High School GPA may be the Greatest Predictor of Collegiate Success

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According to a recent study published in the Educational Researcher, high school GPAs are five times stronger than ACT scores at predicting collegiate success.  Further, the study revealed that the predictive power remains consistent across high schools.  Moreover, while the relationship between ACT scores and collegiate success depends on the high school attended, at times the relationship was negative among students with the highest scores.

Across all high schools in the study, each incremental increase in GPA is associated with an increase in the odds of graduating college.  The chance of graduating ranged from 20 percent for students with high school GPAs under 1.5 to about 80 percent for those with GPAs of 3.75 or higher, after controlling for student backgrounds and college characteristics.

According to the authors, “While people often think the value of GPAs is inconsistent across high schools, and that standardized test scores, like the ACT, are neutral indicators of college readiness because they are taken by everyone under the same conditions, our findings indicate otherwise.” Further, “The bottom line is that high school grades are powerful tools for gauging students’ readiness for college, regardless of which high school a student attends, while ACT scores are not.”

High school GPAs might be strong indicators of success because they are based on many factors, including effort over an entire measuring period in many different types of classes, demonstration of academic skills through multiple formats, and different teacher expectations.  Accordingly, “GPAs measure a very wide variety of skills and behaviors that are needed for success in college, where students will encounter widely varying content and expectations.  In contrast, standardized tests measure only a small set of the skills that students need to succeed in college, and students can prepare for these tests in narrow ways that may not translate into better preparation to succeed in college.”

While the study is an eye-opener, schools still use the ACT and SAT for an apples-to-apples comparison, placing higher importance in those results than in the high school GPA.  For now, focus should be on maintaining the highest GPA possible while striving to achieve the highest ACT or SAT score possible.

529 Plans and Roth IRAs aren’t the Answer

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When it comes to saving money for the expense of a college education, “conventional wisdom” espoused by Wall Street, financial advisors, and the mass media drive parents toward 529 plans and Roth IRAs. 

After all, 529 plans have the best “odds of having the most money when you need it.”  Never mind the fact that your first decision is where to invest your funds.  Moreover, since the investments are tied to the market, a 529 plan could end up with less money available then the total contributed.  And, let’s not fail to mention the restrictions placed on the use of those funds. 

Parents saving in a 529 plan will see an increase in the amount they are expected to pay for an education.  Moreover, the amount of financial aid for which they qualify could be reduced or eliminated.  And, it may disqualify a family for grants and awards that need not be repaid.

A 529 plan is tax-free; provided, however, the funds are used for qualified education expenses.  What if the money is not used for such expenses?  What if your child decides not to attend college?  What if they receive a scholarship that covers all or some of the expense?  It becomes an expensive proposition…

Even the Free Application for Federal Student Aid (FAFSA), the form used by colleges and universities to determine what a family can pay for an education, identifies Coverdell Savings Account and 529 Plans as investments and assets.

Roth IRAs are a bit more flexible.  If you don’t need the money, you can use it for retirement and distributions are tax-free.  However, a Roth IRA is an investment vehicle, not a savings vehicle, with certain restrictions.  Those restrictions include an age 59½ restriction and a 5-year rule.

And, while Roth IRAs may be a better choice than 529 plans, an even better option than Roth IRAs exists.  In fact, the FAFSA states the value of this financial vehicle is neither an investment, nor an asset.

What vehicle might that be?

A properly-designed, cash-building, whole life insurance policy!  Don’t believe me?   Read on…

When most people hear “life insurance,” they immediately shut down.  After all, it’s about death, and who really wants to discuss that finality? 

What most people fail to understand, primarily because they stop listening, is that, while the type of policy in question does provide a death benefit, it is designed to provide the lowest possible death benefit in combination with the highest possible gash growth.  Moreover, such policies can and do provide living benefits such as terminal illness coverage, critical illness coverage, and chronic illness coverage, as well.

Why choose a properly-designed, cash-building, whole life insurance policy over a Roth IRA or a 529 plan?

  1. Life insurance is neither an asset, nor an investment.  The growth in such a vehicle is not subject to market fluctuation.
  2. If you don’t need the life insurance cash value for college expenses, the money can be used penalty-free and tax-free for any reason, including retirement.
  3. Life insurance allows you to repay the money borrowed against the contract, thereby continuing to increase the growth for later use.  Money you may want to put back in a Roth IRA does not grow tax-free.
  4. Should a student remain in college for 4, 8, or 12 years, the cash value in a life insurance policy continues to grow and need not be used to repay school debt until that debt comes due, typically 6 months after graduation or dropping below full-time.  The money that would have been paid every month on a PLUS loan can be directed to a life insurance policy to keep your money growing tax-deferred for tax-free use.
  5. Life insurance doesn’t have a 10% distribution penalty on pre-59½ distributions; a Roth IRA does.
  6. Life insurance provides more liquidity, use, and control than one has with a Roth IRA.
  7. Upon death, the death benefit is transferred to your beneficiaries tax-free.
  8. In order to contribute to a Roth IRA, one must have earned income; such is not the case with life insurance.

While Roth IRAs are a better option than 529 plans, the best financial vehicle for college savings is a properly-designed, cash-building, whole life insurance policy.

Don’t Base Your College Search on Sticker Price…

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We have found that both parents and students immediately will eliminate a possible school based solely on “sticker price” – the cost of attendance published by the particular institution. 

And, while the 4-year cost of an education, ranging from $92,000 – $300,000 or more (depending on the institution), represents perhaps the largest lifetime investment parents and students will make (usually parents), larger than even the household mortgage, parents and students can’t afford to dismiss a school outright based on perceived cost.

Unfortunately, the vast majority of high school seniors and their parents, waiting now on acceptance letters and soon to be apprehensively awaiting financial aid award letters, have done just that.  And, by doing so, may have cost themselves thousands, even tens of thousands in financial aid.

Families – welcome to the most expensive time of your lives!!

How much time have you spent on your family’s college planning campaign?  Compare the time spent diving into the college-planning details with the time usually spent planning a family vacation.  What is the cost of a family vacation compared to the cost of a 4-year education? 

Have you saved that kind of money?  Most haven’t. 

Now it’s late into your child’s high school career and you’re sitting there lost, confused, overwhelmed.  A school is chosen based on sticker price.  But, what if a change in majors occurs?  What if it’s not the right fit and a transfer occurs? 

This is much too expensive a proposition for your child to use these 4 years to find themselves.  Proper planning is necessary and should begin as early as middle school, perhaps earlier, but really not later than sophomore year in high school.

Based on published expense, why not dismiss school’s based on sticker price?  Because each school calculates financial aid according to their own formula and the higher-priced schools have much larger financial aid budgets.  Thus, while sticker price may be higher, the higher-priced schools typically have more money to give often making the annual cost of attendance equal to or lower than the lower-priced state school.

Final questions to parents – Have you implemented a college planning campaign designed to find the right school at the lowest price based on academics, geographic location, size of institution, and family budget?  Do you even know what your actual budget might be?  Most family’s just guess.

These questions and more are why we exist.  We help families design and implement the proper college planning campaign based on the individual family’s particular circumstances, thereby providing peace of mind. 

Reach out for a no-obligation consultation.  We are waiting to hear from you!