by Guest Author: Todd Weaver of Strategies for College
The 113th Congress has agreed on something!
Yes, it?s true!
The Bipartisan Student Loan Certainty Act of 2013 passed the House and Senate earlier this summer. After all of the moaning and groaning from both sides of the aisle, the Higher Education Act of 1965 has been amended (again) to address the changes to the Subsidized Stafford Loan that went into effect on July 1, 2013.
The passage of H. R. 1911 established a new formula for setting the interest rates on Federal loans to students and parents for the upcoming year and will be retroactive to July 1, 2013.
For Undergraduate students, Federal student loans (also known as Stafford Loans) disbursed after July 1, 2013 (the beginning of the academic year at colleges across the country) and up to June 30, 2014, will have an interest rate of 3.86% for the life of the loan. This will be for both subsidized and unsubsidized loans.
Graduate student loans through the Stafford program are set at 5.41% for the life of a loan disbursed after July 1, 2013.
Parent Loans for Undergraduate Students (PLUS loans) for the 2013-2014 academic year, will have an interest rate of 6.41%.
No confirmation yet on if the origination fees will be updated. Due to Sequestration, the origination fees for the Stafford Loans (1.051%) and for the PLUS Loans (4.204%) were adjusted on March 1, 2013.
The question remains: what happens for the next academic year? As the bill is written, future academic years will tie the interest rates to the 10 Year Treasury Note based on the price set on June 1 each year. The interest rates will be capped on Stafford loans for undergraduates at 8.25% and for PLUS loans for parents at 10.5%.
Show me the money!
For more information, visit College Search GamePLAN.
By Guest writer Todd Fothergill
The SAGE Scholars Tuition Rewards program is a college saving plan like no other. By enrolling in Tuition Rewards, students will earn guaranteed minimum scholarships at over 290 participating private colleges and universities across America. The scholarships can equal up to one full year’s tuition!
Tuition Reward Points accrue like frequent flyer miles and are earned by saving and investing with SAGE’s Financial Affiliates, which include 529 plans, banks, brokerage firms, credit unions, employers, financial service companies involved in cash-value insurance products, retirement plans, reverse mortgages and other instruments and with fee based college advisory firms who can award points in other ways. What makes Tuition Rewards even more unique is that you do not have to use the investment vehicle that is earning Reward Points to pay for college! How you pay for college is your choice.
Tuition Reward Points typically accrue annually at a rate of 5% (or 2.5% bi-annually or 1.25% quarterly) on the value of eligible assets. For example, if you?ve invested $10,000 with one of SAGE’s Financial Affiliates, you will receive 500 Tuition Reward Points annually (assuming no change in asset value); if you invest $20,000, you will earn 1,000 Tuition Reward Points annually. The more you save, and the longer you’re associated with SAGE?s financial affiliates, the more Tuition Reward Points you’ll earn.
Each Tuition Reward Point is equal to $1.00 in tuition discounts if the student attends a participating college or university. The accumulated points represent the minimum scholarship (grant or discount – non-loan based financial aid) that the student will receive. Yes, 20,000 Tuition Reward Points represent a guaranteed minimum $20,000 scholarship at any of the SAGE member schools.
Students may be sponsored and receive Tuition Reward Points from multiple sponsors (ex: parents & grandparents,). A sponsor designates the Tuition Reward Points to students before August 31st between the student’s junior and senior years in high school. A sponsor may provide Tuition Rewards to children, grandchildren, nieces, and nephews.
Students are eligible to be added to the SAGE Tuition Rewards Program from birth until the beginning of their junior year in high school (August 31st between the sophomore and junior years in high school is the cut-off date).
Communication With Colleges
Participating colleges may send information to high school students and their families enrolled in the SAGE program — enabling colleges to communicate to members who fit the college’s student profile. Under no circumstances are investment details or account balances ever divulged to participating colleges.
No Restriction On How You Pay for College
Specific investments that have been used for the calculation of Tuition Reward Points need NOT be used for payment of college expenses. For example, you may not want to sell appreciated assets at this time, deferring capital gains tax. With the SAGE Tuition Rewards Program, you choose how you pay for college.
College Admission & Transfers
The SAGE college list keeps growing, giving your child a larger number of schools to choose from. Rewards can only be used at participating colleges. Students do NOT need to pick a particular college now — that’s one beauty of the SAGE program.
Students must apply and be accepted through a participating colleges’ normal admissions procedures to qualify for the reward. SAGE membership is not considered in the admissions process.
If students transfer from one participating college to another, the college accepting the student has the right to decide whether it will honor any unused Tuition Rewards.
If your child is a SAGE member but does not attend a participating college, you may have to pay “list price” for a college education. Being part of the SAGE unique college savings program will put you closer to meeting your financial goals. In all ways, SAGE will help you save for college!
For additional information on how you can participate in the SAGE Scholars Tuition Rewards program, please email Todd Fothergill (firstname.lastname@example.org) or visit strategiesforcollege.net/sage. Todd is a SAGE authorized affiliate who can help you learn more about the program and how to enroll.
by Todd Fothergill and Tom McGrath
Wouldn?t it be great if you were able to go to a college or university website, enter your financial data into a secure calculator and get the real annual cost to you if your son or daughter were admitted to that school?
The new Net Price Calculators (NPC) are supposed to provide that option.
October 29th was the date when all colleges in the United States were required to post calculators on their web sites that provide this type of cost transparency to prospective applicants and their families.
The jury is out on just how effective and accurate these calculators will be, and our research to date justifies those who have expressed serious doubts about this initiative.
Higher Education Act 2008 ? Feds To The Rescue?
- The objective is valid. The current outcome is lacking.
- The goal of the NPC provision was to help families determine how much they will really have to pay.
- Under the new system, prospective applicants will now be able to enter financial (and in some cases, academic) data into the NPC on a college website.
- The intent was to provide a method for consumers to get a cost estimate from a college before an application for admission was made.
- The U.S. Department of Education developed a basic NPC template. Other companies also offer NPCs that add more flexibility for the colleges.
- Consequently, consumers are going to find a lack of uniformity among the NPCs they encounter and this will indeed create confusion.
Observations From Our Research Of Over 80 NPCs
- Many families will not know whether or not a college employs tuition revenue management or ?financial aid leveraging? wherein students at the top of the admit pool (academically) receive preferential aid packages in order to influence enrollment decisions.
- There are close to 1,000 colleges that employ some form of this practice. No single net price calculation will flag them.
- Even if you know the college?s policy, you will not know where you stand until you get your award letter.
- We conducted almost 200 calculations using a variety of different NPCs and found only two that truly incorporate the student?s academic record.
- It was very concerning to us that each of the calculators we used collected different family data. Plus, there is no uniform way that colleges are required to display NPC results.
- Colleges are permitted to use customized approaches, but without a uniform method, real comparisons among colleges are difficult to make.
- Finally, there will be serious confusion for divorced and/or separated parents. Some colleges will require financial data from both biological parents to ultimately determine a financial aid package, but we have not yet seen an NPC that can ?run the numbers? for these situations.
Like MSRP, Net Cost Is Only Part Of The Story
The uncertainty with regard to your standing in the pool of admitted students extends to awards made to meet financial need as well as merit scholarships. While average merit awards are embedded in the college?s average grant aid figure, this is only marginally informative or helpful for any individual applicant.
Merit scholarships may or may not be part of college?s aid package (a policy issue) and for some colleges any amount assumed is pure speculation. The NPC?s we researched often include a disclaimer in this regard and note that it will be subject to the judgment of Financial Aid Office or scholarship committee. That?s comforting.
Our research of 80 institutions indicated that net price varied by more than $10,000 for the same college depending on the EFC (Expected Family Contribution). We also found that variations among colleges for the same EFC can also be in the tens of thousands of dollars.
So you must enter data into the NPC for each school under consideration using the instructions provided on the respective websites. And, you should run the NPC in subsequent years too. This will account for changes in TCOA (Total Cost Of Attendance), EFC formulae, family finances and other important data.
Families should also be aware that timing is a key issue. Colleges may change their financial aid packages in the spring depending on the applicant pool and the enrollment targets they need in order to achieve net revenue goals. The aid estimate generated by completing an NPC in the high school senior year may differ from the aid awarded in the spring even with no change in financial data.
We advise you to print the NPC results from each college website in order to compare the results to the award you actually get. This will provide some potential leverage at decision time.
Establish Your Financial Comfort Zone
With all of these conditions in mind, when assessing one or comparing a list of candidate colleges it is up to each family to conduct an ?affordability review? that determines precisely what you can comfortably handle for a net cost. Remember, true net cost is TCOA minus grants and scholarships (money you do not need to repay).
For more information, visit College Search GamePLAN.
by Our Friends At? Strategies for College
A financial planner asked us recently why our Friends at Strategies for College created the College Search GamePLAN teaching platform for college search, admissions and funding.Our long time colleague, Tom McGrath had this image in his library, and it provided a clear answer?
We are like the grizzly old guy trying desperately to stop that woodpecker making more and more holes and sinking the ark with all its passengers. In our case we are trying to help students and families achieve a successful college career while preventing them sinking in an ocean of debt. The reason old Noah?s having such a hard time swatting that bird is that it is so fast and attacks so many different areas (as you can see). And that is what we confront when providing guidance and planning to families with college bound students, and to financial planners who are responsible for helping families protect their assets.
The college search and financing process creates many challenges and problems. Here are just some of the main ones:
College ? Total Cost of Attendance (TCOA)
College affordability is an ever increasing challenge.? Our database now shows 99 schools with a total cost of attendance of $50,000+ per year (and some closer to 60K). There were 8 schools at that level in 2009.
If you are a parent of an elementary or middle school student, what do you think you will be facing a few years from now? Or do you not want to think about it (remember the ostrich with its head in the sand?)?? And if you are a professional with clients that have college bound children, how will you help them confront this financial challenge?? And don?t believe for a moment that there are many schools with much lower costs. Today, very few are in the lower $20,000 range.
Not understanding academic competition
Even excellent students can find themselves on the margins of acceptance at many colleges, and not just because of fierce academic competition. The odds are stacked against them.? Take a look at the following example:
Harvard, Princeton and Yale, certainly three of the most highly selective universities announced that they received a combined 89,345 applications for a paltry 4,286 ?open? seats, which implies that only 4.7% of those applicants will enter the Class of 2015.
4.7% is pretty skimpy (it would seem) but, in reality, even this number is inflated.? The fact is that after those schools have accepted their legacy students, international, minority, geographic, athletes, musicians, etc., there are probably fewer than the 4,286 ?real? open seats available for the ?average? qualified student.
And don?t think for a second that this process is limited to those three icons.? Many excellent students are limiting their opportunities by applying for early admission and/or applying only to their ?dream school? (or just going through the motions with regard to back-up applications) ?
The result: Many experience the deep disappointment of rejection or being waitlisted (which is pretty close to rejection).? There are many excellent ?best fit? colleges out there. You just have to know how to search and identify them.
Flawed college search
Following on from the last topic ?
Too many students are choosing a college before understanding their financial options. This is a recipe for disaster ? putting families in situations where financial offers from some highly visible colleges, make attending their student?s ?Dream School? a financial nightmare. The myth of ?Choose first, pay later? is just that, a myth. It?s imperative for families to learn what their financial options are.? Make sure you have a sound financial strategy in place before beginning the college search.
College drop outs/transfers/late graduation
We have all heard this proverb: ?He who fails to plan, plans to fail?
According to which study you read, first year college drop out/transfer rates hover around the 28-33% mark or even higher.? Average graduation rates range from 5 to 6 years (for a four year degree).? With annual college costs ranging from $25,000 to $50,000+, the financial impact is immense.
What leads to transfers, drop outs and late graduation?
A whole range of factors come into play here. But the core lies in lack of planning and lack of awareness of how the college admissions process works.? The frequent result is typically a large financial hole filled with monetary and personal ?costs? as well as a number of non-transferable credits left ?on the table.?
Total student loan debt in the U.S. is expected to reach $1 trillion in 2011. That?s more than the nation?s total credit-card debt.
The college graduates of today, who used loans to pay for college, will graduate with an average of nearly $24,000 in federal direct loans. That?s not even touching upon those who got into the private loan market or parental debt.? See the scary trends compiled by the National Center for Education Statistics here.
Not understanding the college search process
We are only scratching the surface here.? When we drill down deeper into the process, there are many challenges, obstacles and distractions that derail the quest for the right school.
Clearly thought out planning for college with cost, debt, ?best fit?, academics and timely graduation is essential. And NOW is the time to start!
Our College Search GamePLAN program guides families (and professionals that have clients with college bound students) through this process in detail, step by step.? We offer a 7-day free trial so you can give it a test drive. Just click here.
by Our Friends At Strategies for College
The weather is getting hot. Picnics, barbecues and getting in the water somewhere are the thoughts that occupy our minds.
There might even be brief occasions when a high school student might think about getting into college, or a parent might be concerned about finding money for college, but why not wait until high school starts again in September?
Or for those parents with younger children, setting up camp schedules for their 7 and 8 year-olds, planning for summer and vacations ? Money for college and other college search questions can stay on the back burner. After all, those kids will not head off to college for another 10 years or so.
Yes, why worry? There is no pressure (otherwise known as ?ignorance is bliss?).
If ourCollege Search GamePLAN blog had a big air horn, we?d let it rip right now!
Remember the old saying:?A stitch in time saves nine??
This is a golden rule if your student is college bound (no matter the age).
Since we don?t have a foghorn or an air horn like those big old trains, we?ll just try to spread the word and hope a few will listen and TAKE ACTION!
Here are just some of the issues we will be discussing over the next few weeks:
- Who should be planning for college and when?should they start? (And who is ?who??)
- Money for college: When and how should you?begin a college financial plan?
- Who should be involved in the college search?and admissions process? (And again, who is ?who??)
- Why ?scholarships? might be ?fools? gold?
- College search ? Beware of ?shiny objects?
- College statistics that can make your eyes?water
So stay tuned. The posts won?t be super long and will address a variety of issues as well as money for college. But if they flip your college search and financing switch and help get you on the go, they will have done the trick.
Sending a child to college ain’t cheap. According to our friends at Strategies for College, “The average published private college cost last year was $37,390, while public, in-state tuition was $18,326.? Last year only 5 schools in the nation had total fees exceeding $50,000. This year, nearly 60 schools charge that much per year! What will the increase look like next year?”
The purpose of college financial planning is to take steps to minimize the total cost of sending a child to college while also implementing a strategy to pay for that child’s education. As your child approaches college age, there are four distinct areas to consider: academic positioning, budgeting and cash flow planning, maximizing available tax breaks, and FAFSA planning.
For starters, choosing the right school for your child can save you a lot of money over your child’s college career. Todd Fothergill, Founder of Strategies For College, told me of a family he had recently helped out with the college application process. The child was quite bright, and had applied to Cornell University. Based on the family’s financial situation, Todd knew that this family would not qualify for financial aid, and therefore, would be looking at paying $50k per year. Todd recommended that the child also apply to Case Western University, knowing that the child would most likely qualify for a substantial merit scholarship. That child is now attending Case Western at an annual cost of $25k – or half of what the family would have spent to send him to Cornell.
Not choosing the correct school or major can also be a huge pitfall for families. With an annual cost of up to $50k for a top private college or university, the cost of your child not earning an undergraduate degree in four years could mean tens of thousand of dollars in additional tuition and fees. Talk about busting your budget!
Remember, there are almost 5,000 colleges and universities competing to attract the best student body possible. By leveraging the database developed by college planners such as Strategies for College, and undertaking some academic positioning as part of the college application process, you can learn what options exist to send your child to college without paying the full listed price.
Budgeting and Cash Flow Planning:
According to Susan Schwartz, CFP, “There are times in life to go through a budget to figure out how you’re spending your money. A few years before sending a child to college is one of those times.”
The current rule of thumb states that the average family pays for college one-third from savings, one-third from current income, and one-third from loans. That being said, it’s important to come up with a plan to carry you through the four years you’ll be paying for one child’s education, or the whole period that you’ll be paying for multiple kids to earn their degrees.
The cash flow plan includes:
- Understanding?the cash flow currently available to use towards college each year from?your current job and other income sources.
- Determining?various options that might be available to increase cash flow during this?period.
- Compiling?a list of assets that are available to pay for college.
- Figuring?out how to best liquidate and utilize these assets over time.
- Evaluating?borrowing options available to parents and students .
The end result of this part of the process is a well thought out “cash flow for college” plan to guide you through the years your children are at college and beyond. The results of this report might be downright scary, however, but at least you’ll have a realistic plan in place.
Besides paying discounted prices, a great way to get more for your money is by purchasing goods and services with “pre-tax dollars” versus “after-tax dollars”. Remember, because of income taxes, $100 of pre-tax dollars has the same purchasing power as approximately $166 of post-tax dollars.
Back in the old days, saving for a child’s college education was much simpler. Not only was sending a child to college more affordable, but there were also a lot fewer college savings options available. You either socked away as much money as possible in your savings account, or, during the pre-“kiddie tax” days that ended in 1986, you might have opened an account in your child’s name.
Back in our June 2004 newsletter, we included an article titled College Savings Confusion. We address eight different education tax breaks in this article. Even though the article was written sever years ago, the tax breaks included in the article are still pretty much equivalent to those in place through 2012. While coordinating these tax breaks can be quite a challenge, taking full advantage of these opportunities will help you minimize the after-tax cost of sending a child to college.
“Every family needs to complete a FAFSA each year to be eligible for either merit aid or student loans, including a Stafford Loan available to every undergraduate college student,” explains Susan Schwartz CFP. Prior to your child’s junior year, there are steps to consider that might impact the results from the FAFSA, including:
- Moving money from UGMA/UTMA accounts into 529 plans.
- Selling?appreciated securities that have been held in the child’s name.
- If you are self-employed, deferring income or putting money back into the?business to reduce the reportable net income.
Working with a college planning professional who understands the FAFSA form could help your family take steps to minimize its “expected family contribution”, and therefore, qualify for additional aid.