Module 8
Calculate the lump sum necessary to fund Evelyn's college attendance. Current college cost = $32,500 Expected inflation (CPI) = 2.5% Expected rate of education inflation = 4.75% Evelyn's current age = 1 Evelyn's age at beginning of college = 18 Anticipated years of attendance = 4 Expected 529 account annual performance = 7.5%
$275,335.68 Step 1: Determine the future cost of college for the first year. 32,500 +/- PV 4.75 I/YR 17 N Solve for FV = 71,532.2522, or $71,532.25 Step 2: Determine the account balance necessary to fund college education. BEG mode (money is needed at the beginning of college) 71,532.2522 +/- PMT 2.6253 I/YR [(1.075 ÷ 1.0475) - 1] × 100 = 2.6253 4 N Solve for PV = 275,335.6808, or $275,335.68
For purposes of the tax-free redemption of Series EE savings bonds, qualified education expenses include expenses for which of the following persons? The taxpayer The taxpayer's spouse Any dependent the taxpayer claims for income tax purposes
all
Calculate the lump sum necessary to fund Ethan's college attendance. Current college cost = $12,500 Expected inflation (CPI) = 2.5% Expected rate of education inflation = 5.5% Ethan's current age = 3 Ethan's age at beginning of college = 18 Anticipated years of attendance = 5 Expected 529 account annual performance = 8.75%
A lump sum in the amount of $131,431 is needed to fund Ethan's college attendance. Step 1: Determine the future cost of college for the first year. END Mode 1, DOWNSHIFT, P/YR C ALL 12,500, +/-, PV 5.5, I/YR 15, DOWNSHIFT, N Solve for FV = 27,905.9562 Step 2: Determine the account balance necessary to fund college education. BEG mode (money is needed at the beginning of college) 27,905.9562, +/-, PMT [(1.0875 ÷ 1.055) - 1] × 100 = 3.0806, I/YR 5, DOWNSHIFT, N (5 periods show on display) Solve for PV = 131,435.5234, or $131,436, rounded
Which of the following should be determined when creating an education funding plan?
B) Tuition, books, fees, and equipment C) Lodging and meals D) Extracurricular activities
Olen and Kiera Littrell have three children. Their oldest child is currently in college, their second child will be starting college next semester, and their third child is still in high school. Olen works at the assembly plant with an income of $45,000 and Kiera is a homemaker. They rent an apartment and carry various credit card balances. What potential avenues would they most likely have to finance college expenses?
Parent Loans for Undergraduate Students loans (PLUS loans) Pell grants
Mark and Macy want to set up a program to fund their daughter's college education. Their daughter has indicated she may want to attend college in another state. As Mark and Macy's financial planner, which of the following funding programs would you advise them to avoid?
Prepaid tuition plan
Which of the following education funding techniques provide(s) tax advantages, regardless of the contributor's modified adjusted gross income (MAGI)? Section 529 plan Series EE or Series I savings bonds Coverdell Education Savings Account (CESA)
Section 529 plan The answer is I only. Section 529 plans offer significant tax advantages regardless of the contributor's modified adjusted gross income. The tax advantages of CESAs and education savings bonds are phased out at higher levels of MAGI.
Identify the value of the protected amount in 2021-2022 for purposes of calculating student assets in the expected family contribution (EFC) formula.
The protected amount for student assets is $6,970 (2021‒2022); 50% of student income above the protected amount is included in the calculation of EFC.
Which of the following statements regarding the American Opportunity Tax and Lifetime Learning Credits is CORRECT? A family may not take an American Opportunity Credit and Lifetime Learning Credit in the same year. A Lifetime Learning Credit may be used in combination with a student loan interest deduction.
A Lifetime Learning Credit may be used in combination with a student loan interest deduction. The answer is II only. A family may take an American Opportunity Tax Credit and a Lifetime Learning Credit in the same year as long as they are not for the same student. Both the Lifetime Learning Credit and the American Opportunity Tax Credit may be used in combination with a student loan interest deduction.
Which of the following is a college savings vehicle that permits tax-free earnings growth and a 100% tax-free distribution in payment of qualified education expenses?
A state-sponsored Section 529 plan The answer is a state-sponsored Section 529 plan. A state-sponsored Section 529 plan permits a tax-free distribution as long as the proceeds are used to pay for qualified education expenses. "Qualified education expenses" include tuition at an elementary or secondary public, private, or religious school, up to a $10,000 limit per tax year.
Which of the following characteristics apply to Pell Grants? Available to undergraduate part-time students Available to undergraduate full-time students Available to graduate students Available to all undergraduate students
Available to undergraduate part-time students Available to undergraduate full-time students Available to all undergraduate students The answer is I, II and IV. All undergraduate students who meet the financial need requirements are eligible for Pell Grants. Graduate students are not eligible for Pell Grants.
For purposes of calculating the expected family contribution (EFC), which of the following assets is included in the student's calculation? Section 529 plan assets Custodial accounts Home equity Life insurance cash value
Custodial accounts The answer is II only. Custodial accounts (e.g., Uniform Gifts to Minors Act [UGMA] or Uniform Transfers to Minors Act [UTMA] accounts) are considered student assets. If the parents are listed as contributors-owners, Section 529 plan assets are considered parental assets. Home equity and life insurance cash value are exempt.
After meeting with their new financial planner, the Richard family has decided to invest $1,400 each month into a 529 for their four-year-old daughter Kiera. The Richards expect Kiera to attend Florham College. The current tuition is $55,000 per year, education inflation is expected to be 5.75%, and the anticipated rate of return on their 529 is 7.5%. Kiera will attend school beginning at 18 years old for four years. Using these facts, calculate to determine whether the current investment plan ($1,400 monthly deposits) will meet the education savings goal.
Fall short of the goal by $55,575 The Richards will fall short of their goal by $55,575. Step 1: Determine the future cost of college for the first year. END Mode 1, DOWNSHIFT, P/YR C ALL 55,000, +/-, PV 5.75, I/YR 14, DOWNSHIFT, N (14 periods show on display) Solve for FV = 120,306.1847 Step 2: Determine the account balance necessary to fund college education. BEG Mode (money is needed at the beginning of college) 120,306.1847, +/-, PMT [(1.075 ÷ 1.0575) - 1] × 100 = 1.6548, I/YR 4, DOWNSHIFT, N (4 periods show on display) Solve for PV = 469,600.9116, or 469,600.91 rounded (This is the future education need.) Step 3: Calculate Future Value of Current Payments C ALL END Mode 12, DOWNSHIFT, P/YR C ALL 1,400, +/-, PMT 7.5, I/YR 14, DOWNSHIFT, N (168 periods shows on display) Solve for FV = 414,025.6013, or 414,025.60 rounded (This is the future value of the current payments.) Step 4: Subtract future education need from future value of the current payments. $414,025.60 - $469,600.91 = -$55,575.31, or -$55,575 rounded
Select the CORRECT statement(s) regarding the employer's Educational Assistance Program. Graduate courses are included in qualifying expenses. The Educational Assistance benefits do not have to be for work-related courses. Only full-time students qualify for the Employer-provided Educational Assistance Program. Educational Assistance Program can be used with an education tax credit for the same expenses.
Graduate courses are included in qualifying expenses. The Educational Assistance benefits do not have to be for work-related courses. The answer is I and II. The Educational Assistance benefits do not have to be for work-related courses. The employer or employee cannot claim an education credit (American Opportunity Tax or Lifetime Learning Credit) for the same expenses. The Educational Assistance is available to full-time and part-time students enrolled in either undergraduate- or graduate-level courses.
Your client, Kurt, has a child, Bryce, who is about to begin college full-time in the fall. He has heard of some of the education incentives built into the code, and has asked you to give him some information regarding the education incentives. Which of the statements are CORRECT regarding the education incentives? If Kurt purchased EE bonds and placed them into a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account for Bryce, there is no possibility of the bonds qualifying for the education exclusion. If Bryce has a felony drug conviction, he would be ineligible for the American Opportunity tax credit. If Bryce has a Coverdell Education Savings Account (CESA), distributions would be allowable to cover his room and board expenses. The American Opportunity credit would be allowable on expenses incurred for textbooks and room and board.
If Kurt purchased EE bonds and placed them into a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfers to Minors Act (UTMA) account for Bryce, there is no possibility of the bonds qualifying for the education exclusion. If Bryce has a felony drug conviction, he would be ineligible for the American Opportunity tax credit. If Bryce has a Coverdell Education Savings Account (CESA), distributions would be allowable to cover his room and board expenses. There is no exclusion available for EE bonds unless they are held by the individual who purchases the bonds or unless they are held jointly with the purchaser's spouse. The student is ineligible for the American Opportunity tax credit if he has a felony drug conviction. Room and board is an allowable expense for distributions from a CESA. Neither the American Opportunity nor Lifetime Learning credit are allowed for room and board expenses.
Which of the following statements regarding 529 accounts and EFC is CORRECT? If a parent owner with student beneficiary, a 529 account is included in EFC calculation at parent's rate. Distributions for college from relative-owned accounts, reduce future financial aid eligibility by 0% of the distribution amount. If other family members establish an account as owners with student as beneficiary, assets are NOT counted for EFC calculation. Distributions for college from parent-owned 529 accounts reduce future financial aid eligibility by 50% of the distribution amount.
If a parent owner with student beneficiary, a 529 account is included in EFC calculation at parent's rate. If other family members establish an account as owners with student as beneficiary, assets are NOT counted for EFC calculation. The answer is I and III. Statement II and Statement IV are incorrect. Distributions for college from relative-owned accounts reduce future financial aid eligibility by 50% of the distribution amount (two years following distribution). Distributions for college from parent-owned 529 accounts do not impact EFC and do not reduce future financial aid eligibility.
Justine completes the Free Application for Federal Student Aid (FAFSA) to see if she qualifies for financial aid. The value of which of these assets will be included in the expected family contribution (EFC) calculation? Automobiles owned by Justine's parents Her father's Section 401(k) plan balance The equity in her parents' personal residence Justine's UTMA (Uniform Transfers to Minors Account) account
Justine's UTMA (Uniform Transfers to Minors Account) account The answer is IV only. All assets owned by a student's parents are included in the EFC calculation, with the notable exceptions of home equity, cars used for regular transportation, accrued benefit or account balances in any retirement plans (e.g., Section 401[k] plans), and the cash value of life insurance policies. The value of student-owned assets, in this case the UTMA account, is also included in the EFC calculation at 20%.
Kaito's son, Ren, turned five years old today. Kaito has plans for Ren to attend a four-year private university at age 18. Currently, tuition is $15,000 per year and is expected to increase at 7% per year. Kaito can earn an annual compound investment return of 10%. Calculate how much he must start saving at the end of each year (beginning this year) to pay for Ren's college education. (Assume Kaito's last payment is made at the beginning of Ren's first year in college.)
Kaito must deposit $5,659 per year to meet the education funding goal. Step 1: Determine the future cost of college for the first year. END Mode 1, DOWNSHIFT, P/YR C ALL 15,000 +/- PV 7 I/YR 13, DOWNSHIFT, N (13 years shows on the display) Solve of FV = 36,147.6750, or $36,147.68 Step 2: Determine the account balance necessary to fund college education: BEG Mode (money is needed at the beginning of college) 1, DOWNSHIFT, P/YR C ALL 36,147.68 +/- PMT [(1.10 ÷ 1.07) - 1] × 100 = 2.8037, I/YR 4, DOWNSHIFT, N (4 periods show on display) Solve for PV = 138,782.4586, or $138,782.46 Step 3: Determine the required savings payments. END Mode 1, DOWNSHIFT, P/YR C ALL 138,782.46 FV 13, DOWNSHIFT, N (payments continue until Eugene reaches 18; 13 periods show on display) 10 I/YR Solve for PMT = $5,659.34, or $5,659 rounded
Luciana's daughter, Emilia, turned one year old today. Luciana has plans for Emilia to attend a four-year public university at age 18. Currently, tuition is $18,000 per year and is expected to increase at 5.5% per year. Luciana can earn an annual compound investment return of 8%. Calculate the lump sum that Luciana needs for Emilia's entire college education on her first day of college.
Luciana needs $172,789 for Emilia's entire college education on her first day of college. Step 1: Determine the future cost of college for the first year. END Mode 1, DOWNSHIFT, P/YR C ALL 18,000 +/- PV 5.5 I/YR 17, DOWNSHIFT, N (17 periods shows on display) Solve for FV = 44,726.4387, or $44,726.44 Step 2: Determine the account balance necessary to fund college education: BEG mode (money is needed at the beginning of college) 1, DOWNSHIFT, P/YR C ALL 44,726.4387, +/- PMT [(1.08 ÷ 1.055) - 1] × 100 = 2.3697, I/YR 4 DOWNSHIFT, N (4 periods show on display) Solve for PV = 172,789.06, or $172,789 rounded
Maria, a single parent, would like her 13-year-old son, Seth, to attend college at Cascadia State University at age 18 for four years. Your planning firm has determined that the total amount needed to fund Seth's entire college attendance is $225,000. Calculate the amount of the monthly deposits into a 529 with an expected annual return of 8.5%.
Maria must make monthly deposits of $3,022 into a 529 with an expected annual return of 8.5% to reach her goal.
Which of these statements concerning Pell grants are CORRECT? Pell Grants are the primary type of grants dispersed directly to students. Financial need and availability of federal funds are the criteria for receipt. Receipt of other grants is sometimes contingent upon applying for or receiving a Pell grant. The Pell grant is available to both undergraduates and graduate students.
Pell Grants are the primary type of grants dispersed directly to students. Financial need and availability of federal funds are the criteria for receipt. Receipt of other grants is sometimes contingent upon applying for or receiving a Pell grant. The answer is I, II, and III. Only statement IV is incorrect. The Pell Grant is only available to undergraduates.
Your clients, Jason and Marcela, have a six-year-old daughter, Michelle. They want to start a savings plan for Michelle's college education. You are convinced that a Section 529 plan is the best option for Michelle's college education. What can you accurately tell Jason and Marcela about the 529 plan?
Qualified higher education expenses include tuition, fees, books, special needs services, and room and board if Michelle is at least a half-time student. The answer is qualified higher education expenses include tuition, fees, books, special needs services, and room and board if Michelle is at least a half-time student. The $15,000 is the annual gift tax exclusion amount. While there is generally no annual maximum contribution, gifts of up to five times the annual gift tax exclusion may be made in a single year, essentially without gift tax implications. Funds not used for education may be rolled over to another beneficiary who is a family member. In addition, the ordinary income treatment and penalty would apply only to the earnings distributed. The investment mix within a 529 plan may be changed twice per calendar year. Qualified higher education expenses (QHEE) include tuition, fees, books, equipment necessary for enrollment, and special needs services. In addition, room and board expenses are QHEE for a student who is at least half-time. Expenses for the purchase of computer or peripheral equipment (printer, modem, etc.), computer software, or Internet access and related services may also be treated as qualifying expenses if they are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. Distributions of up to $10,000 annually may also be used for elementary and secondary school, as a result of TCJA.
Which of the following statements concerning the characteristics of scholarships is CORRECT? Scholarships are given only to academically or athletically gifted students. Scholarships are available for either undergraduate or graduate study. The receipt of scholarships may be contingent on fulfilling specific requirements. Scholarships are often merit-based.
Scholarships are available for either undergraduate or graduate study. The receipt of scholarships may be contingent on fulfilling specific requirements. Scholarships are often merit-based. The answer is II, III, and IV. Only Statement I is incorrect. Scholarships are generally given to academically or athletically gifted students, but they may be given on a needs basis.
Kayla is interested in learning more about education grants. She made the following statements and asked you to confirm their accuracy. Which of her statements regarding education grants is CORRECT? Supplemental Educational Opportunity Grants (SEOGs) are federal grants for which priority is given to students who also receive Pell Grants. Pell Grants are disbursed to the educational institution for the benefit of the qualifying student. Federal Work-Study programs provide students attending college with part-time jobs. Pell Grants areavailable to undergraduate and graduate students.
Supplemental Educational Opportunity Grants (SEOGs) are federal grants for which priority is given to students who also receive Pell Grants. Federal Work-Study programs provide students attending college with part-time jobs. The answer is I and III. SEOGs, which are federal grants, give priority to students who also receive Pell Grants. Federal Work-Study programs provide students attending college with part-time jobs. In turn, the institution disburses the earned funds to the students. Pell Grants are dispersed directly to students and are available to undergrads only.
Eugene and Amelia wish to help fund their grandchild Drew's college education. They have a sizable estate and wish to place the money into an account that has growth potential along with tax benefits. Assuming they choose a Section 529 plan, what is the maximum they could place into the account for Drew and meet the following goals: 1) removal of the contribution amount from their estates, and 2) no gift tax implications in 2021?
The answer is $150,000. In 2021, a contributor is permitted to make one $75,000 contribution (the gift tax annual exclusion of $15,000 × 5) and spread that contribution over five years. In addition, if the contributor splits that gift with his spouse, a one-time contribution (every five years) of $150,000 may be made to any beneficiary, including the account owner, if so desired. These contributions are also correspondingly removed from the contributor's gross estate. Even though the contributor retains control of the 529 account balance at his death, the balance in the plan is not included in his estate for estate tax purposes (thus constituting a significant estate planning technique alternative).
Jack and Barb have two children, Matt, age three, and Charity, age five. They want to invest a lump sum today that will provide for four years of education when Matt starts college at the age of 18. State College costs $14,000 annually today, and they believe education inflation will remain constant at 6% and that they can receive a 7% return on their investment. What is the amount they would require? A) $47,965 B) $47,517 C) $49,336 D) $55,220
The answer is $47,965. (NOTE: calculations were not rounded between steps. Your answers might vary slightly due to rounding.) Inflate today's college tuition to when child starts college: 15 [N]; 6 [I/YR]; 14,000 [PV] solve for [FV] = 33,551.8147. STEP 2 calculate present value needed at start of school, using inflation-adjusted interest rate: 1.06 [INPUT]; 1.07 [DOWNSHIFT] [%CHG] {0.9433} [I/YR]; 4 [N]; 33,551.8147 [PMT]. Set calculator to BEG mode [DOWNSHIFT] [Beg/End] solve for [PV] = 132,337.5434. STEP 3 take lump sum needed at start of college and calculate the present value needed today. 132,337.5434 [FV]; 15 [N]; 7 [I/YR]; solve for [PV] = 47,965.2159.
Valarie is planning to go to college in the fall and wants to apply for a federal grant. She is interested in the Pell grant but does not know if she will be able to apply. Pell grants are available to which of the following students? Part-time students Full-time students Graduate students Undergraduate students A) I, II, III and IV B) I, II, and III C) II and IV D) I, II and IV
The answer is I, II, and IV. Pell grants are available to half-time, full-time, and part-time (less than half-time) undergraduate students.
Which of the following expenses qualify for an employer's Educational Assistance Program? Books On-campus housing Part-time, graduate school tuition Full-time, undergraduate tuition
The answer is I, III, and IV. With the Educational Assistance Program, an employer can reimburse an employee's undergraduate and graduate tuition, enrollment fees, books, supplies, and equipment; these benefits are excluded from the employee's income up to $5,250 per year. Meals, transportation, and lodging are not qualifying expenses for this program.
Tom and Samantha have a modified adjusted gross income (MAGI) of $250,000 and want to know which available tax benefit or combination of available tax benefits can they use to help pay for their daughter's college expenses. Which of the following is available to the couple? A) American Opportunity Tax Credit and Series EE savings bonds B) Coverdell Education Savings Account (CESA) C) Lifetime Learning Credit and Coverdell Education Savings Account (CESA) D) Section 529 Qualified Tuition Program (QTP)
The answer is Section 529 Qualified Tuition Program (QTP). Tom and Samantha's MAGI makes them ineligible for the American Opportunity Tax Credit, Lifetime Learning Credit, CESA, and Series EE savings bonds. Section 529 Qualified Tuition Programs do not have income limitations.
Susan is applying for college financial aid using the Free Application for Federal Student Aid (FAFSA). For purposes of calculating the expected family contribution (EFC), assets titled in whose name are assigned a higher weighting? A) Assets are assigned the same weighting without regard to being titled in Susan's or her parents' names B) Assets titled in Susan's name C) Assets titled in the names of Susan's parents D) Assets titled in the names of Susan, her parents, and her grandparents are all given the same weighting
The answer is assets titled in Susan's name. Student assets and income are assigned a higher weighting (20%) in the EFC calculation than parental assets and income (5.64%). Therefore, the titling of assets must be carefully considered when saving for education purposes. The assets of a student's grandparents are not considered when calculating EFC.
Which of the following is a need-based loan for which the U.S. Department of Education pays the accrued interest while the student is in school and during any deferment periods?
The answer is subsidized Stafford Loan. A Subsidized Stafford Loan is a need-based loan for which the U.S. Department of Education pays the accrued interest while the student is in school and during any deferment periods.
You discuss Coverdell Education Savings Accounts with Grant and Julie as a possible college funding vehicle for Abby. Which of the following statements describing a provision of a Coverdell ESA as used in the education funding process is CORRECT? A) Withdrawals for qualified education expenses are taxed at the student's income tax rate rather than the parents' rate. B) The beneficiary may accept annual contributions of $2,000 from multiple contributors. C) The annual contribution limit for a single beneficiary is $2,000. D) All funds within the Coverdell ESA must be used before the student reaches age 25.
The answer is the annual contribution limit for a single beneficiary is $2,000. Contributions to a Coverdell ESA are limited to $2,000 per year per child, regardless of the number of donors to the account. All funds within the Coverdell ESA must be used before the student reaches age 30. If the beneficiary has not been changed to another family member of the original beneficiary by age 30, any remaining funds will be disbursed to the original beneficiary, and the earnings will be subject to income tax and a 10% penalty. Qualified withdrawals from a Coverdell ESA are received income tax-free.
Select the parental assets that are excluded from consideration when calculating the expected family contribution (EFC) for federal financial aid. A) Annual contributions to a retirement plan B) Rental real estate property C) The excess of value over the amount owed on a personal residence D) Mutual fund ownership
The answer is the excess of value over the amount owed on a personal residence. The equity in a personal residence or home is not included in the calculation of the EFC. The accrued benefit or account balance in a retirement plan is an exempt parental asset, not the annual contributions made to that plan.
After meeting with their new financial planner, the Beckham family has decided to invest $800 each month into a 529 for their seven-year-old son, Oliver. The Beckhams expect Oliver to attend Southern State University. The current tuition is $25,000 per year, education inflation is expected to be 6.5%, and the anticipated rate of return on their 529 is 8%. Oliver will attend school beginning at 18 years old for four years. Using these facts, calculate to determine whether the current investment plan ($800 monthly deposits), will meet the education savings goal.
The current investment plan falls short of the goal by $27,324. Step 1: Determine the future cost of college for the first year. END Mode 1, DOWNSHIFT, P/YR C ALL 25,000, +/- PV 6.5, I/YR 11, DOWNSHIFT, N 11 periods show on display) Solve for FV = 49,978.7850, or $49,978.79 Step 2: Determine the account balance necessary to fund college education. BEG mode (money is needed at the beginning of college) 49,978.7850, +/-, PMT [(1.08 ÷ 1.065) - 1] × 100 = 1.4085, I/YR 4, DOWNSHIFT, N (4 periods show on display) Solve for PV = 195,788.6712, or $195,788.67 rounded (This is the future education need.) Step 3: Calculate future value of current payments. C ALL END Mode 12, DOWNSHIFT, P/YR C ALL 800, +/-, PMT 8, I/YR 11, DOWNSHIFT, N (132 periods show on display) Solve for FV = 168,464.3135, or $168,464.31 rounded (This is the future value of the current payments.) Step 4: Subtract future education need from future value of the current payments. $168,464.31 ‒ $195,788.67 = ‒$27,324.36, or ‒$27,324 rounded
Which of the following statements regarding Pell Grants is CORRECT? They are the primary type of grant disbursed directly to students. They are need-based. They are available both to undergraduate and graduate students. These programs provide students attending college with part-time jobs.
They are the primary type of grant disbursed directly to students. They are need-based. The answer is I and II. Statement III is incorrect; Pell Grants are available to undergraduates only. Statement IV is incorrect; Federal Work-Study (FWS) programs provide students attending college with part-time jobs.
Which of the following is considered qualified education expenses for purposes of the income tax exclusion for redemptions of Series EE savings bonds? Room and board Tuition Fees Personal auto
Tuition Personal auto The answer is II and III. Qualified education expenses for purposes of the Series EE savings bond exclusion include tuition and fees but not room and board or a personal auto.
Nathan and Angela Flesher have three children. Their oldest child is currently in college, their second child will be starting college next semester, and their third child is still in high school. Nathan is a vice president at AJAX Corp with W2 income of $150,000 per year, and Angela is an administrative assistant earning $45,000 per year. What potential avenues would they most likely have to finance college expenses?
Work study program Perkins loans and Pell grants are needs-based, and Nathan and Angela most likely would not qualify based on their income.
George and Barbara have three dependent children in college. Cameron is a senior, Lauren is a junior, and Cheryl is a freshman, and each has qualifying education expenses in excess of $10,000 annually. When George and Barbara file their income tax returns for 2021, they want to use the American Opportunity Tax Credit and/or Lifetime Learning Credit to their greatest benefit. They are eligible for both credits. Which of the following statements describing their options is CORRECT? A) They can use the American Opportunity Tax Credit for the qualified education expenses of Cameron, Lauren, and Cheryl. B) They can use only one of the credits and should use whichever credit will provide the greatest benefit. C) They can use the American Opportunity Tax Credit for the qualified education expenses of Cheryl only and the Lifetime Learning Credit for Cameron and Lauren. D) They can use the American Opportunity Tax Credit individually for Cameron, Lauren, and Cheryl and an additional Lifetime Learning Credit for the same expenses as a family tax credit.
a Explanation The answer is they can use the American Opportunity Tax Credit for the qualified education expenses of Cameron, Lauren, and Cheryl. The American Opportunity Tax Credit may be used for qualifying education expenses for the first four years of college for each student. The Lifetime Learning Credit is allowed once per year per family but cannot be claimed for the same student for which an American Opportunity Tax Credit is claimed. The Lifetime Learning Credit would most likely not be claimed because the American Opportunity Tax Credit provides a larger tax credit for the family.
All of the following are ways to lose federal student aid eligibility except A) failure to pay on a subsidized Stafford Loan while enrolled at least half time. B) conviction of a drug offense. C) be in default on a federal student loan. D) failure to maintain satisfactory academic progress in college or career.
a Repayment on federal student loans generally does not begin until after you leave college or drop below half-time enrollment.
Select the correct description of the relationship between income, assets, and financial aid. A) A higher percentage of assets and income included increases the expected family contribution (EFC) and reduces the available financial aid. B) A higher percentage of assets and income included reduces the expected family contribution (EFC) and reduces the available financial aid. C) A higher percentage of assets and income included reduces the expected family contribution (EFC) and increases the available financial aid. D) A higher percentage of assets and income included increases the expected family contribution (EFC) and increases the available financial aid.
a The answer is a higher percentage of assets and income included increases the expected family contribution (EFC) and reduces the available financial aid. A higher percentage of assets and income included increases the expected family contribution (EFC) and reduces the available financial aid. Total cost of attendance ‒ EFC = available financial aid.
Which of the following statements concerning education tax credits and savings opportunities is CORRECT? A) The Lifetime Learning Credit is equal to 100% of qualified education expenses up to a certain limit. B) The American Opportunity Tax Credit is only available for the first two years of postsecondary education. C) The American Opportunity Tax Credit reduces a family's tax dollar-for-dollar in an amount equal to 100% of the first $2,000 of qualified education expense and 25% of the next $2,000. D) The contribution limit for Coverdell Education Savings Accounts (CESAs) is applied per year per donor.
a The answer is the American Opportunity Tax Credit reduces a family's tax dollar-for-dollar in an amount equal to 100% of the first $2,000 of qualified education expense and 25% of the next $2,000. A parent who claims a child as a dependent is entitled to take the American Opportunity Tax Credit for the education expenses of the child. The Lifetime Learning Credit is equal to 20% of qualified education expenses up to a certain limit. The American Opportunity Tax Credit is available for the first four years of postsecondary education. The contribution limit for CESAs is applied per year per student (not donor).
All of the following statements regarding the expected family contribution (EFC) as it relates to student financial aid are CORRECT except A) parental assets and income are assigned a higher rating in the EFC calculation than student assets and income. B) parental assets include almost everything owned by the parents with notable exceptions. C) student income includes taxable and nontaxable income from the year preceding the award year. D) student assets include the value of everything the student owns or that has been saved on his behalf.
a The answer is parental assets and income are assigned a higher rating in the EFC calculation than student assets and income. Parental assets and income are assigned a lower rating in the EFC calculation than student assets and income.
Which of the following expenses are qualified for a Coverdell Education Savings Account (CESA)? K-12 tuition Books Fees Supplies
all
Which of the following statements concerning qualified tuition plans (QTPs) is CORRECT? Under Section 529 of the Internal Revenue Code, QTPs, which are created, sponsored, and maintained by individual states or institutions, have tax-exempt status. Under QTPs, individuals may purchase tuition credits or certificates on behalf of a designated beneficiary, which entitles the beneficiary to a waiver of payment of qualified education expenses. Under QTPs, individuals may make contributions to an account that is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary.
all
Which of the following statements concerning a PLUS loan is CORRECT? PLUS loans are available to parents of students. PLUS loans are not needs-based. The borrower under a PLUS loan must meet federal standards of creditworthiness.
all The answer is I, II, and III. All of these statements are correct. Other characteristics of PLUS loans include interest rates that vary with the rate of 52-week Treasury bills and the availability of reduced loans for students enrolled in programs that are shorter than an academic year.
Which of the following statements regarding Federal Supplemental Educational Opportunity Grants (FSEOGs) is CORRECT? FSEOGs are grants given to students. Priority for FSEOGs is given to students who also receive Pell Grants.
both
Which of the following is a non-need-based loan for which the borrower-student is responsible for the accrued interest during the life of the loan? A) Subsidized Stafford Loan B) Pell Grant C) Unsubsidized Stafford Loan D) Supplemental Educational Opportunity Grant (SEOG)
c The answer is unsubsidized Stafford Loan. An unsubsidized Stafford Loan is a non-need-based loan for which the borrower-student is responsible for the accrued interest during the life of the loan.
All of the following are employer guidelines associated with implementing an educational assistance program except A) the program must be offered to all employees. B) employers must have a written qualified program that applies exclusively to their employees C) employers that provide their employees educational assistance benefits may not deduct these costs as a business expense. D) the program cannot favor highly compensated employees.
c The answer is employers that provide their employees educational assistance benefits may not deduct these costs as a business expense. Employers that provide their employees with educational assistance benefits can deduct these costs as a business expense.
To be eligible to receive federal student aid, you must be a citizen of the United States. not owe a refund on a federal student grant. not have a conviction for the possession or sale of illegal drugs. have a high school diploma or a General Education Development (GED) certificate.
not owe a refund on a federal student grant. not have a conviction for the possession or sale of illegal drugs. have a high school diploma or a General Education Development (GED) certificate. The answer is II, III, and IV. Citizens or eligible noncitizens of the United States are eligible to receive federal student aid. Students must meet these requirements: Have a valid Social Security number. Be a citizen or eligible noncitizen of the United States. Have a high school diploma or a General Education Development (GED) certificate, or have completed homeschooling. If you don't, you may still be eligible for federal student aid if you were enrolled in college or career school prior to July 1, 2012. Go to https://studentaid.ed.gov/eligibility/basic-criteria for additional information. Be enrolled in an eligible program as a regular student seeking a degree or certificate. Maintain satisfactory academic progress. Not owe a refund on a federal student grant or be in default on a federal student loan. Register (or already be registered) with the Selective Service System, if you are a male and not currently on active duty in the U.S. Armed Forces. Not have a conviction for the possession or sale of illegal drugs for an offense that occurred while you were receiving federal student aid (such as grants, work-study, or loans). If you have such a conviction, you must complete the Student Aid Eligibility Worksheet to determine if you are eligible for aid or partially eligible for aid.
All of the following items are considered qualified education expenses for purposes of the American Opportunity Tax Credit except A) books. B) course materials, such as equipment. C) room and board. D) tuition.
room and board. Qualified education expenses for purposes of the American Opportunity Tax Credit include tuition, fees, and course materials such as books and equipment, but not room and board.
