Affording College - northernhighlands.org

transcript

American Education Funding 201-566-3013

info@americaneducationfunding.com

Affording College

Using Federal and Academic

And Tax Strategies

A Financial Aid Information Session provided by

AMERICAN EDUCATION FUNDING

A New Jersey non-profit organization

Speaker

Robert D. Traitz CFP, CCPSCertified College Planning Specialist

bobtraitz@verizon.net201-566-3013

Simple Answers to

common questions

What will college really cost my family?

What is Financial Aid? How does it work?

Will my family qualify for Aid?

How does the application process work?

How will I pay for College?

$55,000

$34,500

$25,000

$0 $20,000 $40,000 $60,000

Private

Public

College is Getting More

EXPENSIVE !2007-2008

Average COA - 4 year U.S. colleges and universities

Average tuition growth by region

1998-99 & 2008-09

Source: The College Board, Trends in College Pricing 2008

Midwest

4-year public 41%

4-year private 23%

New England

4-year public 31%

4-year private 20%

Middle states

4-year public 28%

4-year private 24%

4-year public 37%

4-year private 22%

4-year public 41%

4-year private 24%

Southwest

4-year public 51%

4-year private 40%

Financial Aid Stats.1997-98 T0 2007-08 TOTAL STUDENT AID INCREASED 84%

97-98 99-00 01-02 03-04 05-06 07-Jan 08

Grants vs. Loans : 1997-98 to 2007-08

Source: The College Board Trends in Student Aid 2008,

1998 Total aid $80 billion

Loans 100%

Grants 82%

2008 Total aid $143 billion

UNDERGRADUATE STUDENT AID BY

TYPE 2007-08 - $106.7 BILLION

44%FEDERAL LOANS ($43.8)

FEDERAL WORK STUDY ($1.0)

PELL GRANTS ($14.4)

FEDERAL GRANT PROGRAMS OTHER THAN PELL

($3.5)

PRIVATE AND EMPLORER GRANTS ($7.5)INSTITUTIONAL GRANTS ($22.8)

STATE GRANTS

($7.8)

EDUCATIONAL TAX

CREDITS & DEDUCTIONS

($6.0)

Student Applications are Rising

In 2008 - 3.8 Million Applied to colleges

1990 - 2.4 million Applied

In 2008 - 70% of high school grads applied

1970 - 50% in 1970

Students are applying to more schools

(ideally minimum of 6, no more than 9)

Parents & students are looking for help

Admissions Competition

College Savings

If you are like most American families,

you have not saved enough for college

Less than 4% of all families have set

aside $5000.00 or more for college.

How does this affect your child’s

opportunity to attend the college of

his/her choice?

How old

Will I be when

my last child graduates

from college?

and…

How can I expect

fund my retirement

after paying for

college?

Have you saved enough?

you might be facing

retirement issues

Ask yourself...

Robbing Peter to Pay Paul

College $s spent = Retirement $s lost

Public Private Elite

$125, 000 $175,000 $275,000

$396,000 $555,129 $812,346

$582,619 $815,661 $1,281,163

Assumes 8% Investment return

Years until

Retirement

The Task ahead

• Maximize your current cash flow in order

to fund post secondary education

• Maximize education tax strategies

• Qualify for financial aid scholarships

Without Sacrificing current

lifestyle or Robbing from your

retirement

What will I have to earn to

send my student to college?

25% $166,600 $233,350 $366,65028% $173,600 $243,000 $381,95033% $186,550 $261,150 $410,50035% $192,300 $269,250 $423,075

COA Public Private Elite

Per year $25,000 $35,000 $55,000

(5 year plan) $125,000 $175,000 $275,000

Tax Bracket Before Taxes Before Taxes Before Taxes

Earnings Earnings Earnings

Will I Graduate in 4 years?

transfer or dropout

Of that 51 %:

30% transfer colleges or change their major

20% transfer 2 or more Xs, req. 6+ yrs to graduate

WHY? Bad Selection or Is college a good fit?

65% are still in college beyond 4 years

* Department of Education Research & American College Testing

51% of U.S. college

students entering 4 yr

schools will …

Student -> Career -> Major -> College

Career Profiling

Career Search

College Search

Satisfying Career

Affording College

WHEN COLLEGES MATCH THE STUDENT’S NEEDS

Career goals and major

Personality fit

Interests are satisfied

Budget

In College:

Fewer transfers & switching of majors

Graduate on time

More goal focused & motivated

Higher academic achievement

After Graduation:

Better entry job with higher income

More satisfied, more productive in their career

Less career change, faster advancement

(U.S. Department Education and America’s Career Research Network Association)

Choosing a College

Through Career Planning

Identify strengths & determine interests

•Identify Career Fields

•Identify Majors & areas of Study

And then - to Select Post Secondary School

Career Path planning

•Guidance Counselors is your best resource

•Myers-Briggs Type Testing

Career profile assessment & Personality

assessment

Your money

How will you pay for college?

•Savings

•Current income

•Borrowing

Use other people’s money

Financial Aid

•Children’s resources

•Education tax

strategies

•Gifts from relatives

What do most people do?

•30% PAY FULL PRICE

through loans and other resources•ACCORDING TO THE Counsel for Christian Colleges and Universities ANNUAL SURVEY PUBLISHED APRIL 2006

•STRATEGIES FOR THE OTHER 70%

•MERIT AID

•FINANCIAL (NEED BASED) AID

•TAX STRATEGIES - U.S. Government Tax System

AcademicsGPA, Class Standing, SAT Score

AthleticsScholarship or help with admission

OtherCommunity Service or Musical Ability

Merit Aid (from endowments)

Many institutions offering such awards Post

a Chart on their web-site – listing $ awards

Based on: GPA - SAT - ACT and class rank

Require earlier application deadlines and

supplemental materials for consideration

Colleges want to attract the students who best

represent their highest academic standard!

Academic Scholarship

“The Carrot”

Rider University

Presidential Scholarships

SAT 1250 ACT 28 GPA 3.5 $16,000 - $18,000

Provost Scholarships

SAT 1150 ACT 25 GPA 3.25 $13,000 - $14,000

Dean Scholarships

SAT 1050 ACT 23 GPA 3.00 $9,000 - $12000

Founder’s Scholarships

SAT 1000 ACT 23 GPA 3.00 $6,000 - $7000

Rutgers University

1500 –

160034

$20,175 $10,000 $7,500

1450 -

32$10,000 $10,000 $7,500

1400 -

31$7,500 $7,500 $5,000

29$5,000 $5,000 $2,500

SAT ACTHigh School

Percentile Rank

95-100 90-94 85-89

Div. 1 Scholarships, (D-1) -Bowl Subdivision

Limited to 85 football players receiving financial assistance.

partial scholarship counts toward the 85.

(D-ll - limited to 36 scholarships)

virtually all I - A schools give 85 full scholarships.*

Service academies, Army, Navy, and Air Force—are Exempt from rule.

as all of students receive full government scholarships.

NCAA Regulations determine candidacy

* Cannot discriminate with regards to men and women athletes

ATHLETIC Excellence

(Division I and Division II only)

TOP 10 - Factors of Importance

NACAC -Admission / Merit Aid*National Association of College Admission Counselors

Grades in College prep courses 89%

Class Rank 68%

Essay or writing sample 58%

Counselor Recommendation 59%

Teacher Recommendation 57%

Work & extracurricular activities 47%

Interview 36%

Demonstrated Interest 30%

Grades in all Courses 85%

Standardized Admission Tests, (SAT) 86%

Need Grants up to amount of need

Tax Free

Merit can cover more than Need

Taxability issues

Merit Aid vs. Financial

• Gift Aid: Grants, Scholarships, Waivers

• Self Help: Loans, Work Study

How does my family qualify?FAFSA – (Required at all Schools)

CSS Profile – (Required by some Schools)

TYPES OF FINANCIAL AID

NEED BASED

COST OF ATTENDANCE (COA)

EXPECTED FAMILY CONTRIBUTION (EFC)

EQUALS

FINANCIAL NEED

What are the calculations?

TUITION AND FEES

ROOM AND BOARD

PERSONAL EXPENSES

BOOKS, SUPPLIES, COMPUTER

TRANSPORTATION

LOAN FEES

WHAT COMPRISES COA?

Expected Family

Contribution (EFC)

Parents' Income - A Living Allowance (family size)- Taxes x 22%

to 47% =

Parents’ Contribution from IncomeParents’ Assets - Asset Protection Allowance (age based) x 5.6%

Parents’ Contribution from Assets

Students’ Income - Income Taxes - Standard Deduction of $3,000

X 50% =

Students’ Contribution from IncomeStudents’ Assets - no deductions X 20% =

Students’ Contribution from Assets

Parent’s Formula

Student’s Formula

One Student Two Students

COA $35,000 $70,000

Two in College

- EFC $20,000 $20,000

Expected Family Contribution is divided by

number students

need $15,000 $50,000

Qualifying Parameters

Family of five

INCOME $100K $100K $150K $150K $150K $150K $200K $200K

ASSETS $100K $100K $100K $100K $200K $200K $100K $100K

NUMBERIN SCHOOL 1 2 1 2 1 2 1 2

EFC $20K $10K $40K $20K $45K $23k $54k $27k

(EFC) Expected Family

Contribution Formulas

Federal Methodology

(Tax Payer Dollars)

Institutional Methodology

(Endowment Dollars)

Federal Methodology

Federal Methodology is the formula

created by Congress to determine the EFC.

Primary Residence, Retirement Accounts and

Small Business Interests are not assessed

Used by all public & Private colleges

Information Collected on FAFSA Form

FAFSA 2008-2009

Which Assets Count?

Federal Methodology

Savings

Stocks

Mutual Funds

529 Plans

Second home

Divorced or Separated

Custodial Parent

FAFSA does not consider the income and assets of the non-custodial parent in determining aid.

If the custodial parent has remarried, the spouse is considered a parent, and that person’s income and assets are counted.

E-file Your FAFSA:

www.fafsa.ed.gov

PIN Registration

www.pin.ed.gov

Web site:

www.pin.ed.gov

Can get PIN before

January 1, 2009

Not required, but

speeds processing

May be used by students and parents

throughout aid process, including

subsequent school years

Beware Worksheet “B”

FAFSA worksheets A, B, & C

Adds back non-taxable benefits:

Earned income credits

Child tax credit

Social Security / Disability

401K / IRA contributions

Child Support

Living allowances

Tax exempt income

Untaxed IRA Distributions

Education Tax Credits

Scholarship, Grants, Waivers

Institutional

Methodology

Institutional Methodology is the formula used

by certain colleges to determine the EFC.

Primary Residence, Retirement Accounts, and

Small Business Interests will be assessed

List of colleges that use the institutional

methodology can be found on

www.collegeboard.com

Information Collected on CSS Profile form

CSS Profile 2007-2008

Which Assets Count?

Institutional Methodology

Cash/Savings

Stocks

Mutual Funds

529 Plans

Second home

Retirement Assets

Home Value

Car Values

Non-Custodial Parent’s assets and income

Non-Custodial Parents and

their spouses

CSS Profile adds back the income and

assets of the non-custodial parents

Biological parents remarried?, their

spouses income and assets are

counted.

ERRORS CAN BE

COSTLY!

Errors on the FAFSA or the

supplemental forms may delay

processing. This might result

in the loss of financial aid

funds due to missed deadlines.

Read the instructions and

complete all forms

carefully!

Frequent Filing Errors

Parent and student Social Security Numbers

Divorced/remarried parental information

Income earned by parents/stepparents

Untaxed income

U.S. income taxes paid

Household size

Number of household members in college

Real estate and investment net worth

Have these on hand!

• U.S. income tax return (IRS Form 1040, 1040A or 1040EZ)

• W-2 forms and other records of earnings

• Current bank statements

• Records of untaxed income

• Business and farm records

• Records of stocks, bonds and other investments

• Student’s driver’s license

• social security card

Opportunity

to check for

Filing Errors

Then Submit

application

electronically

using PIN

Student

Report

Check again

for errors

Student

Report

And then. . .

School sends financial aid package award letter

to the student.Student reviews and returns award letter,

indicating preferred lender (if needed) and any

necessary changes.

Financial

Estimate

letter

college

$25000

$17000

$ 4350$ 0$ 2500$ 2000$ 2500$ 0$ 0$ 5650$ 17000

March 25, 2008

Special Circumstances

Contact Financial Aid Administrator:

Higher offers from other colleges

Medical Expenses

Divorce/separation after filing FAFSA

Loss of Income

Documentation, if needed:

Paid receipts

Tax returns

Divorce decree

Meeting a Student’s

Financial Need

Choose your college wisely, because:

Not all will meet 100% of need

Private colleges generally:

Meet a higher percentage of need

And they often Award a higher

percentage of gift aid

Many students can attend a private

college for the same cost as a public

university!

Private VS. Public

Montclair State University

Cost of Attendance $24,080

Expect Family Contribution $10,000

Financial Need $14,080

Avg. Percent of

Need Met 64% ($9,011)

Unmet Need 36% $5,069

Avg. Scholarship

And Grant Given 39% $3,514

Actual cost

Gift Aid - COA = $20556

Cornell University

Cost of Attendance $50,374

Expect Family Contribution $10,000

Financial Need $40,374

Avg. Percent of

Need Met 100% ($40,374)

Unmet Need 0% $0

Avg. Scholarship

And Grant Given 71% $28,665

Actual cost

COA – Gift Aid = $21,709

Federal Stafford Loans

Subsidized vs. Unsubsidized

Variable interest rate (max. 8.25%) Changes once a year in July.

3% Origination fee / 1% Guarantee fee (maximum)

Freshman -$3500 Sophomore- $4500 Then -$5500

Current rates are 6.5%

Student loans available under: Federal Family Education Loan (FFEL)

Program with funds provided by lenders (e.g., banks and credit unions)

Federal Direct Student Loan (Direct Loan) Program with funds

provided directly by federal government via participating schools.

School determines eligibility and delivers loan proceeds to students.

PLUS Loans

Loan in parent’s name

Credit application required

Variable interest rate (max. 9%)

Loan amount = cost of education

minus financial aid

Repayment begins 60 days after

final disbursement – usually

around February 1st

Current rates

Tax benefits for

education costs

Tax Incentive for Post Secondary Education expenses:

• Hope Tax Credit – taxpayers can claim a credit of up

to $1,650. Per - student For the first two years.

• Lifetime Learning Credit – families can claim $2,000

per year in tax credits per tax return. No limit on the

number of years that credit can be claimed.

• Deduction for Student Loan Interest - up to $2,500

in student loan interest, taken as an adjustment to

income. Phase out limits apply

• see IRS.gov for more information on tax benefits.

NEW JERSEY CLASS LOANS

AVAILABLE THROUGH HESAA TO

ALL STATE RESIDENTS

CURRENT 6.25% INTEREST RATE

DEFERMENT AND

CONSOLIDATION AVAILABLE

EITHER STUDENT OR PARENT

MAY BORROW FUNDS

HESAA.ORG OR 1-800-792-8670

Financial Aid:

www.fafsa.ed.gov

www.studentaid.ed.gov

www.collegeboard.com

www.fafsa4caster.ed.gov

College Resources:

www.americanedcationfunding.org

Scholarship Searches:

www.fastweb.com

www.finaid.com

Questions /Comments

info@americanedcationfunding.org

Important Websites

Although the financial aid process is complex,

there are many issues that further complicate it.

Some of these issues include:

•Divorce----custodial/non-custodial parent

•Self-Employment or Unearned Income

•Elder care responsibilities

•Second home/Investment property

•Custodial accounts/Trust Income

Summary

Good Luck!

Speaker

Robert D. Traitz CFP, CCPS

Certified College Planning Specialist

bobtraitz@verizon.net

Cell 201-566-3013

info@americaneducationfunding.org

AFFORDING COLLEGE

Using Federal and Academic

And Tax Strategies

Affording College - northernhighlands.org

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