Lesson 8- Education Planning

Room and board costs are typically _____________ or more per year. In addition, out-of-state tuition at public universities is often _________percent to 150 percent of the in-state tuition.

$10,000 100

The cost of college tuition has increased significantly over the last few decades, with current tuition averaging over ___________________ per year at a private four-year institution and over ______________ for a public four-year institution.

$35,000 $10,000

The TEACH grant provides up to _____________ per year and is converted to a Federal Direct Unsubsidized Stafford Loan if teaching requirements are not met

$4,000

financial aid

- important tool for families that are inadequately prepared to pay for their children's college education - Most financial aid is administered by the U.S. Department of Education, (states and universities offer aid as well), and consists of grants, loans for students and parents, and work-study programs. - 85 percent of all full-time undergraduate students received some type of financial aid (federal or state), in 2015 - 2016.5

Additional college education funding alternatives include:

-fund the savings in an annuity due funding plan on a monthly, yearly, or serial payment -fund the savings in an ordinary annuity funding plan on a monthly or yearly basis -fund the plan from the date of birth through the expected college years (or some other fixed period) -fund the plan from date of birth to the start date of college -fully fund the plan today as might a grandparent using a 529 plan

401ks loans to fund education expenses

-lesser of $50,000 or 50% of the vested account balance. -Loans must be repaid (with interest) to the plan in 5 years, usually by payroll deduction. -No debt-to-income ratio requirements to qualify for the loan. -Borrowed funds are not taxable, and there is no 10% penalty. -But if the borrower leaves their employer, the entire loan must be immediately repaid or will be treated as a distribution subject to tax plus a 10% penalty (if under age 59½). -Loan does not affect need-based financial aid because it is not treated as income.

why do people love 529s?

-no income limitations -no contributions limit but they are counted against the parent's assets (they usually don't need financial aid)

The average amount of student loan debt, per graduates with a bachelor's degree, was (1) in 2004 and has risen to over (2) in 2019. Total student loan debt has risen steadily from $ in 2004 to over in 2019.

1. $18,608 2. $29,900 3. 345 billion 4. $1.5 trillion

The financial aid process is initiated by completing the (1). This form is used to determine a student's eligibility for all types of financial aid, including grants, work-study, and loans. The (1) is used to determine the (2)

1. Free Application for Federal Student Aid (FAFSA) 2. Expected Family Contribution amount (EFC).`

The Federal Methodology determines the EFC using one of three methods:

1. Regular Formula: Income and Assets 2. Simplified Method 3. Automatically Assessed Formula

Students generally have 10 to 25 years to repay a Stafford Loan. There are seven repayment methods for a Stafford Loan, which include:

1. Standard Repayment 2. Extended Repayment 3. Graduated Repayment 4. Income Based Repayment 5. Income Contingent Repayment 6. Pay As You Earn Repayment 7. Revised Pay As You Earn Repaymen

Stafford Loan funds are paid directly to the (1), which applies the loan proceeds to tuition, fees, room, and board. Any remaining amounts will be paid directly to the (2). Funds are paid through the (1) in at least two installments.

1. school 2. student

A student may qualify for (1) or (2) Direct Loans. Qualification for a (1) or (2) loan is based on a student's financial need. For a (1) loan, the federal government pays interest on the loan while the borrower is attending school and during the six-month grace period after graduation before repayment begins. With an (2) loan, the borrower is responsible for interest from the time the funds are dispersed. Students may pay the interest expense as it is incurred or allow the interest to be added to the loan's outstanding principal.

1. subsidized 2. unsubsidized

methods of education funding

1. traditional method 2. uneven cash flow method 3. account balance method 4. hybrid approach

Maximum limits under the Stafford Loan program for dependent students are (amount that can be subsidized): 1st year: 2nd year: Beyond 2nd year: Higher lending limits are available for students with less family support, such as independent students: 1st year: 2nd year: Beyond 2nd year:

1st year: $5,500 ($3,500) 2nd year: $6,500 ($4,500) Beyond 2nd year: $7,500 ($5,500) 1st year: $9,500 ($3,500) 2nd year: $10,500 ($4,500) Beyond 2nd year: $12,500 ($5,500)

Average tuition from 2000 to 2019 increased on average at _____ for private colleges and ______ for public colleges while the general Consumer Price Index (CPI) averaged just 1.6% for this same time period.

2.3% 3.1%

The Lifetime Learning Credit is equal to ______ of qualified educational expenses up to a certain limit - up to in expenses

20% $10,000

Qualified distributions from a Section 529 with the parent as custodian and the child as beneficiary (are/are not) treated as income of either the parent or the child on the FAFSA. Distributions of income from trusts and from UTMA accounts (are/are not) counted as income for the student. Distributions from a Roth IRA (are/are not) counted as income of the parents.

529: are not Trusts and UTMA: are ROTH: are

Phaseout income for AOTC and LLTC

AOTC Single: $80 - $90k MFJ: $160 - $180k LLTC Single: $58 - $68k MFJ: $116 - $136k

Student Loan Interest Deduction

Above the line deductions have the benefit of reducing gross income even if the taxpayer does not itemize their deductions. Up to $2,500/year of interest. Loan origination fees and capitalized interest may be included on pro-rata basis over repayment period. Limitations: Loan must have been used for qualified education expenses for taxpayer, spouse, or dependent Subject to MAGI phase-outs (2020): Single: $70,000 - $85,000 MFJ: $140,000 - $170,000

2 education related tax credits available for taxpayers:

American Opportunity Tax Credit (AOTC) Taxpayers may be eligible to claim a tax credit of up to $2,500 per student per year for qualifying higher education expenses incurred in the first four years of post-secondary education. Lifetime Learning Tax Credit (LLTC) Taxpayers may be eligible to claim a tax credit of up to $2,000 per family for an unlimited number of years for qualifying higher education expenses incurred when pursuing a post-secondary degree program or for education needed to acquire or improve job skills.

*****Oliver and Rosalind would like to plan for their son's college education. They would like their son, who was born today, to attend a private university for 4 years beginning at age 18. Tuition is currently $70,000 per year and has increased at an annual rate of 6%, while inflation has only increased at 3% per year. They can earn an after-tax rate of return of 8%. How much must they save at the end of each year if they would like to make the last payment at the beginning of their son's first year of college?

BEGIN MODE N = 4 i = 1.8868 = [(1.08 ÷ 1.06) − 1] × 100 PMT = <70,000> FV = 0 This will result in a PV at age 18 of $272,317.77. Step 2: Determine the present value today: FV = <272,317.77> N = 18I = 1.8868 PMT = 0 This will result in a PV today of $194,515.13. Step 3: Use the following figures to determine the annual payments needed to fund college tuition costs. END MODE PV = <194,515.13> N = 18i = 8 FV = 0 This will result in a PMT of $20,755.

What is the present value of the cost of college education for a 1-year-old child assuming the following fact pattern? The current cost of college is $25,000 She will begin college at age 18 She will be in college for 4 years Education inflation is expected to be 6%, The parents' portfolio rate of return is 8%

BEGIN MODE N = 4 i = [(1.08/1.06) - 1] x 100 PMTAD = $25,000 Cost in real (inflation adjusted) dollars @ 18 = $97,256.35694 Age: 1 N = 17 i = [(1.08/1.06) - 1] x 100 FV = $97,256.35694 PV = $70,780.54

disadvantages of using UTMAs or UGMAs for college funding

Because they're considered assets of the student, they have a very negative impact on qualifying for need-based financial aid. Once a child reaches the age of majority, assets can be used for something other than a college education. Earnings in the UGMA / UTMA may cause a "kiddie tax" issue.

John has two children, Bob and Sara, who are attending the University of Oregon. John pays qualified education expenses of $6,000 for Bob and $3,000 for Sarah. What can John claim as AOTC credit?

Calculation: 100% x 1st $2,000 + 25% of 2nd $2,000 John is entitled to an AOTC of $2,500 for Bob [(100% x $2,000) + (25% x $2,000)] and $2,250 for Sara [(100% x $2,000) + (25% x $1,000)] for a total tax credit of $4,750.

Patrick and Jill are married and both have an undergraduate degree. Patrick goes back to school for a certificate in financial planning while Jill goes back to school to earn her master's degree in nursing. Patrick incurs $5,000 of qualified education expenses and Jill incurs $15,000 of qualified education expenses. Patrick and Jill can take a total Lifetime Learning Credit of Next year, if Patrick and Jill incur

Calculation: 20% x up to $10,000 $2,000 (($5,000 + $15,000) x 20% limited to $2,000 maximum credit) in the current year. the same amount of qualified education expenses, they can take another $2,000 Lifetime Learning Credit.

If unearned income in an UTMA or UGMA is above a threshold ($2,200 in 2020), then additional unearned income is taxed at the parents' marginal tax rate, which is likely higher than the child's rate. To be subject to kiddie tax, one of the following conditions must apply:

Child must be under the age of 19 or A full time student under the age of 24

When are scholarships and fellowships included in taxable income

Compensation for services, such as teaching or research. Won in competition.

Financial Need=

Cost of Attendance- Expected Family Contribution (EFC

Asset and Income - Impact on EFC Education Savings Account (ESA) when student is a dependent of the parent; owned by student or parent

Countable Asset- Account balance is parent asset Countable Income- No(if qualified distribution)

Asset and Income - Impact on EFC 529 savings plan when student is a dependent of the parent; owned by student or parent

Countable Asset- Account balance is parent asset (even if it is an UGMA/UTMA 529) Countable Income- No(if qualified distributions)

Asset and Income - Impact on EFC UGMA/UTMA with student as beneficiary

Countable Asset- Account balance is student asset HIGH NEGATIVE IMPACT Countable Income- Yes- income is student income HIGH NEGATIVE IMPACT

Asset and Income - Impact on EFC Qualified plan balances, IRA balances, cash value in life insurance

Countable Asset- No Countable Income- N/A

Asset and Income - Impact on EFC Annual pre-tax contributions to IRAs and 401(k)s

Countable Asset- No Countable Income- Yes

Asset and Income - Impact on EFC 529 savings plan owned by a third party (e.g., grandparent)

Countable Asset- No Countable Income- Yes - distribution is student income HIGH NEGATIVE IMPACT

Asset and Income - Impact on EFC Education Savings Account (ESA) owned by a third party (e.g., grandparent?)

Countable Asset- No Countable Income- Yes - distribution is student income HIGH NEGATIVE IMPACT

Jan wants to plan for her daughter's education. Her daughter, Rachel, was born today and will go to college at age 18 for five years. Tuition is currently $15,000 per year, in today's dollars. Jan anticipates tuition inflation of 7% and believes she can earn an 11% return on her investment. How much must Jan save at the end of each year, if she wants to make her last payment at the beginning of her daughter's first year of college?

Determine the Annual Savings It is important to determine two items: How long does the client intend to save? When will the savings payments be made? Jan's daughter was born today. Jan saves until her daughter's first year of college (18 years). She saves "at the end of each year" (END mode). We'll effectively pay down the PV of the cost of her daughter's education over the next 18 years using the keystrokes below. 18 (N) 11 (I) 36,046.41 (PV) 0 (FV) PMT =$4,680.37

distribtion from ROTH IRA can be tax free if

Distribution occurs after 5 years of opening Roth AND Roth owner is at least one of the following: At least 59 ½ years old Disabled Dead

529 college savings plans

Distributions are income tax free at the federal and state levels, if used to pay for qualified education expenses. E.g., tuition and fees, books, computers, supplies and equipment as well as room and board for students enrolled at least half-time. Includes up to $10,000/year for tuition at elementary or secondary schools per beneficiary in the aggregate. And, with the 2020 passage of the SECURE Act, qualified educational expenses now includes up to $10,000 over the beneficiary's (and each sibling's lifetime) to repay qualifying student loans.

Distributions from 529 not used for qualified education expense

Distributions not used for qualified education expenses results in the earnings portion included in the account owner's income. Earnings may also be subject to a 10% penalty. There is no penalty if: Distribution is due to the death or disability of the beneficiary Beneficiary received a tax-free scholarship, veteran's educational assistance, employer-provided educational assistance or used expenses to claim an education tax deduction or credit.

what is the relationship with recessions and state universities?

During a recession, the unemployment rate increases, causing state tax revenues to decrease. State governments often react by reducing their budget, potentially impacting the state funding of higher education. In these situations, state universities often increase tuition.

(T/F) The assets held in a 529 plan by both a parent and a grandparent are included in the student's assessment for financial aid formula

FALSE only the investments in a parent's 529 plan are counted

(T/F) The automatically assessed formula for determining the expected family contribution (EFC) requires that the student's AGI or the AGI of the student's parents is less than $50,000.

FALSE. the automatically assessed formula requires the student's AGI or the AGI of the student's parents to be less than $26,000.

(T/F) You do not need to file the FAFSA in order to receive federal loans

FALSE. you must file FAFSA!

need-based financial aid for students who have not earned an undergraduate degree or a professional degree. Does not have to be repaid.

Federal Pell Grant

The __________________________ is awarded to students with exceptional financial need. Pell Grant recipients with the lowest EFC are considered first for a _______________. Students awarded the _________________can receive between $100 to $4,000 per year.

Federal Supplemental Educational Opportunity Grant (FSEOG)

do you need to know all education calculation methods for test

Focus your energy on studying the traditional method and have a general knowledge of the other three methods of education funding for the test

Which of the following is true regarding Parent PLUS loans? -Parent PLUS loans are based on the parent�s credit history. -The dependent must be a full-time student. -The maximum Parent PLUS loan is $5,500 for first year students. -All of the above are true.

Hide Feedback The correct answer is (A). Parent PLUS loans are based on the parent�s credit history. The dependent student must be enrolled at least half-time to be eligible. The amount of a Parent PLUS loan that a parent may borrow is the cost of attendance less any other financial aid awards.

Amount of payment calculated must be less than standard repayment. Payment is 10% of discretionary income (income over 150% of poverty). After 20 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Income-Based Repayment (IBR)

Payment no more than 20% of borrower's discretionary income (100% of poverty guideline) If payments insufficient to pay interest, shortfall added to principal. After 25 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Income-Contingent Repayment (IRC) (a type of IDR plan)

Some plans allow for more flexibility in the payment structure and instead tie monthly payments to the borrower's "ability to pay." These repayment plans are referred to as ________________________which calculate the monthly payment based on AGI and the Federal Poverty Guideline according to family size.

Income-Driven Repayment (IDR) plans,

Mitch and Jennifer have AGI of $125,000 and have not saved for their children's education. Their children are ages 17 and 18 and the parents anticipate paying $20,000 per year, per child, for education expenses. Which of the following is the most appropriate recommendation to pay for the children's education?

It's too late for the parents to begin saving for their children's education so that eliminates the 529 Savings Plan and Coverdell ESA. Their AGI is too high for a Pell Grant. PLUS program is most appropriate

if a private loan is past due

Late fees, additional interest, penalties, and collection costs will be added to the outstanding balance Both child and cosigner's credit reports negatively impacted Cosigner's wages may be garnished and/or state or fed income tax refunds may be withheld. A cosigner's Social Security benefit may be reduced to repay an outstanding student loan.

Recommending strategies for savings for college expenses in the context of client's income and time horizon

Lower Income, Short Term Time Horizon: -Subsidized federal student loans, Financial aid, IRAs Lower Income, Long Term Time Horizon: -Savings bonds529 College Savings Plans Higher Income, Short Term Time Horizon: -401k LoansIRAsParent PLUS LoansUnsubsidized federal student loansPrivate student loansHELOCs Higher Income, Long Term Time Horizon: -529 College Savings PlansUGMA/UTMA accountsLife insurance

Limits to a prepaid tuition plan

May require parents to reside in the state. Must attend a college that's part of the state university system. -The child may not want to attend a university in the home state or may be offered a scholarship to attend a university out of state. -Another option, the Private College 529 Plan, allows the purchase of prepaid tuition credits to ~300 colleges across the country. Only about 10 states still offer prepaid tuition plans. If parents cancel the prepaid tuition plan, generally they receive what they paid for the tuition credit, less some admin expenses.

Brett and Neil want to save for their 5-year-old son's education. They have already determined this will cost $50,000 in today's dollars. If they can earn a 7% return on their investments, how much must they save at the beginning of each year if they want to make their last savings payment at the beginning of their son's first year of college?

N = 13 i = 7 PV = 50,0000 FV = 0 Solve for PMT= $5,591.1611

Nick's son Drew is in his freshman year of college. Nick is single and his AGI is $65,000 this year. Nick has saved $7,000 in a CESA, $40,000 in a Section 529 Savings Plan, and $8,000 in Series EE bonds for Drew's education. Tuition and fees are $10,000 and room and board are $12,000 for the year. What is a good strategy for coordinating paying for qualified education expenses so Nick can get a tax credit?

Nick pays $4,000 of the tuition from his checking account, allowing him to qualify for the AOTC of $2,500. Since Nick's AGI is below the phaseout range, he may also redeem tax-free up to $6,000 ($10,000 tuition less $4,000 for tuition utilized by the AOTC) of Series EE bonds. Nick can then take a tax-free distribution of $7,000 from the CESA and $5,000 from the 529 Savings Plan to pay the room and board expenses. Since each distribution is for different expenses, no tax benefits are lost.

Are funds in an Roth IRA are assets on FAFSA?

No

Whether there is a 10% penalty for Roth IRA distributions depends on which funds are used:

No penalty for using contributions. No penalty for conversions if conversion was 5+ years ago. No penalty for earnings if used for qualified education expenses ***BUT distribution of earnings may still be taxable income

contribution rules for qualified tuition plans

No phase-outs (income limitations) on who can contribute to a 529 College Savings Plan. Individual states impose contribution limits per beneficiary, based on the most expensive university in a state (usually exceed $300,000 for lifetime contributions). No federal income tax deduction is permitted for contributions. 33 States and the District of Columbia offer a state income tax deduction or credit for qualifying contributions made. No gift tax liability if contribution limited to annual gift tax exclusion (in 2020: $15,000 or $30,000 with spousal gift splitting)

What $ amount of 529 contributions are tax deductible?

Non Can be a strategy to reduce taxable estate.

Jan wants to plan for her daughter's education. Her daughter, Rachel, was born today and will go to college at age 18 for five years. Tuition is currently $15,000 per year, in today's dollars. Jan anticipates tuition inflation of 7% and believes she can earn an 11% return on her investment. What is the present value cost of her daughter's education?

Note I/YR is the client's investment returns divided by the inflation rate BEGIN 5 (N) 1.11/1.07 -1 x 100 (I) 15,000 (PMT) (0) FV PV= $69,785.90 Jan's daughter's education will cost a total of $69,785.90 in real (inflation adjusted) dollars. Now, we need to determine the present value of that cost today, when Jan's daughter is a newborn BEGIN MODE 18 (N) ****1 year old child (18-7) 1.11/1.07-1 x 100=I 0 (PMT) 69,785.90 (FV) PV -36,046.41

Additional funding is available for both graduate students and parents of undergraduate students through the

PLUS loan program

TODAYS DOLLAR=

PV

Minimal differences between these programs. Available if borrower has high debt-to-income ratio Payment is 10% of discretionary income (income over 150% of poverty level based on family size) and cannot be more than required under the standard plan. For subsidized loans, if payment is less than interest due, federal gov't pays 50% to 100% of shortfall for up to 3 years from the date loan payments commence. Beyond that, shortfalls increase loan balance. After 20 to 25 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Pay As You Earn (PAYE) /Revised Pay As You Earn (REPAYE)

Prepaid Tuition plans

Prepaid Tuition allows a parent to purchase college credits today and use those credits when the child attends college. A popular misconception is that credits are purchased at "today's cost." Many states charge a premium over the current cost per credit when parents purchase prepaid tuition credits. No income tax consequences for the difference between the amount paid and the current cost of the college credits. Credits considered parental assets for financial aid purposes. Any time an asset is treated as an asset of the parent (instead of the child), it results in more favorable treatment when determining the amount of financial aid the family qualifies to receive.

Average tuition and fees for 2019-2020, according to the Trends in College Pricing report from the CollegeBoard.

Public University In State Tuition - $11,260 Public University Out of State Tuition - $27,120 Private University Tuition - $41,426

Qualified tuition programs (QTP)

Qualified tuition programs (QTP) are comprised of two different types of plans under IRC Section 529: 1. Prepaid Tuition Plans 2. College Savings Plans.

government bonds to fund education expenses

Savings bonds (Series EE and Series I) are issued by and redeemed with the US federal government. They offer tax advantages if used to pay for educational expenses. Normally, earnings on savings bonds are taxable income.However, if proceeds are used to pay for qualified education expenses (tuition and fees only), the earnings are excluded from taxable income. The following must occur for the redemptions to be considered tax-free: Must be for taxpayer, spouse, or dependents. Must be redeemed year expenses occurred Series EE and Series I bonds are deemed assets of the owner of the bond for financial aid purposes. To qualify for the tax advantage, bonds must be issued when the owner is at least 24 years old. May sell bonds and put proceeds into 529 Plan.

Since college costs are rising at a rate greater than inflation, planners need to be aware of two things:

Savings kept in cash cannot keep pace with education inflation and will lose value in real dollars. To keep pace with education inflation, parents who wish to save for college must invest in riskier assets such as stocks and bonds.

fellowships verses scholarships

Scholarships are typically awarded as a form of merit-based aid to help cover education related expenses. Fellowships are a form of paid for work (e.g., grad school teaching or research). A scholarship or fellowship is tax-free if the recipient is: A degree candidate at an eligible education institution Proceeds pay for qualified education expenses. Expenses that do not qualify: Room and board, transportation expenses Equipment and other fees not required for attendance Don't qualified even if required by and paid to institution.

The PLUS loan program is available for student's seeking graduate and professional degrees that have: For parents that have:

Students must have applied for the maximum Stafford Loan amount available for graduate students. Based on student's credit history, not on financial need. Not saved enough for the child's education Child in or soon-to-be-in college Sufficient cash flow to repay the loans

Federal government pays interest on loan while the borrower is in school and during 6 month grace period.

Subsidized Stafford Loans

Instances where the forgiveness of student loans/cancellation of indebtedness income would and would not be subject to taxation.

Taxable All loan forgiveness from income-driven repayment (IDR) plans. Not taxable: Public service loan forgiveness (PSLF). Teacher loan forgiveness. Law school loan repay assistance programs. National Health Service Corps Loan Repayment Program. Forgiveness from death or disability (federal loans only per TCJA)

Ben has an undergraduate degree and has decided to go back to school to pursue a graduate degree. He has incurred $6,500 in qualified expenses this year. What is the maximum Lifetime Learning credit Ben can take this year?

The Lifetime Learning credit provides a credit of 20% of up to $10,000 in qualified expenses. Ben�s $6,500 education expenses equal a $1,300 tax credit.

Rose pays qualified education expenses of $2,800 for her son Ryan. To how much of an American Opportunity tax credit (AOTC) is Rose entitled in 2020?

The calculation for the AOTC is as follows: 100% of the first $2,000 + 25% of the second $2,000 $2,000 + (0.25 � $800) = $2,200

PLUS loans facts

The maximum amount a borrower can received is determined by cost of attendance (COA) minus any aid received by the student. PLUS loan interest rate is fixed at 7.08% (2019-2020 school year) High origination fees in excess of 4% (4.236% for 2019-2020 school year) Interest on PLUS Loans begins as soon as first disbursement paid There are no subsidized PLUS Loans

hybrid approach

This education funding method combines the other approaches and uses ordinary annuity calculations. In this course, we've only covered the math for the traditional method. In your own practice, you may prefer one of these alternatives! Select the approach that you're most comfortable with and you can most effectively explain to your clients.

uneven cash flow method for education funding

This education funding method uses cash flow and IRR calculations. Is a good approach for education funding calculations because: It is only two steps It works for any type of education funding situation. Other methods may not work if a client continues saving while the child is attending college and will only work if the client stops saving when the child starts going to college. The uneven cash flow method has two steps: 1. Determine the lump-sum amount needed today to fund the college education. Be sure to use an inflation-adjusted rate of return. 2. Determine how long the client intends to save and whether the savings payments are at the beginning or end of the year.

account balance method

This education funding method uses nominal dollars initially and then an annuity due calculation. Account Balance Method is a three-step approach that determines the lump-sum amount needed when the child starts college and how much must be saved to attain that amount. It assumes parents will stop saving when the child starts college and begins withdrawals.

home equity lines of credit to fund education

This has historically been a popular way for middle-class families to fund higher education expenses, especially in low interest rate environments. However, it is important to note that the tax deduction that was previously available for interest on the first $100,000 of home equity debt is no longer available (per the TCJA). This doesn't necessarily mean that this isn't an effective way to finance higher education costs since many parents may be able to secure more favorable/flexible financing terms and lower interest rates through these loans as opposed to what they may qualify for in the private student loan market or if they decide to borrow PLUS loans through the Federal direct loan program.

(T/F) Pell Grants are based on an academic year, the family's EFC, cost of attendance, and whether the student is attending full-time or part-time

True

(T/F) The simplified method for determining the expected family contribution (EFC) does not consider the family's assets in its formula.

True`

difference in qualified expenses definition for AOTC credit and LLTC credit

Tutition -Yes and has to be paid directly to university Textbook and Equipment - Yes, but LLTC required paid directly to the university but AOTC does not Qualified Education Expenses include Room and Board - Both No

Borrower pays interest from the time the funds are dispersed.

UnSubsidized Stafford Loans

Are distributions from IRAs income on the FAFSA?

Yes even if they are tax free

traditional funding of finding end education goal

annuity due- at the beginning! real dollars= accounts for inflation

Subsidized loans are only available to students who

can demonstrate financial need

formula for financial need

cost of attendance (COA) - Expected Family Contribution- resources

Most distributions from Traditional IRAs before age 59½ subject to 10% penalty. If used for qualified education expenses, penalty is waived. BUT

distribution is still taxable income

(must have $30,000+ federal loans) Repay up to 25 years (may make extra payments). Longest repayment option, borrowers pay significantly more interest.

extended repayment of loans

Repay up to 10 years. Borrowers initially make low payments Payments increase every 2 years, up to 3 times original amount Allows borrowers to increase payments as income increases.

graduated repayment

The regular formula considers a family's ______________ and ______________-

income and assets. This method is the formula that is used for most families. The federal methodology considers the following: • Income • Assets • Dependency status • Household size • Number of children in college • Cost of supporting the family

The automatically assessed formula simply calculates the EFC at zero, which allows for the In order to qualify for this method for the 2019-2020 award year: •

maximum amount of student aid. Student or parents file a Form 1040A, Form 1040EZ or the student and parents are not required to file a federal income tax return. (Note: Form 1040A and 1040EZ were eliminated beginning in 2018; however, the FAFSA for the 2019-2020 award year uses income from 2017.) • Student or parents' adjusted gross income is $26,000 or less.

Repay up to 10-years with minimum monthly payments of at least $50. Shortest repayment option with least interest paid.

standard payment of loans

The simplified method does not consider

the family's assets. The total adjusted gross income of the parents is less than $50,000

(T/F) Whether owned by the parent or student, 529 assets are counted as parent assets in the financial aid formula and distributions from the account do not impact financial aid eligibility.

true!

What are questions advisors need to answer on paying for college

• How much does college cost? • How much is tuition expected to increase in the future? • Besides tuition, what other costs are associated with a college education? • What types of financial aid are available and where is information regarding financial aid found? • What tax advantaged plans, income tax deductions, and tax credits are available for education funding?