden opportunity to shine.
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Fri Jun 06, 2008
Early Decision/Early Action
Early decision and early action plans allow you to apply early (deadlines are usually in November) and get an admissions decision from the college well in advance of the usual spring notification date. You’ll know by December or January whether you've been accepted at your first-choice college. It thought that students who apply under these plans have a better chance of acceptance than they would through the regular admissions process. These plans are also serve the universities, because they gather students who really want to go to their institution to commit early.
There are differences between early decision and early action. The specific rules will vary somewhat by college so make sure you check it out.
Early decision plans are binding. If accepted, you agree to attend that college and work with the financial aid package they offer. While you can apply to only one university for early decision, you may apply to other schools through the regular admissions process. If accepted under the early decision process you must withdraw all your other applications.
Early action plans work like early decision plans but are not binding. If accepted, you can choose to commit to the college or wait until the spring. You may also apply early action to other colleges. Normally you have until the late spring to make a decision.
A new option is being offered by some schools called single-choice early action. Students may not apply early (either early action or early decision) to any other school. You can still apply to other schools under regular admissions and are not required to give your final answer of acceptance until the regular decision deadline.
Do not apply under an early decision or early action plan if you plan to compare financial aid packages from several colleges later in the spring. You shouldn't apply early if it would be advantageous to have more of your senior year work to show a college. You do not have to apply early decision or early action; they are simply options you might want to consider.
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Fri Apr 18, 2008
Rising Senior?
According to the College Board:
A campus visit is your opportunity to get a firsthand view of a college. A college catalog, viewbook, or website can only show you so much. To really get a feel for the school, you need to walk around the quad, sit in on a class, and visit the dorms.
A visit also gives you the chance to talk to students, faculty, and financial aid and admissions folks. You can get answers to questions, such as:
„X What is the average class size, and the student to faculty ratio? Are most classes taught by professors or by teaching assistants?
„X What is the campus meal plan like? How is the food?
„X What is the make-up of the current freshman class? Is the campus fairly diverse?
„X What's the social scene like? What kinds of activities are planned by the college's Residential Affairs?
„X Is there ample space in dorms or does there seem to be a housing crunch?
„X How many students are commuters/residents?
„X Do I feel at home here? Is this what I pictured college to be?
Pick up any official school material you see, such as brochures and financial aid forms. Don't forget to get business cards, too, so you'll have a real, live contact if you have a question about admissions or financial aid.
Student-produced material will give you a sense of what campus life is really like. Look around for newspapers and activity calendars. Check out bulletin boards, too, to see what bands are coming to the campus, parties are advertised, internships are posted, and generally what the day-to-day energy of the place is.
Ultimately, it's your decision. Listen to your gut. Do you feel comfortable walking around campus? Do you click with the students and faculty? Spending time on a campus allows you to determine if a school is a good match.
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Thu Apr 03, 2008
Seniors - How are the Financial Aid Offerings Stacking Up?
Remember that this letter only constitutes an “offering”. The student does not have to accept it or can accept certain parts of the aid being offered.
Items to consider:
• Add up the loans offered--compare the total debt.
• Compare unmet need.
• Add up scholarships and grants—compare total gift aid.
• Is the total cost of education (tuition/fees, room/board, transportation/books and
misc. reflected on the award letter?
• Calculate the family’s cost after financial aid (without loans)--compare
• Consider travel costs.
• Determine treatment of scholarships and whether they can be renewed.
• Compare loan rates and terms.
• Check aid policies for upperclassmen.
And last, weigh economic benefit of the potential career vs. the need to incur debt.
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