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American Education Funding 201-566-3013
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
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
Elite
Private
Public
American Education Funding 201-566-3013
College is Getting More
EXPENSIVE !2007-2008
Average COA - 4 year U.S. colleges and universities
American Education Funding 201-566-3013
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%
South
4-year public 37%
4-year private 22%
West
4-year public 41%
4-year private 24%
Southwest
4-year public 51%
4-year private 40%
American Education Funding 201-566-3013
Financial Aid Stats.1997-98 T0 2007-08 TOTAL STUDENT AID INCREASED 84%
10 b
20 b
40 b
60 b
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
8
0
b
80 b
??
UNDERGRADUATE STUDENT AID BY
TYPE 2007-08 - $106.7 BILLION
LOANS
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)
7.3%
3.3%
13.5%
21.3%
7%
5.6%
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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?
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
15
20
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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 …
American Education Funding 201-566-3013
Student -> Career -> Major -> College
Career Profiling
Career Search
Major
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
American Education Funding 201-566-3013
To
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
American Education Funding 201-566-3013
Your money
How will you pay for college?
•Savings
•Current income
•Borrowing
OR
Use other people’s money
Financial Aid
•Children’s resources
•Education tax
strategies
•Gifts from relatives
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
Rutgers University
1500 –
160034
$20,175 $10,000 $7,500
1450 -
1490
32$10,000 $10,000 $7,500
1400 -
1440
31$7,500 $7,500 $5,000
1300-
1390
29$5,000 $5,000 $2,500
SAT ACTHigh School
Percentile Rank
95-100 90-94 85-89
American Education Funding 201-566-3013
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)
American Education Funding 201-566-3013
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%
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
American Education Funding 201-566-3013
Need Grants up to amount of need
Tax Free
Merit can cover more than Need
Taxability issues
Merit Aid vs. Financial
Need
American Education Funding 201-566-3013
• 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
American Education Funding 201-566-3013
COST OF ATTENDANCE (COA)
MINUS
EXPECTED FAMILY CONTRIBUTION (EFC)
EQUALS
FINANCIAL NEED
What are the calculations?
American Education Funding 201-566-3013
TUITION AND FEES
ROOM AND BOARD
PERSONAL EXPENSES
BOOKS, SUPPLIES, COMPUTER
TRANSPORTATION
LOAN FEES
WHAT COMPRISES COA?
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
(EFC) Expected Family
Contribution Formulas
Federal Methodology
(Tax Payer Dollars)
Institutional Methodology
(Endowment Dollars)
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
Which Assets Count?
Federal Methodology
Cash
Savings
Stocks
Bonds
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
Which Assets Count?
Institutional Methodology
Cash/Savings
Stocks
Bonds
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.
American Education Funding 201-566-3013
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!
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
FAFSA
Filing Errors
Then Submit
your
application
electronically
using PIN
Student
Aid
Report
(SAR)
Check again
for errors
Student
Aid
Report
(SAR)
American Education Funding 201-566-3013
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.
American Education Funding 201-566-3013
Financial
Aid
Estimate
letter
from
college
$25000
$8000
$17000
$ 4350$ 0$ 2500$ 2000$ 2500$ 0$ 0$ 5650$ 17000
March 25, 2008
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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.
American Education Funding 201-566-3013
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
8.50%
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
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
Important Websites
American Education Funding 201-566-3013
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
American Education Funding 201-566-3013
Speaker
Robert D. Traitz CFP, CCPS
Certified College Planning Specialist
Cell 201-566-3013
AFFORDING COLLEGE
Using Federal and Academic
And Tax Strategies
