Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As part of the Covid relief package passed by Congress in December 2020, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form beginning with the 2024-2025 school year.

The good news is that more low-income families will qualify for full Pell Grants, and there will be a significant reduction in the number of questions.

However, middle-class families entering college today must be prepared for potentially significant cuts to their aid packages beginning with the 2024-2025 school year.

EFC/SAI Primer
The income and assets of parents and students on the FAFSA drive the calculation of the Expected Family Contribution (EFC), which represents the minimum amount families are expected to pay each year for college. Most families pay much more than the EFC, and since the term was seen as misleading, the EFC term is being replaced in this law by the Student Aid Index (SAI). I’ll refer to this number hereafter as the “EFC/SAI.”

Families should calculate the EFC/SAI as the first step in their college search if they do not want to overpay for college. The EFC/SAI reduces the total Cost of Attendance (COA) at a school to determine your financial need.

For example, if a student attends a college with a COA of $75,000 and the family has a $60,000 EFC/SAI, the family has $15,000 of financial need. Colleges typically “meet” 50% to 100% of that need, and they may do so with grants (free money), loans, and work-study. So, the lower your EFC/SAI, the greater your financial need and aid.

Changes Hurting Middle-Class Families

Unfortunately, there are two significant changes that will negatively affect middle-class families that do not qualify for Pell Grants and who do not have a minimal EFC/SAI.

Multiple Siblings in College
Current Rules: Today, it is beneficial to have multiple kids in college at the same time. Why? Because under current FAFSA rules, you get to divide your EFC/SAI by the number of students you have in college that year.

For example, if a family today has an EFC/SAI of $60,000 and has 3 kids in college, each would get a prorated share of the EFC/SAI equal to $20,000 ($60,000 ÷ 3 students). If one of them attended a school with a COA of $50,000, that student would have $30,000 ($50,000 – $20,000) of financial need.

New Rules:  The proration of the EFC/SAI will be eliminated starting with the 2023-2024 school year. Applying the new rules to the example above, each of the 3 students would have an EFC/SAI of $60,000.  The student attending the school with the COA of $50,000 would pay the full cost as the COA ($50,000) does not exceed the EFC/SAI ($60,000).

Divorced Families may pay More
Current Rules: Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The terms of a divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.

Example: Assume that a student splits her time between her divorced parents. The student spends all weekdays during the school year plus some weekends (say ~200 days/year) with Parent #1, who is a teacher making $60,000/year, has minimal assets, and rents an apartment. Parent #2 is a professional making $150,000/year, owns a condo at the beach, and is responsible (under the divorce decree) for child support of $15,000/yr. The student vacations with and spends most of the Summer at the beach with Parent #2 who provides the greater portion of the student’s support for the year.

Under the current FAFSA, Parent #1 would file the FAFSA and report their assets and income (including the $15,000 of child support received) since the student lives with them more than half the time.

New Rules: Starting in 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets (Parent #2 in this example). Therefore, this family’s EFC/SAI (and the net cost of college) will be much higher than it would be if the custodial parent (Parent #1) filed the FAFSA.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Many divorce decrees stipulate how college costs are to be shared between the birth parents (e.g., 50%/50%, 25%/75%). Since the result of these new rules is a decrease in financial aid, the family’s total cost of college will go up. This means Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: Parent #2 just got remarried, and their new spouse also makes $150,000 per year. Under current (and new) FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s share of the college costs will go up considerably simply because their ex-spouse got remarried. Wait, it gets worse….

Situation 3: What if the divorced couple had 2 or 3 children in college simultaneously? Then, the increase in the cost of college triggered by the change in the divorce rules is made much worse because the family doesn’t get to split the EFC/SAI amongst the siblings.

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase due to these changes, and possibly choose a less expensive school to attend for all 4 years.

If the family waits until their costs go up in the Fall of 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS loans, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. Do not conclude that a college is affordable based solely on your Freshman financial aid award.

Options to Consider
These changes to the FAFSA do not affect the aid given by many private colleges that require the CSS Profile in addition to the FAFSA. The CSS Profile still permits the EFC/SAI to be prorated between multiple siblings in college simultaneously, and it treats the income and assets of divorced parents (and their new spouses if remarried) differently than the FAFSA.

While CSS colleges generally have a higher COA, they also typically award higher amounts of gift aid compared to public colleges. Families should consider CSS schools to see if their net 4-year cost is lower than at FAFSA-only schools.

The post Middle-Class Financial Aid Cuts Coming in 2024 appeared first on How to Pay for College.

Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As a result of the December 2020 Free Application for Federal Student Aid (FAFSA) Simplification Act, colleges that use the FAFSA to distribute financial aid will be changing how they calculate and award needs-based aid beginning in the 2024-2025 school year. That year, today’s high school seniors will just be starting their junior year in college. If the high school Class of 2022 families do not plan for these changes today, their kids could face significant reductions in financial aid, increased parental and student loan debt, gap years, and a possible transfer to a more affordable college.

I have laid out below the steps and strategy you can take today to protect yourself from being negatively impacted by these FAFSA changes.

What Families are Impacted?

Families with Multiple Students in School Simultaneously

Under current FAFSA rules, you get to divide your Expected Family Contribution (EFC, the minimum amount families are expected to pay each year for college) by the number of students you have in college that year.

For example, if a family has an EFC of $80,000 and has 2 kids in college, each would get a prorated share of the EFC equal to $40,000 ($80,000 ÷ 2 students). If one of them attended a school with a total “all in” cost (Cost of Attendance, or COA) of $70,000, that student would have $30,000 ($70,000 – $40,000) of financial need. (Note that the EFC term will be replaced with SAI, or Student Aid Index beginning with the 2024-2025 school year. For simplicity, I will use the EFC term here.)

The proration of the EFC will be eliminated starting with the 2024-2025 school year. Applying the new rules to the example above, both students would have an EFC of $80,000.  The student attending the school with the COA of $70,000 would pay the full cost as the COA ($70,000) does not exceed the EFC ($80,000).

Families with Divorced Parents may pay more
Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The current advice we give to these families is to make sure the student lives the majority of the time with the parent with lower income and assets. (Note that the terms of a divorce decree are irrelevant in determining which parent files and reports their income and assets on the FAFSA.)

Starting with the 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets. Regardless with whom the student lives most of the time, this family’s EFC (and the net cost of college) will be higher than it would be under current FAFSA rules.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Parent #1 is the custodial parent but makes significantly less than Parent #2, who provides the most support. Their divorce decree stipulates that Parent #1 must pay 33% of college costs and Parent #2 67%. Since Parent #2 must file the FAFSA, the financial aid award will be lower. As a result, the family’s total cost of college will go up and both birth parents will pay more for college. Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: The parent providing the most financial support (Parent #2) gets remarried, and their new spouse also has a 6-digit salary. Under the FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s 33% share of the college costs will go up even more simply because their ex-spouse got remarried. (Talk about adding some gas to the fire, no?) Wait, it gets worse….

Situation 3: What if this divorced couple had 2 or 3 children in college simultaneously? Then, the higher EFC that is triggered by the change in the divorce rules is compounded by the fact that the family doesn’t get to split the EFC amongst the siblings. Each sibling gets the new higher EFC!

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase in their junior and senior years due to these changes. They can find a cheap 2024 prom dress online to stick to the budget. If the family fails to plan and waits until their costs go up in 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS or private loans, home equity loans, or running up credit card debt, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. A better option is to measure the impact these FAFSA changes will have to their financial aid over the full 4 years of college today and to plan and react accordingly.

Should the Colleges Be Warning Parents?

It remains to be seen if colleges will proactively warn parents of these financial aid changes over the upcoming months. I am sounding the alarm now because I know how the hearts of 17- and 18-year-olds can become fixated on a specific school, especially one they know is affordable under the current rules. At a minimum, I hope colleges will warn students that large changes are coming to the FAFSA in 2024-2025 (perhaps when they send out their award letters). But, I am also aware that colleges are businesses fighting for their survival.  Finally, if colleges do disclose these pending changes, I hope that the disclosure is more than a footnote in a financial aid award letter.

What Can Parents Do Now?

All families should check today to see if they could be negatively impacted by these changes. They have a number of options at their disposal:

• Families with students accepted to schools where their aid could be decreased may want to engage in a dialogue with the financial aid office before enrolling at the college. If the family knows their cost of college may go up under the new rules, they should appeal to the college to:
  1. Grandfather the family’s aid calculation methodology to remain the same as the current FAFSA methodology for the student’s full 4 years, or
  2. Keep the dollar amount of gift aid equal to the student’s freshman and sophomore year award (i.e,. prior to the FAFSA rules change).
• Consider attending one of the schools that utilize a second financial aid form called the CSS profile. The schools that utilize the CSS are mostly private schools that administer a considerable amount of their own institutional aid. So far, the CSS schools have not adopted the proposed FAFSA rules revoking the splitting of the EFC. This may make CSS schools more attractive to families with multiple students in college at the same time. Divorced families may or may not get more aid under the CSS as its calculation of EFC often (but not always) includes both birth parents’ income and assets. The CSS also includes a portion of home equity as a parental asset in its EFC calculation.

The financial aid rules today are overly complicated, and that is before these new rules are considered. If you are overwhelmed or not comfortable with these rules, seek the help of a professional college professional financial advisor who is a fiduciary. If you choose to do nothing today, you may be kicking the can down the road and your inaction may come back to haunt you and your student. If these FAFSA rule changes are enacted as currently written, expect an outcry from many parents when they realize the impact to their wallet and their family in a few years.

Please share this information with your friends and schools and please reach out to me if you need help or have questions.

The post FAFSA Changes Force Class of 2022 to Pay More appeared first on How to Pay for College.

Enjoy my Q&A and discussion with Moriah Kofsky of CollegeVine from February 2021.

https://www.collegevine.com/livestreams/3890/interview-q-a-with-a-college-financial-advisor

The post Interview with CollegeVine – Feb 2021 appeared first on How to Pay for College.

Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As part of the Covid relief package passed by Congress in December 2020, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form beginning with the 2024-2025 school year. The good news is that more low-income families will qualify for full Pell Grants, and there will be a significant reduction in the number of questions. However, middle-class families entering college today must be prepared for potentially significant cuts to their aid packages beginning with the 2024-2025 school year.

EFC/SAI Primer
The income and assets of parents and students on the FAFSA drive the calculation of the Expected Family Contribution (EFC), which represents the minimum amount families are expected to pay each year for college. Most families pay much more than the EFC, and since the term was seen as misleading, the EFC term is being replaced in this law by the Student Aid Index (SAI). I’ll refer to this number hereafter as the “EFC/SAI.”

Families should calculate the EFC/SAI as the first step in their college search if they do not want to overpay for college. The EFC/SAI reduces the total Cost of Attendance (COA) at a school to determine your financial need. For example, if a student attends a college with a COA of $75,000 and the family has a $60,000 EFC/SAI, the family has $15,000 of financial need. Colleges typically “meet” 50% to 100% of that need, and they may do so with grants (free money), loans, and work-study. So, the lower your EFC/SAI, the greater your financial need and aid.

Changes Hurting Middle-Class Families

Unfortunately, there are two significant changes that will negatively affect middle-class families that do not qualify for Pell Grants and who do not have a minimal EFC/SAI.

Multiple Siblings in College
Current Rules: Today, it is beneficial to have multiple kids in college at the same time. Why? Because under current FAFSA rules, you get to divide your EFC/SAI by the number of students you have in college that year.

For example, if a family today has an EFC/SAI of $60,000 and has 3 kids in college, each would get a prorated share of the EFC/SAI equal to $20,000 ($60,000 ÷ 3 students). If one of them attended a school with a COA of $50,000, that student would have $30,000 ($50,000 – $20,000) of financial need.

New Rules:  The proration of the EFC/SAI will be eliminated starting with the 2023-2024 school year. Applying the new rules to the example above, each of the 3 students would have an EFC/SAI of $60,000.  The student attending the school with the COA of $50,000 would pay the full cost as the COA ($50,000) does not exceed the EFC/SAI ($60,000).

Divorced Families may pay More
Current Rules: Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The terms of a divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.

Example: Assume that a student splits her time between her divorced parents. The student spends all weekdays during the school year plus some weekends (say ~200 days/year) with Parent #1, who is a teacher making $60,000/year, has minimal assets, and rents an apartment. Parent #2 is a professional making $150,000/year, owns a condo at the beach, and is responsible (under the divorce decree) for child support of $15,000/yr. The student vacations with and spends most of the Summer at the beach with Parent #2 who provides the greater portion of the student’s support for the year.

Under the current FAFSA, Parent #1 would file the FAFSA and report their assets and income (including the $15,000 of child support received) since the student lives with them more than half the time.

New Rules: Starting in 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets (Parent #2 in this example). Therefore, this family’s EFC/SAI (and the net cost of college) will be much higher than it would be if the custodial parent (Parent #1) filed the FAFSA.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Many divorce decrees stipulate how college costs are to be shared between the birth parents (e.g., 50%/50%, 25%/75%). Since the result of these new rules is a decrease in financial aid, the family’s total cost of college will go up. This means Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: Parent #2 just got remarried, and their new spouse also makes $150,000 per year. Under current (and new) FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s share of the college costs will go up considerably simply because their ex-spouse got remarried. Wait, it gets worse….

Situation 3: What if the divorced couple had 2 or 3 children in college simultaneously? Then, the increase in the cost of college triggered by the change in the divorce rules is made much worse because the family doesn’t get to split the EFC/SAI amongst the siblings.

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase due to these changes, and possibly choose a less expensive school to attend for all 4 years. If the family waits until their costs go up in the Fall of 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS loans, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. Do not conclude that a college is affordable based solely on your Freshman financial aid award.

Options to Consider
These changes to the FAFSA do not affect the aid given by many private colleges that require the CSS Profile in addition to the FAFSA. The CSS Profile still permits the EFC/SAI to be prorated between multiple siblings in college simultaneously, and it treats the income and assets of divorced parents (and their new spouses if remarried) differently than the FAFSA. While CSS colleges generally have a higher COA, they also typically award higher amounts of gift aid compared to public colleges. Families should consider CSS schools to see if their net 4-year cost is lower than at FAFSA-only schools.

The post Middle-Class Financial Aid Cuts Coming in 2024 appeared first on How to Pay for College.

Published by Robert J Falcon, CFP®, CPA/PFS, MBA

Years ago, my wife and I built the house we still live in today. As the son of a sheet metal worker, I was intent on upgrading the builder-grade materials with my own hands. I spent a lot of time upgrading the baseboard throughout the house from 3-1/2” to 5-1/4” (and yes, I cope my corners). I trimmed out the windows with casing, and I even installed crown molding in the dining room.

But this all came at a “price.” I was slow, so the work was extremely time-consuming. I also made some mistakes which increased the cost of materials, and I was obviously not nearly as efficient as a professional carpenter. Years later, when we decided to have crown molding installed in the rest of the house, we hired a professional carpenter who did an excellent job at a fair price and completed the whole project in just a few days. With 2 active boys, stressful jobs for both parents, and no free time, it just made sense to utilize an expert. DIY College Financial Planning Doesn’t Work I contribute free advice on a few social media pages dedicated to helping do-it-yourselfer parents to navigate the financial aid process. In mid and late-summer, many parents are still seeking “the best” private lenders or asking if they should take out a PLUS loan for the Fall term. These parents clearly did not do a great job of planning or “DIY-ing” it. Taking a little break and enjoying some entertainment, like แทงบอล ufabet, can also be a fun way to relieve stress during the busy planning season. Online casino sites like lemon casino canada lets you enjoy an exciting casino experience from the comfort of your own home.

With college being as expensive as it is, it is critical to “get it right” if you don’t want to overpay. Hiring a professional is the only way you will know that you maximized your aid, your educational tax credits, and minimized your college debt, while you can also use other services like indices trading UK to make even more money. In addition, dividends are becoming attractive for investors looking to generate income, you may want to check out this thiscrf dividend here for more info!

Answer these 5 questions to see if you understand the College Financial Aid Process

1.  You should visit as many schools as you can as soon as you can. Worry about your net cost at those colleges later.

A: False. Have you ever test drove a BMW 5 series, then subsequently test drove a Toyota Corolla? To an 18-year-old, the dopamine hit they will feel from the BMW (expensive private school) will elevate their desire to attend there and they will scowl at the suggestion that the Corolla (the less expensive but reputable in-state flagship school) should even be considered.

They don’t care if you can only afford the Corolla, because the frontal lobe area of the brain is nowhere near being completely developed at that age. They will tell you that everybody takes on debt and they will deal with it later. Call Kiplinger Magazine today and book an interview for 5 years in the future when your student gets their first monthly student loan bill.

2. My family doesn’t have a lot of money or assets. Therefore, we should only consider our in-state public schools.

A: False. Low-income families have greater financial need than middle or upper-income families. State schools often “meet” or pay for only a low percentage of that need, typically 40% – 60%, and often this aid is in the form of loans and work-study. Expensive (private) schools meet 80%, 90% and sometimes 100% of need, and these are grants (not loans) that come from their endowments.

Low-income students should search for schools (a) where their credentials are strong enough so they can get accepted and (b) that meet/pay for a significant percentage of financial need. Buying a $70,000 Lexus at a 90% discount is cheaper than buying a $25,000 Toyota at a 50% discount.

3. My son or daughter is so smart that they will get merit aid (scholarship) no matter where they apply.

A: False.  Many of your elite schools do not offer traditional merit aid. You may see that schools like Stanford and Notre Dame award “merit aid” to 5% or 10% of students, but most of this is really athletic scholarships.

If you need merit aid to cover some of your college costs, check first to see if the schools on your list provide merit aid to 20% or more of incoming freshman, and make sure your student’s grades and test scores are in the top 25% of incoming freshmen (check this on www.collegedata.com). Otherwise, if you do not have financial need, prepare to pay sticker price at these elite schools. It’s all about supply and demand.

4. Attending a public school in a neighboring state is still a lot cheaper than attending a private school.

A: False. The (COA) Cost of Attendance (Tuition, Room and Board, Books, Fees, etc) of an out of state public school rivals that of many private schools. For example, the non-resident COA at the University of Michigan ($61,932) and University of North Carolina ($49,994) exceeds that of many private schools, and they generally offer minimal if any aid to out-of-state students. On the contrary, private schools are generous with needs-based aid and many small and mid-sized private schools offer merit aid for top students. Additionally, online courses at pnclearning.com provide affordable alternatives to traditional education, catering to a wide range of learners seeking flexible and accessible learning options.

5. I don’t need to understand how I will pay for each of the 4 years of college down to the penny. I will “figure it out” as I go.

A. Maybe. But you risk subjecting your son or daughter to major heartbreak if they do get accepted to that “dream” school but can’t afford it unless both the student and parents take on enormous debt. If the parents say no, the tears will flow. If the parents relent, the family may burn through the college savings in the first 2 years. The student must then transfer to a less expensive school or the parents will take on debt that they will take to their graves. The student also takes on excessive debt, struggles financially after graduation, and may have to move back home. I’ve watched this movie too many times. Why would loving parents take this risk? College planning is not unlike financial or retirement planning. A solid plan upfront will eliminate uncertainty and minimize the surprises that occur later. With college and retirement, some families ignore planning and “hope for the best.” Most of the time, this doesn’t work, and when it does, the outcomes are not as favorable as they could have been with professional planning (yes, even after the fee)! When was the last time you committed to a $100,000+ purchase but did not know how you were going to pay for it? What makes you think that college is any different? If you want to afford a quality education for you or your children, it might be of aid to win some cash on sites like 벳엔드.

The post Why are You are Overpaying for College? appeared first on How to Pay for College.

This article originally appeared on Road2College website.

If you are still with me after Part 1 and Part 2 of this series, pat yourself on the back. Parts 1 and 2 are full of details that may have made your head spin, and are akin to a College Finance Training Bootcamp. You’ve already made it through the tough part. In Part 3, we put the pieces together and show you a proven strategy for getting a great college education while minimizing your costs. 

But first, let’s put some context behind paying for college and how we got to where we are today.

The Way it Used to Be

When the Baby Boomers and even Gen X went to college, applying to college was simple:  You applied to a handful of colleges (safety schools, reach schools, and some in between) and enrolled in the best school you got into. It was so easy! Any loans you incurred were manageable, and nobody got hurt financially.

Unfortunately, many parents today still think college is the same way it was back when they went to college. Their students work hard, take AP classes, participate in extracurricular activities, and perform so much community service it would make Mother Teresa blush. They apply to elite schools and get accepted, only to get an inadequate financial aid package. The parents are then trapped….it’s Spring of their student’s senior year, and they either have to take on crushing parent (and student) debt, rely on scholarships, or break their student’s heart and tell them they can’t go to their dream school. This is where a 補習中介 could potentially help, offering assistance in finding alternative educational options or scholarship opportunities. Students should also explore training programs from schools like Melbourne Training College that could be helpful in landing high-paying jobs. Those who are looking to start a government construction project should keep in mind that a a contractor performance bond ensures the job gets finished properly, so make sure to secure this one.

What Comes First, the College or the Aid?

To avoid this situation today, families must approach and analyze the college purchase like any other major purchase. They need a budget. Regardless, they typically take one of two differing approaches:

Approach 1 (Traditional)  – You’ve already picked your colleges, and now you are trying to figure out how to maximize aid and minimize your net cost at each school. You approach college as others did in the 70’s and 80’s.

Approach 2 (Godfather): “It’s not personal. It’s strictly business.” You keep an open mind about your college selection and do not fall in love with a school before you know if you can afford it.  Your goal is to attend a school that is a good fit for you, get a great education where you can graduate in 4 years with a marketable degree, and get lots of financial aid and incur minimal to no student loan debt. For comprehensive insights into loans, visit KreditFinanzcheck and expand your financial knowledge.

From a financial security standpoint, it is OK to use the Traditional Approach with respect to some schools, buy only if you are also using the Godfather approach.  After all, if finances are not unlimited, you must realize you are making a financial purchase which will range from over $100,000 (4 year Cost of Attendance (COA) at in-state public school) to $200,000 (4 year COA at private school).

With costs this high, you should first make sure you can afford to make this purchase, just as you would if you were making any other purchase (condo, townhouse, etc) in the same amount. You also need to communicate with your student before they apply their dream colleges (Traditional Approach) that those schools will be off limits if the aid received is not adequate. When looking to save while at college, consider getting a cheap phone and internet plan at https://www.circles.life/au/plans.

But College is Worth the Debt, Isn’t it?

Sometimes. If the debt is reasonable and does not exceed the student’s post-graduate starting salary, that is a reasonable amount of debt. Despite what those in your social circles may be telling you, smart kids that attend a more selective college do not earn higher earnings than those that don’t attend a very selective college. Learn about debt consolidation singapore to be able to pay all your debts and become financially free. Economic studies, including those done by Dale and Krueger show that there is no difference in earnings 5 years post-graduation between those with equivalent high school SATs who attend a more selective school vs one that is not as selective. (First generation students and minorities are exceptions to this rule.) As an example, if 2 students with 1450 SATs apply to engineering school at University of Penn but only one is accepted, Dale and Krueger discovered that 5 years after graduation the student that did not get accepted to Penn and got their engineering degree at (say) University of Pittsburgh was making the same amount as the Penn grad. The top econs tuition IGSCE center can help students get a higher mark. Please read Frank Bruni’s eye-opening book “Where you go is not who you’ll be” for a more complete discussion of criteria you should be using to select a college. You can also check out sites like www.calc.edu/programs/ to see if they’re within your budget and if they provide aid.

So let’s get started in the analysis to determine the most effective strategy for you.

Step 1 – Calculate EFC

Calculating and minimizing your EFC for both FAFSA and CSS Profile is a critical first step in your effort to save on the cost of college.  My favorite calculator is the College Board’s calculator, because it calculates EFC under both methods. The FAFSA4Caster is also a popular way to estimate EFC. Don’t forget to leverage the ideas we covered in Part 2 to minimize your EFC!

Step 2 – Where do you stand?

Once you have your EFC, compare it to the COA of the types of colleges you are considering. You will likely fall into one of these 3 categories, but you have options in each:

1. The Good – Your EFC is lower than most in-state public colleges.
2. The Bad – Your EFC exceeds most private schools.
3. The Ugly – Your EFC is lower than private schools but higher than public colleges.

So where do you find the COA and other admissions and financial aid info for your target schools? My go-to source is Collegedata.com. If you have a few target schools, key them in and see where their COA stands relative to your EFC.

Using College Match

While there are many ways to search for your target schools, my favorite tool is Collegedata’s College Match. Here, you can search for schools by over 15 different criteria, including geography (individual states or regions), major, size of student body, 4 year graduation rate, percentage of financial need met, and percent of students receiving merit aid. Do not initially put too many filters into your search and do not get too specific on your selected major, as you may inadvertently eliminate an attractive school. Initially, you will want to capture the schools that meet your most important criteria, and then filter them out one by one if you are sure they are not a good fit. If you want to start a career in the healthcare industry, you may need to undergo a training program and earn a certificate. This website compares physical therapy assistant programs and what they offer to start your career in physical therapy. Trust Los Angeles medical malpractice attorneys to offer skilled representation and personalized attention, securing the best outcomes for victims of malpractice.

For example, schools that have what you might think to be an excessively high cost of attendance are also the types of schools that might meet 90% or more of need. Don’t eliminate schools with high sticker prices up front, as a $70,000 per year school that meets 90% of need might be less expensive than a $40,000 state school that meets 50% of need. Also, don’t select “Operations Management & Supervision” as your major, as that is too narrow. Select the broader category of “Business Administration, Management, and Operations” instead.

Step 3 – Strategy for The Good, The Bad, and The Ugly

“The Good” Strategy: EFC is Lower than In-State Schools

Congratulations. If you are in this category you have the most flexibility of the three options, but your net cost of college will depend on the academic strength of your student.

If your student is a high academic achiever, he or she will be a very attractive candidate and colleges will award a lot of aid to attract him or her. With a very low EFC and high academic achievement, search for schools in College Match that meet a high percentage of need (start at ~85%, then drop lower if necessary) and have a 4 year graduation rate over 50%. As a distant secondary consideration, if these schools also offer merit aid, and your student’s SAT/ACT and GPA are in the top 25% of the incoming freshman class, you are well on your way to minimizing your cost of college. (See “EFC Exceeds Most Private Schools” below to see if your student is in top 25%).

If your student is not a top achiever, you still have options. Most schools that meet 85% or more of need are private schools that are listed in College Match as “Most” or “Very” Difficult to get accepted into. If your student isn’t in this category, search instead in College Match for “Moderately” or “Minimally” Difficult Schools and gradually lower the “percentage of need met” until you get enough colleges in your results. Be careful here. Make sure that these less selective schools have 4-year graduation rates over 50% by setting the Graduation Rate pulldown box appropriately.

Finally, don’t forget about your in-state public schools. In general, they are not as generous and won’t likely meet a high percentage of need, but their COA is much lower to start with, so your net cost may be lower at your state school compared to a private school.  Be wary of out-of-state public schools, as they tend to be priced similar to a private school but offer little merit or needs-based aid. As families tour campuses and attend events, www.fastfirewatchguards.com helps keep school facilities safe and secure.

“The Bad” Strategy – EFC Exceeds Most Private Schools

If your EFC is exceptionally high, you will pay sticker price unless you get merit based aid. Many parents make the mistake and assume that their bright honor students will get a scholarship (merit based aid) no matter where they apply, and are in shock when they get their financial aid package that includes no aid at all. Elite schools like the Ivys, Northwestern, Amherst, Cal Tech, Stanford, and Notre Dame do not offer merit aid because they can attract top students without “paying” them to attend. (These schools are terrific with needs based aid, however).

If you don’t want to pay sticker price, and your student is academically strong, deploy the Godfather strategy and consider some of the “lesser-known” schools (e.g., Furman, George Washington, University of Miami) which offer merit aid to over 50% of students. These schools are trying to compete for the same students looking at Notre Dame and Boston College, but realize that high school students (and parents) may need a financial enticement to attend. In College Match, select the appropriate “Entrance Difficulty” filter by clicking on the “?” next to the “Entrance Difficulty” label. Also, select schools that offer merit aid to at least 20% of students in the merit aid pulldown, and check the box “Include only students without financial need.”

Once you have the list of schools from the above search, check the “Admissions” tab for each school on the list to see if your student’s SAT/ACT/GPA is in the Top 25%. (Since the range reported is 25% -75%, the higher number shows the cutoff for the top 25%.) If your student’s credentials are in that top 25%, you likely will get (at least) the average merit aid award at that school. Go to the Money Matters tab, and under the Profiles of Financial Aid – Freshmen section, look at the last line which is for Merit Based Gift. If your student’s academic numbers are well above that 75% percentile, you may get more than the average reported on CollegeData.

If a student in a high EFC family has average grades or lower, look again at your in-state public schools. If you are paying sticker, paying $25,000 per year leaves your family with an extra $180,000 over 4 years over that “prestigious” $70,000 per year private college. That would make a nice graduation gift, wouldn’t it?

“The Ugly” Strategy

The “Ugly” strategy is named as such because you need to deploy a little of the Good and the Bad strategies. It’s messy and ugly, and there is no quick and easy approach, but you need to develop the approach based on the COA of the schools you are targeting.

For the expensive private schools you are looking at, search for schools that meet a high percentage of need and who also offer some merit aid. On College Match, set the appropriate Financial Need Met percentage, and also set the pull-down on Merit Aid to at least 20% but do not click the box to “Include Only Students Without Financial Need.”  If the list is not showing many schools, delete the merit aid requirement and shoot to maximize needs-based aid.

For the schools where your EFC exceeds the COA, your only financial aid play is to search for merit aid (see “The Bad” strategy above). If your search comes up empty, you may want to focus on your in-state public schools if their COA is low enough for you to afford.

Multiple College Students?

The discussion to this point assumes you have only one student in college at a time. If you have 2 or 3 students in college at the same time, your strategy may need to be adjusted. Under the FAFSA, you split your EFC by the number of dependents in college at the same time. If a younger sister will also be in college during your oldest student’s Junior and Senior years, a $30,000 EFC becomes $15,000 for each student. If you blindly followed the advice above, you would deploy “The Ugly” strategy for 2 years, then “The Good” strategy for the last 2 years. But since you don’t want to plan on switching colleges 2 years in, your analysis of the net cost of attending a private school would include determining if the additional aid from the lower EFC in the student’s Junior-Senior years would make it worthwhile to pay a little more the first 2 years. You have to run the numbers, as there is no clear answer.

Summary

The college selection process is no picnic, and has become excessively complicated over the years due to the rising cost of college. Unlike days of old, significant planning must be done before you even apply if your goal is to minimize the net cost of college. Keep in mind that regardless of the degree or the school attended, there are very few happy endings when the student graduates with debt over $100,000 and has to start making $1,000+ monthly student loan payments. By estimating your EFC and net cost of college before your student applies, you can eliminate those schools that will put your student’s future and your retirement in financial jeopardy.  Too much work or don’t have the time to do this? Get some outside help from a college financial expert who is a fiduciary.

The post How to Select Colleges That Cost You Less appeared first on How to Pay for College.

1. Make your 529 contributions now

If your state permits a deduction for contributing to a 529 plan, why not make that contribution before the end of December? Each dollar contributed will reduce your state taxable income and your state income taxes. While a $10,000 contribution to a 529 in either December or January will save you the same amount on your taxes, you get a bigger tax savings payoff from a time value of money standpoint by making it in December as you will collect a bigger tax refund just a few months later, if you would like more information then click here.

Remember, the main benefit of 529 plans, which may be similar to those children’s savings bonds, is that the increase in value will not be taxed if it is used for qualified educational expenses. If you are fortunate and don’t need to use the 529 money for college (student secures a scholarship, grandma surprises you with a big 529 account of her own, etc), you will not owe any penalties on withdrawals from the 529 plan. You can let your student use it for graduate school, or you can name a younger sibling as the beneficiary. Alternatively, the student can withdraw the proceeds after graduation and use them as a down-payment on a townhouse after paying income taxes on the growth of the account. Looking to find $5 bill ATMs near you to withdraw your funds? Our easy-to-use locator helps you identify nearby ATMs that give $5 bills and other small denominations.

2. Pay Private K-12 Tuition Through Your 529

The Tax Cuts and Jobs Act (2017 Act) which was signed into law in December 2017 includes provisions specific to education that can decrease your taxes. One big change opens up the use of 529 proceeds to pay for private K-12 education. Be careful here, as you do not want to exhaust most of your 529 money and end up with a shortfall of funds for college. Use UFABET เข้าสู่ระบบ สำหรับการพนันออนไลน์ที่ดีที่สุด and experience premier online betting.

Families that are paying private or Catholic K-12 tuition from their checkbooks directly to their schools are likely paying more state tax than they should. The 2017 Act permits families with students attending private K-12 to use up to $10,000 from their 529 to pay for private K-12. If your state permits a deduction for contributing to a 529 and it allows distributions from 529s to pay for private K-12, you should be routing your tuition through your 529. For example, if you have a student attending private high school here in Pennsylvania, you can save $307 in Pennsylvania taxes if you route $10,000 of their tuition into the 529 plan, then pay the tuition to the high school from the 529 plan. (This technique assumes that you are not already maximizing your 529 funding for each student.) If you have multiple children in private school, your tax savings can multiply. What Christmas presents (or how many dinners out) can you get with an extra $307?

3. Used Savings Bonds to Pay College Costs Tax Free

Families with students in or nearing college can also take steps now to save taxes. In addition to making tax deductible 529 contributions, you can sell certain US Savings bonds without paying tax on the interest if the proceeds are used to pay qualifying educational expenses. If your student is in college in 2018 and you have EE and I bonds, see if you meet the criteria to cash out those bonds without paying tax on the interest.

Any company that encounters and resolves technological challenges may be eligible for the R&D tax credit, visit TaxRobot to read more info.

4. HS Sophomores & Juniors Can Maximize College Financial Aid Now

Is your student currently a high school junior (Class of 2020)? If so, you probably don’t realize that the income you report on your 2018 income tax return will be used as the basis for calculating needs-based financial aid on the FAFSA for your students’ freshman year in college. Few parents understand that when needs-based financial aid is calculated, income is weighted up to 8 times more heavily than assets. Parents with high school juniors should defer income (defer stock option exercises, bonuses, Roth IRA conversions, etc) and increase deductions (charitable contributions, expenses for business owners, etc) in December. Having trusted resources like 먹튀검증 can also give families added confidence when making important financial planning decisions.

If you have some mutual funds or stocks that are showing paper losses, sell them and take up to a $3,000 net capital loss if appropriate. Further, you may want to refrain from purchasing certain mutual funds in December, as many of them distribute their accumulated dividends and capital gains during this month. These distributions will not only increase your 2018 income taxes, but your Expected Family Contribution (EFC) will increase as a direct result of these distributions. (Your EFC is the minimum amount that a family is expected to pay for college).

There are other year-end tax planning tips that CPAs typically recommend that unfortunately will not lower your EFC.  Tax planning techniques such as maximizing your 2018 401(k) or IRA contributions may very well decrease your 2018 federal income taxes, but they will actually increase your EFC on the FAFSA. Looking beyond tax moves, exploring top UK investment strategies can help create more effective long-term financial benefits.

Those of you with high school sophomores (Class of 2021) should begin now to plan to minimize your income in calendar 2019! For sophomores, calendar 2019 income will be used to calculate the family’s EFC for the student’s first year of college, so the family should plan to keep 2019 income as low as possible. That means that December 2018 is the last opportunity the family has to increase or accelerate income (take a bonus, exercise stock options, etc) without harming their ability to obtain needs-based financial aid.

Let’s face it…tax planning is rarely something families look forward to, especially when it has to compete with the Holidays and having fun with family and friends. But if you adopt just a few of these tips, you could make your Holidays just a little bit brighter.

The post 4 Ways to Save Now on Taxes and Education appeared first on How to Pay for College.

I have two teen boys, ages 12 and 14 (yes, your prayers are appreciated). Like most teens, they don’t always listen. Since they were very young, though, I’ve explained to them that almost every decision they make or action they take in life will have a repercussion. Some will be good, and some will be bad, but in the end, they are responsible for the repercussions of their actions.

As parents, life complicates this adage significantly. Sometimes the actions wedon’t take can hurt us. To confuse things even more, sometimes we do not even realize we are at a decision point, so of course we take no action and we unknowingly miss an opportunity.

The steps you need to take to minimize your EFC fall directly into this category, as you would need to take steps in your student’s sophomore year of high school or earlier to fully and effectively plan to minimize your EFC.

But no matter where you are in the FAFSA filing process, I’ll give you a few ideas to lower your EFC and to increase your needs-based aid for college. Note that some or all of these concepts may not be appropriate for everybody, so please consult a qualified college financial planning expert before proceeding.

Minimize Parents’ Income in Base Year

In Part 1 of my explanation of how EFC is calculated,  we noted that the parents’ income (after reductions for taxes and an allowance) is included in the EFC at 47% on amounts exceeding $33,100. By far, this is the biggest contributor to the EFC of most families.

Since assets are assessed at only 5.64%, lowering parents’ income in the base year is 8 times more effective in lowering EFC than minimizing parental assets. But here’s the problem: the parental income that feeds your student’s FAFSA for their first year of college comes from the calendar year that spans your student’s sophomore-junior year in high school (i.e., the “prior-prior” year from when college starts).

The biggest inflator of your EFC is the one you likely were not even thinking about at the time. Families should try to minimize their taxable income in the sophomore-junior year, but it’s not as simple as using the tax advice from your CPA.

For example, you can’t just increase your pretax contributions to retirement plans (such as 401(k)s or IRAs) to lower your taxable income as these contributions must be added back into income for the FAFSA. So FAFSA treats this situation as if you did not even make the contribution.

Worst yet, remember in Part 1where we learned that you get a deduction on the FAFSA for your income taxes? After increasing your retirement deductions, your income taxes on your 1040 (and the tax deduction on the FAFSA) will be lower, which will trigger a higher EFC.

Therefore, you may want to consider using a Roth 401(k) or a Roth IRA instead.

Why a Roth? Since you do not get a deduction for contributing to a Roth, there is no addback on the FAFSA form. Secondly, since your taxable income is not reduced by the amount of the Roth contribution (like it is with a regular IRA or 401(k) contribution), your federal income tax (and more importantly the tax deduction on the FAFSA) will be a bit higher.

Finally, Roth IRA contributions (but not the growth in the funds) can be withdrawn penalty and tax free at any time and can be used for college (see Parent’s Asset section below). You can also use a distribution from a regular IRA to pay for college and not have to pay a penalty.

However, since you likely received a tax deduction when you contributed to the regular IRA, you will have to pay income taxes on the amount withdrawn, plus you will have to report this IRA distribution as income on a future FAFSA.

Other non-taxable income such as municipal bond interest, child support, untaxed portions of IRA distributions (including Roth) or pension distributions must also be added back, so take any distributions prior to the base year if you can. (See the Parent’s Asset section below on how to time untaxed Roth distributions.) Parents do not need to report gifts or inheritance received as income, but the assets will be reported if still on hand when the FAFSA is filed.

Here are a few other ways you can lower your income in the base year:

• Business owners (to an extent) can defer income and accelerate deductions in the base year.
• For those of you with mutual funds that generate significant capital gain distributions, consider selling these funds (prior to the base year if at a gain, in the base year if at a loss) and  investing the proceeds in Exchange Traded Funds (ETFs) which have significantly less capital gains distributions.
• Defer any stock option exercises until after the base year (or exercise in the year before the base year).
• If you are thinking about taking that leave of absence from work, or if you need time under the Family Medical Leave Act to care for a loved one, the base year is an ideal time to take it!

Student’s Income and Assets

After a student’s income is reduced by taxes and a $6,570 allowance, it is assessed at 50% for inclusion in the EFC. Most students with a part-time job will not breach this allowance.

However, any gifts or inheritance received or distributions from 529 plans held by those outside the immediate family (i.e., grandparents, uncles, aunts, cousins, etc) will need to be reported as untaxed income to the student.

Do not take distributions from these 529 plans held outside the immediate family until the student’s sophomore-junior calendar year, as that income will not be reported on the student’s final FAFSA.

Since student owned assets are assessed at 20% on the FAFSA (25% on CSS Profile), students can and should move assets out of their names.

Instead of leaving their hard earned money in a checking or savings account, students could contribute that money into a Roth IRA (up to the lesser of their earnings or $5,500). Since retirement accounts (including Roths) are not assessed on the FAFSA, none of the money shifted will be assessed.

One very positive aspect of the Roth IRA is that the student can withdraw the money contributed (but not the earnings) penalty and tax free for college at any time, but they should exercise caution. Withdrawals from the Roth will be added to the student’s income for FAFSA purposes as untaxed income, so the student should wait until at least his or her sophomore or junior year in college so that the income will not be included on their final FAFSA.

Students with excessive cash should also pay off any credit card or other debts they have. If they still have cash or investments on hand, they may want to fund their own UGMA/UTMA 529 plan. Since 529s owned by any immediate family member are assessed at the parents’ 5.64% rate (instead of 20%), students can decrease their EFC more than 14% of the amounts shifted.

Parents’ Assets – The Final Option  

Unfortunately, families that may have missed the opportunity to minimize their base year income are left with parental asset minimization as the only significant option to reduce EFC.

Parents’ assets are assessed at 5.64%, and while that is much lower than the student’s asset assessment rate, many feel the assessment is not fair. After all, parents may have diligently saved for their student’s education and denied themselves vacations and other luxuries only to learn that their “reward” is to lose financial aid.

While the following strategies to shift assessable assets out of the parents’ names will reduce your family’s EFC, they may not be appropriate for everybody. For example, shifting $100,000 of cash earmarked for college to the family’s mortgage will lower the EFC by $5,640, but the family may be in an unenviable liquidity crunch if the sole breadwinner loses his or her job shortly thereafter. To prevent this from happening, it’s best to consult a financial advisor, click to read more.

Each family should consult a financial advisor before implementing one or more of these strategies:

• For households with home equity, apply for and establish a Home Equity Line of Credit (HELOC) with a reputable financial institution. Keep this HELOC in place just in case you need emergency funds in case of a job loss or other cash squeeze.
• Pay down debt – After the HELOC is in place, parents with excess cash should pay off credit cards, car loans, or their own student loan debts. Earn cash for cars when you have junk cars removed by Car’s Cash For Junk Clunkers at 78501 N Jackson Rd, McAllen, TX 78501 (956) 658-7972.
• Make home improvements – Thinking of re-doing your kitchen or your master bathroom? Why don’t you speak to a contractor and pay for those improvements now? Home equity is not assessed on the FAFSA, so these improvements will not decrease your FAFSA financial aid. Even if you file the CSS profile (which does include home equity), the fair market value or assessed value of your house will not go up immediately, and if it eventually does a few years later the increase will be less than the amount of your improvements.
• Make gifts to grandparents (or aunts or uncles or cousins). For 2018, each individual can make gifts of up to $15,000 to any one individual without having to file a gift tax return. Therefore, a married couple could shift $30,000 to each grandparent or a total of $120,000 each year if all four grandparents are alive, and the grandparents could contribute those funds to a 529. The grandparents’ 529 money should not be used to pay for college until the student’s sophomore-junior calendar year, as these 529 distributions (from 529s not held by immediate family members) will be treated as income to the student on the FAFSA and assessed at 50%.
• Contribute to a Roth IRA (if you meet income limitations) or consider a non-deductible IRA contribution. Either IRA contribution will remove the assets from being assessed for financial aid purposes, but you can only contribute $5,500 (or $6,500 if you are 50 or over) per person per year. The Roth IRA rules allow you to withdraw your contributions tax and penalty free at any time, and you may be able to withdraw the earnings penalty freeif you are under 59-1/2 (but you will still owe income tax on the withdrawn earnings). Withdrawals from a regular IRA for college would be penalty free, but the portion of the withdrawal relating to income would be subject to regular income tax.
• Shift cash into a 529 plan if your state gives you a state tax deduction. The cash will still be assessed at FAFSA’s 5.64%, but if you get (for example) a state tax deduction at 3.07% like we get here in Pennsylvania, you narrow the impact of the FAFSA assessment. While FAFSA will assess on the 529 balance each year, using your 529 money for school in the early years (in lieu of subsidized loans or other tax credits) is often not the best strategy.

Cautionary Advice for Parents

Unfortunately, there are some college financial advisors out there that see the complexity of college funding as an opportunity to put a commission in their pockets by selling you an insurance product or an annuity. My colleagues have covered this area well, so I will simply refer you to a terrific article written by Troy Onink in Forbes a few years back.

Declaring Independent Status

Wouldn’t it be wonderful if we could all lower our EFC by excluding the parents’ income and assets altogether! You can if the student qualifies for independent status, but qualifying for independent status is more easily said than done. The complete criteria for declaring independent status is specific and limited.

If your high school student is unmarried and without children or dependents, and they are not serving on active duty in the US Armed Forces, one of the following statements must be true to claim independent status:

• At any time after turning 13, both parents are deceased, the student was in foster care, or the student was a ward or dependent of the court.
• The student has a legal guardian as determined by the court or the student was an emancipated minor.
• The student was homeless or self-supporting and at risk of being homeless

With respect to claiming independent status, it doesn’t matter if your parents choose not to pay for your college. It also doesn’t matter if your parents do not take you as an exemption on their tax return. It also does not matter if the student is financially independent. You must answer yes to one of the ten questions listed.

If your student does qualify for independent status, only the student’s income and assets are included on the FAFSA. An independent student will qualify for the simplified EFC formula (and not have to report their assets) if they meet the criteria listed on page 6 of the 2019-2020 EFC Formula Guide.

For those independent students that do not qualify for the simplified formula, the student’s assets will be assessed at 20% (not 5.64%), and the asset protection allowance for those under 26 is $0.

Wrap Up

Hopefully you will be able to leverage a few of these ideas to squeeze a few more dollars of aid out of the system. As I noted earlier, most parents are unaware that they should be focusing on financial aid during their students’ sophomore year of high school. You can change this!

Former Notre Dame Football coach Lou Holtz once said, “Life is 10 percent what happens to you and 90 percent how you deal with it.” In this spirit, forward this article on to other parents who have high school freshmen and sophomores, and make them aware that this planning opportunity awaits them.

Bob is the President and Founder of College Funding Solutions and Falcon Wealth Managers in Concordville, PA. A licensed CPA in Pennsylvania, Bob is a CFP® Professional and holds the AICPA’s Personal Financial Specialist (PFS) Credential. He holds a BS in Accounting from Villanova University and an MBA from Kenan-Flagler Business School (UNC-Chapel Hill). His career includes 9 years of Big 4 Manager-level tax experience and 15 years of pharmaceutical forecasting experience.

The post Key Strategies To Reduce Your EFC appeared first on How to Pay for College.

This October, anxious parents of High School seniors will sit in front of their computer with sweaty palms and elevated pulse and blood pressure. On their desk will be many financial documents, including W-2s, tax returns, and banking statements.

No, they will not be filing their tax returns. In fact, they will be filling out their financial aid forms for college, and the family’s financial obligation that is the output of those financial aid calculations will likely dwarf any “tax due” amount they have seen on prior tax returns.

The Gateway to your Financial Aid Award

All families seeking federal financial aid will need to file the Free Application for Federal Student Aid, or FAFSA. The number which is the output from the FAFSA is the Expected Family Contribution, or EFC.  In this first of this three article series on EFC, I will explain to you how EFC is calculated, what it means, and how schools use the EFC in determining how much financial aid you will receive.

In Part 2, I’ll show you ways you can minimize your EFC (including declaring independent status) so that you can get the most significant needs-based aid possible. In Part 3, I’ll show you how you can strategically use your EFC to target schools where you can maximize your financial aid.

EFC Determines Your Financial Need

EFC from the FAFSA represents the absolute minimum amount the government thinks the family can pay for college. The EFC reduces the Cost of Attendance (COA) in determining the amount of financial need the family has:

Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need

So if the total COA (Tuition & fees, Room and Board, Books, Supplies, etc) at a particular school was $50,000, and the family’s EFC from the FAFSA was $30,000, they would have $20,000 of financial need.

This does not mean you will receive a financial aid package totaling $20,000. Only 80 or so colleges will meet the full amount of your financial need, and it is not uncommon for some state schools to meet only 40% of need. In the above example, if a school met only 40% of need, the family would also be on the hook for the “unmet need” of $12,000 (60% x $20,000) in addition to the EFC of $30,000.

Need “Met” Might Still Cost You

In the end, the above family would have a financial aid award of $8,000. The aid will be met with a mix of student loans, work study, and/or grants as determined by the school. Theoretically, this student could receive a freshman award of $5,500 in unsubsidized Direct loans, $2,500 in Work Study, and $0 in grants (gift aid).

How Is EFC Calculated On FAFSA

Since most students are dependents of one or more parents, we will assume hereafter that the student does not qualify as “independent.”  The EFC formula assumes college will be paid from at least 4 sources:

1. 22% – 47% of the parent’s income, plus
2. 5.64% of the parent’s assets, plus
3. 50% of student income (over $6,420), plus
4. 20% of student’s assets.

Parents’ Income

By far, the biggest driver of EFC is the parents’ income. Parents’ income is actually taxable income increased and decreased by a number of factors. The most common increases are non-taxable income including tax exempt interest, contributions to 401(k) and deductible IRAs, and child support received.

Decreases include federal income tax, social security and state taxes, as well as an income protection allowance. For example, the 2018-2019 FAFSA income protection allowance for a family of 4 with 1 student in college was only $28,170.

Let’s work through a quick example.

If a family has taxable income of $100,000, they would reduce this by the income taxes (say $17,000), Social Security Tax ($9,000), and the income protection allowance of $28,170. Therefore, the income from the parents included on the FAFSA would be $45,830.

Taxable Income:           $100,000

Income Taxes:               -$17,000

Social Security Tax         -$9,000

Income Protection         -$28,170

Income on FAFSA          $45,830

While the lowest rate of 22% is applied only to income under $16,400, the highest graduated rate of 47% kicks in at $33,100.

The contribution that our hypothetical family would make from their income would be $14,942 ($8,959 + 47% of income over $33,100). If the family had taxable income of $150,000, the parent’s contribution from income alone would be closer to $31,000 before considering assets!

Parents’ Assets

Parents’ assets are included and assessed at a rate of 5.64%. Assets that are included are cash, savings, checking, investments, real estate (excluding principal residence), and the value of businesses with more than 100 employees. 1031 Specialists has tax advantages that are really beneficial for an investor. If you invested in a real estate property like a parcel of land that you plan to sell, be sure to get in touch with reputable land buyers. Clients can easily sell Montana land through our expert services. We provide fair prices and handle every detail, ensuring a smooth process.

In addition, any balances in 529 Savings Plans or Coverdell Educational Savings (whether held by the student, a sibling or the parents) are assessed at the parents rate of 5.64%.

Student’s Income and Assets

Student’s income is calculated similarly to the parents. Starting with taxable income, students add nontaxable income and subtract state tax, social security tax and federal income taxes paid.

In addition, this amount is reduced by an income protection allowance of $6,570, which for most students will be enough to eliminate their income from being assessed.

Student’s assets, which include the same categories as their parents, are assessed at 20%. So if a student holds onto $10,000 through his or her college career, it will increase the family’s EFC $2,000 each year.

When Are Income and Assets Measured?

For those of you about to file your first FAFSA beginning this Fall (Class of 2019), you will report income from your 2017 federal income tax return and assets as of the date you file the FAFSA. Since 2017 was your student’s sophomore-junior year in high school, you probably weren’t even thinking about financial aid, and many parents unknowingly may have triggered non-wage income which inflates their EFC.

Assets can be managed before the FAFSA filing date, but at 5.64%, the impact pales in comparison with the 47% impact of reducing income.

Simplified EFC Formula

If you have extenuating circumstances, you may be eligible to file the FAFSA using the Simplified Formula.  Under the Simplified Formula, you do not report your assets on the FAFSA, and your EFC is calculated only on your income. To qualify, you must meet both criteria A and B:

Criteria A

1. At least one person in the household qualified for a means-tested federal benefit program, or
2. The parents filed or could have filed Form 1040A or 1040EZ or did not have to file a return, or
3. The student’s parent is a dislocated worker, AND

Criteria B

1. The parents’ adjusted gross income (AGI) is less than $50,000.

The Other Financial Aid Form – CSS Profile

If you apply to one of nearly 400 colleges, professional schools, and scholarship programs, you will also need to file the CSS Profile, which awards non-federal aid.Many colleges (most of them private) distribute aid from their endowments, and they request additional information through the CSS.

The CSS treats income the same as FAFSA, but it assesses parents’ assets at 5% (instead of 5.64%) and student’s assets at 25% (vs 20%). The CSS includes certain assets that the FAFSA does not assess, including home equity (included at different rates by each school), the value of small businesses, and non-qualified annuities.

Some CSS schools will treat 529s owned by the student as student assets (instead of assets of the parents). While cash value life insurance is not part of the “standard” CSS form, some colleges will ask about cash value life insurance policies in a supplemental question. Finally, please note that the CSS profile includes non-custodial parents’ income in its calculation.

In Part 2, we will show you what you can do to legally minimize your EFC.

Bob is the President and Founder of College Funding Solutions and Falcon Wealth Managers in Concordville, PA. A licensed CPA in Pennsylvania, Bob is a CFP® Professional and holds the AICPA’s Personal Financial Specialist (PFS) Credential. He holds a BS in Accounting from Villanova University and an MBA from Kenan-Flagler Business School (UNC-Chapel Hill). His career includes 9 years of Big 4 Manager-level tax experience and 15 years of pharmaceutical forecasting experience.

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