Fundamentals - Education Planning

The following type of financial aid is awarded to students with a low EFC, and funds are guaranteed to be available if a student qualifies: a) Pell Grant. b) Plus Loan. c) Work Study. d) Stafford Loan.

Answer: A Pell Grants are always available if a student qualifies.

All of the following statements are true, except? a) The American Opportunity Tax Credit is available for the first four years of post-secondary education. b) The Lifetime Learning Credit is only available for the first two years of post-secondary education. c) The American Opportunity Tax Credit is awarded on a per student basis. d) The Lifetime Learning Credit is awarded on a per family basis.

Answer: B American Opportunity Tax Credit is good for the first four years. Lifetime is available throughout your life-time. American Opportunity Tax Credit is per student, lifetime is per family.

Donna has a son, Colin (age 18), a freshman at Tulane University with tuition of $30,000 per year. Donna's AGI is $45,000 and takes a withdrawal of$20,000 from her 529 Plan. She pays the remaining $10,000 in tuition out of her checking account. Which of the following would you recommend? a) Take a Lifetime Learning Credit of $2,000. b) Take an American Opportunity Tax Credit of $2,500. c) Cannot take American Opportunity Tax Credits or Lifetime Learning Credits because she took a 529 distribution. d) Take American Opportunity Tax Credits and Lifetime Learning Credits totaling $4,500 ($2,000 + $2,500).

Answer: B Donna should take the American Opportunity Tax Credit because it offers a larger tax credit than the Lifetime Learning Credit.

Which of the following types of aid are not need based? a) Pell Grant. b) Plus Loan. c) Perkins Loan. d) Subsidized Stafford Loan.

Answer: B Plus loans are based on a parent's credit score.

What is the maximum contribution to a 529 Plan in the current year, if grandparents elect gift splitting? a) $15,000. b) $30,000. c) $75,000. d) $150,000.

Answer: D $150,000 ($15,000 x 2 x 5) Annual exclusion x 2 for gift splitting x 5-year proration.

Harry and Sally are contemplating making a contribution to their grandchildren's education fund. Harry and Sally are both retired, have a significant amount of discretionary income and are concerned about estate transfer taxes. Which of the following education planning techniques would you recommend? a) Prepaid Tuition. b) Coverdell ESA. c) UGMA or UTMA. d) 529 Savings Plan.

Answer: D 529 Savings Plans are a good planning technique for grandparents that want to pay for their grandchildren's education. It also allows the grandparents to lower their gross estate.

What is one of the primary differences between a Coverdell ESA and a 529 Savings Plan? a) Coverdell can be used for private elementary, middle or high school. b) A Coverdell does not have a phase-out limit for participation. c) A 529 Plan has a phaseout limit for participation. d) A 529 Saving Plan allows 5-year proration of contributions.

Answer: D Both the Coverdell and the 529 Savings Plan can be used for private elementary, middle, or high school. A 529 Savings Plan does not have a phase-out. A 529 Savings Plan allows a 5-year proration of contributions; a Coverdell does not.

Will is a freshman at Florida State University where his tuition is $4,000. Sydney, his older sister, is a junior at Expensive University, where tuition is $25,000. What is the maximum tax credit Will and Sydney's parents can take? a) $2,000. b) $3,800. c) $3,650. d) None of the Above.

Answer: D The total tax credit is $5,000. Will: $2,500 and Sydney: $2,500 Will: American Opportunity Tax Credit = $2,500 $2,000 x 100% = $2,000 $2,000 x 25% = $500 Sydney: American Opportunity Tax Credit = $2,500 $2,000 x 100% = $2,000 $2,000 x 25% = $500

What is EFC?

Expected Family Contribution Tuition or cost of attendance - Expected Family Contribution = Financial Need

Financial Aid Programs

Federal Pell Grant - need based Stafford Loan - need based Federal Perking Loan Program - need based, ended in 2017 Parents Loan for Undergraduate Students (PLUS) - not need based Grad Plus loan for Graduate Students (Plus direct) - not need based Campus-Based Financial Aid - need based Income Based repayment No grants are available to graduate students, only loans