Evaluating a Financial Aid Offer

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Though most families don’t realize it, especially those whose first or only child is now beginning the undergraduate journey, the Financial Aid Award Letter can be highly misleading.

The award letter is merely an offer; not all aid listed will be awarded. Rather, the letter lists the aid for which you qualify. It’s up to you to review the offer and to accept or reject the aid listed.

Why can the award letter be confusing?

Schools use their own form letters and their own terminology. Understanding the offer as presented can be a pivotal point impacting your financial future not just for the next few years, but potentially for decades to come.

Before making a decision on which school’s offer to accept, as well as what aspects of the offer to accept, be sure you understand the following:

1. What will be the actual total cost, not just for the first year, but projected for the next four years? Look at the school’s project cost of attendance for the first year, then increase it by at least six percent for each subsequent year.

2. Is there free money and how much? Grants and scholarships are awards that need not be repaid. Each may have specific requirements that need be met in order to retain eligibility for the grant or award in future years.

3. What is your net out-of-pocket expense? This is the amount you will have to pay, whether from savings, retirement plans, or loans.

4. Is work-study included in the offer? While this may be included in the offer, it is not available to reduce expenses due at the beginning of an academic period. Rather, it will be paid to the student as earned, provided they can find campus employment, and usually serves as spending money.

5. Does the award include loans? Usually a letter includes a variety of loans. Loans must be repaid with interest. Some require that repayment begin immediately.

Understanding the award letter remains vital to your future, whether student or parent. Like it or not, loans have a place in funding the expense of an education. If managed properly, they are a worthwhile source of funding.

Contact us to learn more about loans as a source of funding, to learn how to manage them, and to learn how to pay them off at a much faster rate than expected (without sacrificing your standard of living).

We look forward to hearing from you!

 

 

Odds of a Full Ride: Parental Reality check

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As college admissions inch closer with the speed of an incoming ballistic missile, parents dream of the full-ride scholarships for their gifted student, whether the gifts be academic, athletic, or both.

I’ve heard it from parent after parent – “I don’t need to save.” Their student’s gifts will pay off, there’ll be large sums of money handed out. After all, they’ve spent a ton of money of travel/club sports, lessons, hotels, food, training, etc. And, if it’s not athletic money, there’ll be academic awards galore…

Mom and Dad…

Get ready…

You’ll soon be shocked back to reality…

And, perhaps, quite a bit of debt.

Based on the 2015-16 National Postsecondary Student Aid study (NPSAS), the most recent data available (to my knowledge), only 0.2% of students received $25,000 or more in scholarships per year.

While $6.1 billion in scholarships were awarded, there were 1.58 million recipients (8.1% of the college student population). The average award per recipient – $3,852.

Guess what?

The odds are NOT in your child’s favor. You can’t afford not to save!

Don’t make the all-to-common mistake of over-estimating eligibility for aid, whether it be need-based or merit-based (academic or athletic). There are over 80,000 valedictorians and salutatorians each year. Couple that with rampant grade inflation and you’ll find a sea of qualified candidates.

A deeper dive into the data shows that:

• 1.5% of students in bachelor’s degree programs got enough scholarships and grants to cover 100% of the cost of attendance.

• 2.7% got enough to cover 90% of the cost of attendance.

• 5.9% got enough to cover 75% of the cost of attendance.

• 18.8% received enough to cover 50% of the cost of attendance.

Still counting on an athletic scholarship for your child?

Only 2.3% of students in 4-year programs received athletic scholarships at an average $11,914 per athlete. Sure, some will get more, some less.

What does that mean?

An athletically-gifted student is not guaranteed a full-ride. In fact, they’re not guaranteed any money. Roughly 4% of high school athletes will participate in a sport at the college level. And, not every athlete that participates has been awarded athletic money.

When it comes to athletic and/or academic scholarships and awards, aim high. But, have Plan B in place in the event the award is much lower than expected and much lower than the amount you need to cover the cost of the education.

We can help you plan accordingly and we are waiting to hear from you.

 

Getting Real about College Funding

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Anywhere you look, you can find advice about saving for college.

And, if you’re trying to save for the full sticker price, not only is that advice depressing as hell, it also may be entirely inaccurate for your situation. This – by far – is not the proper strategy.

You’ll see a ton of information about 529s and how wonderful they are – and they can be in the absolute perfect circumstances. The fact most overlooked is that 529s are not savings vehicles; rather, they are investment vehicles. You could end up with less than the amount you actually contributed to the plan. Now, what kind of savings plan is that?!?

So, let’s get real…

• Conventional wisdom may be wholly inappropriate for your particular family situation;
• Actions taken should not favor eligibility for financial aid over the need to save; and,
• If you’re like most parents, you have absolutely no idea what you’re doing when it comes to a college planning campaign!

Where does that leave you?

It leaves you with the following points to consider and, most likely (and, yes, self-serving), with a dire need to engage the services of a professional college planner!

1. Schools expect a family to “pony up” much more than they can truly afford.

Now, who would have figured that one out?!?

The government and most schools base financial aid awards on the Free Application for Federal Student Aid (FAFSA), with which an Expected Family Contribution (EFC) is calculated. While the EFC may depend on a number of factors, the most prevalent factor is family income, closely followed by family assets.

The EFC expects a large chunk of income (22%-47%) to be used for college expenses. Family assets are assessed at just under 6%.

Maximizing financial aid is a horrible excuse for not saving, especially when you can do both at the same time. You just need to know how to do it.

< HINT – engage a professional college planner!!! >

2. Even if you qualify for a boatload of aid, schools may not be able to give it.

Less than 10% of schools meet 100% of financial need, while nearly half meet 60%-80%. Even those that meet your financial need may not meet it in ways you expect, as aid can vary widely from student to student.

3. Guess what? “Financial need met” DOES INCLUDE loans.

Depending on the school, loans (both student and parent) can be a significant part of the package. Even if a school meets your need, you could end up paying more than your EFC might suggest.

Don’t make the mistake of assuming that saving more will reduce financial aid and that you’ll pay more for school. That may not be the case.

< HINT – engage a professional college planner!!! >

4. Academic or athletic scholarships may not be part of the package.

A large number and variety of scholarships exist in the financial aid universe.

Every one of them may help, but most are relatively small.

And most scholarships, both merit and athletic, are NOT full rides. It doesn’t matter how talented your child may be, there will always be someone with equal or more talent.

As the saying goes, “don’t put all your eggs in one basket.” Have a Plan B in place.

5. Rely on realistic numbers, not hypothetical amounts.

< HINT – engage a professional college planner!!! >

We are waiting to hear from you!

College Funding & Life Insurance

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With the current bull market roaring ahead, it’s vitally important to protect yourself from loss while your assets continue to grow. Seems intuitive, but difficult to implement without the proper financial tool.

According to the Allianz Life Insurance Company of North America, more than half of the respondents to their 2018 Life Insurance Needs Survey (Needs Survey) were unsure or didn’t believe that cash value from permanent life insurance can be used to assist with other financial needs.

That’s likely the biggest secret out there! Very few people are aware of the benefits to be had from a properly designed permanent life policy.

In fact, college funding can be one of those benefits.

It’s both amusing and quite sad that almost 70% of the respondents to the Needs Survey stated the belief that the ability to use funds to pay for college is a valuable feature to consider when purchasing a financial product.

Yet, those people and more “turn their noses up” at the very mention of life insurance, even when they know they are underinsured.

So, let’s answer some questions you may have (or, perhaps, never even considered)…

1. How can cash value (CV) life insurance be used to help fund college expenses?

While the main purpose of life insurance is to provide a death benefit (DB) to loved ones, the DB under a permanent life insurance policy properly designed to build the greatest cash balance possible is the minimum required by the IRS to ensure everything remains non-taxable.

Growth of the cash value is the primary benefit, the DB merely is an added benefit. The cash value can be accessed for any reason, such as college funding.

2. What are the benefits to using loans from CV life insurance for college funding?

Loans from CV are tax-free. Moreover, they are not considered income and, therefore, typically will not affect a family’s eligibility for financial aid.

3. I have 529 Plans. Why would I need CV life insurance?

The foremost advantage to using CV life insurance is that the government and the schools don’t see it as an available asset. It is not considered when calculating eligibility for financial aid.

529 Plan assets do count as an available asset and will affect eligibility for financial aid.

4. What if my child does not attend college?

Funds from a 529 plan must be used for qualified education expenses. Otherwise, if utilized for other expenses, the earnings portion will be considered part of the beneficiary’s income and will be subject to a 10% penalty.

Conversely, the CV life insurance can be used for any financial need, including debt elimination.

5. Can grandparents help?

Absolutely! There are many advantages to using CV life insurance to help fund a college education – no complex eligibility requirements, no qualified education costs, and no income limits. Furthermore, money received from a policy loan generally won’t impact eligibility for financial aid.

Now, bear in mind, life insurance does require health and financial underwriting. However, that’s a small price to pay for a financial vehicle that:

• Will be an important part of any properly designed and implemented college funding campaign;

• Can be used to eliminate all household debt much quicker than ever imagined; and,

• Can improve the retirement horizon for parents of college-bound children.

Contact us to learn how a properly designed cash value building, permanent life insurance policy can be the bulwark of your college planning campaign, while being used to eliminate household debt and improve one’s potential retirement scenario.

Funding College through Athletic Scholarships

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While it is possible for any child with physical talent to develop into an exceptional athlete, an athlete that attracts the attention of college recruiters and who is offered an athletic scholarship, the truth of the matter is this:

That athlete is the exception to the rule.

Approximately 4%-5% of all high school athletes will participate in a college sport. That athlete may or may not have been awarded an athletic scholarship.

A little known fact typically ignored or avoided by parents is this – there are only 6 full-ride collegiate sports, 2 for men, 4 for women. All 6 are at the NCAA D1 level (less than 2% of high school athletes will participate at the D1 level).

For men, those sports are basketball and football. For women, those sports are basketball, volleyball, tennis, and gymnastics.

Moreover, not every member of a collegiate athletic team, whether it is NCAA or NAIA, will have an athletic scholarship, or perhaps any scholarship whatsoever. Unless a student has been awarded a full-ride scholarship, if they have been awarded an athletic scholarship, it will be a partial scholarship, leaving the remaining expense of a college education to the student and their family.

There are a maximum number of scholarships each team may award, if the program is fully funded. Not all programs are.

So, if you are at the beginning, or somewhere in the midst, of years of athletic training, be absolutely sure your family will be ahead financially as the college years fast approach.

Let’s consider the expense of raising an athlete who will have a 1 in 20 chance of playing a sport in college…

Sure, when they’re young, the expenses seem insignificant. But, as they age, costs increase. Consider the following: monthly team or practice costs; uniform, equipment, and travel expenses; tournament or meet fees; and, private coaching (e.g., technique, strength, speed, etc.).

Certainly the numerous positive benefits should be considered. Benefits such as learning to perform under pressure, enhanced discipline, increased confidence, improved self-esteem, and learning to graciously handle both success and failure are priceless.

There are great reasons to support a child’s talents; they vary from family to family. If the primary driver is to fund a college education, remember the odds.

For a family concerned about their finances, potential health care expenses, and having an affordable, comfortable retirement, investing in an education-funding strategy that has less than a 2% success rate may not be a positive strategic move.

Please contact us for guidance in developing and implementing a college planning campaign designed with your family’s financial goals in mind.

Proper Planning Makes College Worth the Cost

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According to a recent Sallie Mae/Ipsos study, “How America Values College 2018,” more than 85% of families believe they are receiving good value for the price, with more than 20% saying college is worth every penny.

In conjunction with those beliefs, students and parents willingly stretch themselves financially to ensure a college education is received.

While taking steps to make college more affordable, steps such as reduction in discretionary spending, as well as taking classes over a shorter period of time in order to reduce costs by graduating sooner, are actions that can be taken, families have much more work ahead of them.

Many, perhaps most, families find the development and implementation of a college planning campaign to be quite confusing. In fact, lingering misconceptions exist and persist:

• More than 40% of families believe work-study funds are automatic. They’re not. Rather, they are awarded based on perceived need and only by the schools that actually participate in the federal work-study program.

• More than 20% of families believe “free tuition” means college is free. It isn’t. Expenses such as program fees, room, board, and a host of miscellaneous expenses will be borne by the student and/or family.

• At least 19% of families believe “sticker price” will be the cost of an education. It isn’t, unless the student and family has either done absolutely no planning or they have done everything incorrectly.

How can you be sure that your college planning campaign is on the right track?

Ensure your family is properly prepared.

Contact us for our no-obligation evaluation of your current campaign.

 

Keep Your Financial Aid – Avoid These Mistakes

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The pursuit of a 4-year college degrees requires a parent file the Free Application for Federal Student Aid (FAFSA) at least four times. Each filing generates a financial aid award letter.

The first award letter typically covers only the first year. As each family’s financial situation could change yearly, so could the award.

A mistake made by many families is believing the first letter covers all four years. Financial decisions made during this period could drastically affect financial aid.

Here are a few mistakes to avoid:

1. Grandparent Assistance. Grandparents may want to help. Here, as with many other aspects of life, timing is everything. Giving money at the wrong time can greatly reduce available aid. Money given by grandparents counts as income in the child’s name; schools assess a child’s income at a vastly greater percentage than they do a parent’s income, then reduce aid accordingly.

2. Cashing Out Investments. A cash out occurring after January 1 of a child’s sophomore year in high school will impact the first FAFSA filed on the child’s behalf, increasing income and thereby reducing financial aid. Selling those investments during junior or senior years in college will have little to no impact on aid.

3. A Second Mortgage. Parents taking a second mortgage may end up with too much cash on hand. Too much cash equals less financial aid. A home equity line of credit (HELOC) may be a better solution and may increase aid at a select number of schools who consider home equity as cash on hand. However, there are still interest costs and any amount loaned must be repaid.

4. Raiding Your Retirement. While more than 57% of parents across the country indicate they will raid their retirement funds, it’s not the greatest strategic move. Pulling funds from these plans increases taxable income. Not only are you taxed, but you lose financial aid due to increased income.

If you have a college-bound student, whether they are currently in high school, middle school, elementary school, or the crib, please contact us to schedule a free, no-obligation evaluation.

We can tell you the wisest and safest place to place and build your college funding.

 

Divorce and College Funding

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Divorce can and often does have a disastrous effect on a family’s long-term plans, affecting savings, retirement, college educations for the children, and much, much more.

If you are divorcing, even considering divorce, be sure to include funding for college as a topic of discussion. Reach an agreement upon the contributions each of you will make toward the cost-of-attendance.

Be sure the divorce decree clearly spells out each of your intentions. Include a list of acceptable expenses. Consider the “what ifs,” such as a gap year and a decision not to attend college at all. And, be sure that each of you define the sources from which the funds will come.

Don’t end up, years down the road, approaching the other parent asking for support…

Divorce affects financial aid eligibility.

The FAFSA (Free Application for Federal Student Aid) requires information from the custodial parent, who may not be the same as the parent with legal custody.

The CSS (College Scholarship Service) Profile is used by a few hundred schools in conjunction with the FAFSA. It requires information from both parents.

Who owns the 529?

If owned by anyone other than the custodial parent or the child, the schools assess it differently. It can reduce financial aid eligibility by as much as 50%.

College administrators have the power.

They have many tricks to identify if a parent is lying. While you can’t game the system, there are a number of legal loopholes you can use – if and only if you start you’re planning on time.

Keep your focus on the kids.

Children of divorced or separated parents are less likely to attend college and even less likely to graduate. Those that attend and don’t graduate are often saddled with school debt that will affect them for decades.

For many parents, the rules governing financial aid can be a black hole of financial despair, often because they don’t take the time to learn about it or they don’t begin their planning campaign until junior or senior year in high school.

And, then, they are surprised when things don’t go their way.

Really?!?

Planning on Helping Pay for Your Grandchild’s College Education?

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Doing so may not be the best way to help.

There are some things you should know…

First, are you financially able to help?

Parents and grandparents want the best for their children and grandchildren, yet find themselves facing a financial struggle. Even if not struggling now, if private student loans are part of the equation, might you be struggling later?

The number of older student loan borrowers has quadrupled since 2005, according to a 2017 report from the Consumer Financial Protection Bureau (CFPB). Most of the older borrowers aren’t taking on debt for themselves.

Second, how will helping impact available financial aid?

Cash can and usually does reduce the amount of aid offered.

While the gift (up to $15,000 in 2018) won’t be taxable to the grandchild, the school may count those funds as untaxed income and use it to reduce the aid offered.

Even a 529 has its drawbacks. Once the student withdraws funds from a grandparent-owned 529 to pay tuition, the money is treated as income on the FAFSA form for two years.

Frankly, there is a better way, though the way be unconventional.

Why not learn more about this unconventional method. After all, the conventional method no longer seems to work for most families.

We look forward to hearing from you!

 

How Much Will Higher Education Cost Your Family?

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As long as the annual cost-of-attendance governs the college choices of students and their families, families will rely on the award letter indicating the financial aid available to them.

Families need clarity in the financial aid award letters they receive. Unfortunately, whether intentionally or unintentionally, those letters can be rather murky indeed.

Financial aid can have many different meanings under differing circumstances. A college education often means a huge financial burden; any ambiguity in the means to pay for it can be devastating to students and their families.

Some schools are better at explaining their offer of aid; others are horrible. The worse the explanation, the more likely that a family makes a bad financial decision.

It’s clear that most letters are not drafted to speak to the student. In fact, most aren’t drafted to speak to the parent. They are best understood by the financial aid officer that prepared the letter.

The federal government has not established universal guidelines or requirements in drafting these letters. Sure, the letters could be standardized and Congress could get involved.

Even then, it doesn’t mean they’ll be understood by the student or the family.

For help in understanding your financial aid award letters and/or assistance with increasing eligibility for financial aid, please contact our professional college planners.