Archive for ‘back to basics’

April 16, 2014

How to talk to your kids about paying for college

by Grace

When should parents have the “talk” with their children?

Of course, I mean the talk about how their college education will be financed.  According to comments in a recent College Confidential thread, fourteen is too early and 12th grade is too late.  And just like sex education, kids should not be hit with everything all at once.

It’s like the sex talk … Tell them a little at a time in chunks they can understand.

“Parents of High School Juniors: Talk Finances NOW” is the title of the thread, and the original poster wants families to avoid the disappointment that sometimes occurs this time of year for high school seniors.

If you are the parent of a high school junior who will be applying to colleges next year, now is the time to take a close look at what you will be willing and able to pay toward your kid’s college education–and to make sure your kid understands it. You may never have told your kid about your family’s finances–now, you must do so, even if you’d rather not. Don’t be the subject of a thread next year when your kid says, “My parents told me I could apply to any college I wanted and they’d make it work, but now they’re saying I have to go to the relatively undesirable college that’s giving me a scholarship.”

So, look at some price calculators on college websites, get financial advice, think about whether your kid will have to have scholarships, what you feel comfortable borrowing (if anything), what you will expect your kid to contribute, whether you will expect your kid to pay back any of the money you spend on education, etc. And share the result with your kid. There should be no unpleasant surprises when acceptances come in next year–at least, there should be no surprising changes in your position.

In US News, Ryan Lane outlines a series of steps in planning for the talk.  It’s important to set clear expectations, and he even suggests putting it in writing to instill a better understanding.  Whatever else they do, parents should avoid the mistake of making a vague and uninformed promise that “we’ll find a way to pay” for college.

One way to begin the process is to run a few Net Price Calculators for some prospective colleges, including both private and public institutions.  It can serve as a reality check in laying the groundwork for the big talk.

March 24, 2014

Need-based college financial aid often based on ‘student’s academic merit’

by Grace

When some colleges award financial aid, ‘even “need-based” grants aren’t based solely on need: The size of the grants also depends on a student’s academic merit’.

While families do not usually know the details of how financial aid is disbursed, colleges have access to comprehensive, detailed information about applicants in what amounts to “a massive information imbalance”.

Most colleges offer “vague and superficial” disclosures about how they allocate their financial-aid dollars, said Mark Kantrowitz, a financial-aid expert with Edvisors, which publishes websites about paying for college. “They don’t give details about the actual formulas they use.”

Schools use “financial aid leveraging” to attract stronger students.

While universities don’t want to disclose the details, they have become increasingly strategic in recent years about how they use their aid and which students get it. Aid isn’t just given to students in need, it’s also used now for what schools call “financial aid leveraging” — often to entice high-scoring students who will help a school’s ranking or to give a small, feel-good discount to attract out-of-state students who will still end up paying a higher price.

Boston University is unusually candid about its strategy of using need-based financial aid to attract stronger applicants.

If you are an incoming student, your application for a need-based BU grant award will be considered based on several factors. These include calculated financial eligibility, academic achievement, and the availability of funds for your program of study.

BU publishes informative student profiles showing average aid awards.  I ran some simplified* Net Price Calculations that further illustrate how their financial aid works.  Given the same financial need, the stronger student is would receive more need-based financial aid.

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The Straight-A Student is estimated to receive $35,500 in grants and scholarships, compared to only $12,00 for the Solid B Student.  Remember, this is need-based financial aid.  Merit scholarships may be awarded in addition to these amounts.

* In these examples, total earned income was $80,000/year.

Marian Wang,  “How Exactly Do Colleges Allocate Their Financial Aid? They Won’t Say”, ProPublica, Feb. 25, 2014

Related:  Psst – one of Duke’s so-called merit scholarships is actually need-based (Cost of College)

March 7, 2014

What is the most important secret for a SAT ‘Perfect Score’?

by Grace

20140304.COCPerfectScoreProject1The Perfect Score Project: Uncovering the Secrets of the SAT by my friend Debbie Stier is described as “one of the most compulsively readable guides to SAT test prep ever”.

As it climbs the charts in popularity, this book is attracting praise as “a toolbox of fresh tips”, as well as some criticism that it is the work of a “hyperprotective, status-seeking” helicopter mom.  The criticism seems to stem mainly from some selective editing in the book’s promotion, and clarification is provided over at Kitchen Table Math.  While there’s no doubt that Debbie is a very involved parent, I can attest that she does not fit the image of an overbearing, pushy mother.  In fact, she has helped me in gaining better insight into the type of supportive parenting that is instrumental in launching children to a satisfying and independent adult life.

The revamped SAT may change some details on the best ways to prepare for the test, but I believe that one of Debbie’s core messages will endure:

… if you have a solid foundation, test prep, great test prep works. if you don’t have a solid foundation, no amount of test prep can help you.

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February 25, 2014

Back to basics on understanding the Expected Financial Contribution

by Grace

In the process of determining your family’s eligibility for college financial aid, it is important to understand exactly what the Expected Financial Contribution (EFC) is, and what it is not.

Here is a good explanation from Troy Onink in Forbes.

Calculating Your Expected Family Contribution (EFC)

Regardless of the aid form(s) the student is required to complete and submit as part of the process of applying for financial aid, and after all of the time and information it takes to complete the form(s), it all boils down to three letters, EFC, which stands for expected family contribution. You provide your financial information on the aid forms (FAFSA and CSS Profile), submit the forms online to the processing centers for each respective form, and the information from the forms goes into the aid calculations (the Federal Methodology, Institutional Methodology and Consensus Methodology).

The output of those need analysis calculations is the student’s expected family contribution (EFC) toward the cost of college. The student’s EFC is the minimum amount the student is expected to contribute toward the cost of college. Thus, EFC represents a dollar amount. It is the “output” of the aid forms and calculations. Your data goes in and your child’s EFC comes out and goes to the colleges’ aid departments that the child asks the data to be sent to on the aid forms. All three of the EFC formulas focus primarily on the assets and income of the parents and student, family size and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. And because the three formulas calculate EFC differently, it’s likely that the student’s EFC under each formula will also be different.

As a general rule, the lower the EFC the higher the financial need and therefore the higher the chance of qualifying for financial aid.

From the FAFSA site comes this clarification:

Your EFC is not the amount of money your family will have to pay for college nor is it the amount of federal student aid you will receive….

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February 13, 2014

Paying for SAT tests can be the first financial hurdle in affording college

by Grace

The cost of SAT and AP tests can easily amount to hundreds of dollars, but low-income students may be eligible for fee waivers.

A high school senior complains about the high costs of College Board tests.

With college-admission deadlines quickly approaching, my debt to the College Board keeps growing. Two SAT tests, five subject tests and six Advanced Placement (AP) tests later, I am ready to report my scores through the College Board website to the 10 colleges to which I am applying. On top of the total $102 I paid to take the SAT, $114 for the subject tests, and $534 for the AP tests, the College Board now demands $11.25 for each electronic submission of the test scores to the schools on my list.

That makes a total of $750, including the $100-plus needed for electronic scores submission.  Are these fees too high? 

The College Board should behave more like the nonprofit it claims to be. Lowering the cost of the SAT would encourage more students whose parents make modest incomes to retake the test and compete against students from higher income households who often take the test upward of four times, aiming for higher scores. (I took the test twice.)

The total cost of applying of applying to college can easily reach thousands of dollars, creating a strain for many low- and middle-income families.  On the other hand, doing well on an AP test can generate college credit for a student, presenting a substantial value when compared to the typical cost of college tuition.

The College Board offers fee waivers for lower-income students who meet their criteria.

Related:  A recommended schedule for taking the SAT, ACT, and AP tests (Cost of College)

February 10, 2014

Do I qualify for college financial aid?

by Grace

Troy Onink provides a handy tool for quickly estimating a family’s chances of qualifying for college financial aid using income-based EFC values.

2014 EFC Quick Reference Table for College Aid

Step 1 – Locate your income in the AGI column.

Step 2 – Find the column at the top of the table that corresponds to the number of dependent children that you have and follow that column down to the row that corresponds with your income (AGI). The intersecting number is your estimated Federal EFC based on parental income only. The estimated EFCs in the table below do not take into account your assets, or if you make contributions to qualified retirement plans or receive any form of untaxed income. All of which will increase EFC.

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CLICK IMAGE TO ENLARGE

Colors show the chances for aid at four types of colleges.

Color Codes All of the EFCs are color coded to give you an idea of whether the student will qualify for need-based financial aid at four categories of colleges. The color coded EFCs in the table are based on national average costs and your income only. If your (income-only) EFC is BLUE – then your child should qualify for need-based aid at two-year public colleges; GREEN – would qualify at four-year public colleges (in-state tuition); YELLOW – would qualify at average four-year private colleges; ORANGE – would qualify at four-year elite private colleges, such as the Ivy League colleges and other highly selective and well-known universities; RED – would not qualify for need-based aid at any colleges or universities.

As the colors indicate, families with incomes in the range of $250,000 could qualify for need-based aid at some of the most expensive private universities but not at state schools.

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February 6, 2014

College 101 Infographic

by Grace

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College 101 Infographic from the Federal Reserve Bank of St. Louis has basic information about choosing a college and paying for it. 

Be educated and informed. Forecast your financial aid with the FAFSA4caster calculator. Find out what percentage of students received federal financial aid in 2012 and see the results of an April 2013 salary survey. Use a calculator to estimate the size of your monthly loan payment and the annual salary required to manage that payment. Learn about the top 75 college destinations with a link to the College Destination Index. Identify some of the reasons students select particular colleges…and more.


Short videos cover three topics:

  • Choosing a college
  • FAFSA
  • Financial aid

Related:  Ten questions to ask about college financial aid (Cost of College)

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February 5, 2014

Tuition tax credits for 2013 tax returns

by Grace

If you paid college tuition last year, you may be eligible for one of two tax credits on your 2013 federal tax return.

The American Opportunity Credit was created under the American Recovery and Reinvestment Act of 2009 and extended through 2017 with the passage of the American Taxpayer Relief Act of 2012. It gives a tax credit for four years of undergraduate study of up to $2,500 a year. A portion (40 percent/$1,000) of the credit is refundable, which means the credit in excess of taxes due will be refunded.

The Lifetime Learning Credit is a nonrefundable credit of up to $2,000. Unlike the American Opportunity Credit, which may only be used up to four tax years per student, is not limited in the number of years it can be taken.

There are income limits that determine eligibility for these tax credits.

Who qualifies for the American Opportunity credit?

To take this credit, the taxpayer’s Modified Adjusted Gross Income must be $90,000 or less for single, head of household and qualifying widow(er) filing statuses, $180,000 for married filing jointly. Married filing separate taxpayers cannot take the credit….

Who qualifies for the Lifetime Learning Credit?

The maximum Modified Adjusted Gross Income for a single, head of household or widow(er) taxpayer is $63,000. For married filing jointly, the maximum is $127,000. Married filing separate taxpayers are not allowed the credit.

Qualifying families can file IRS Form 8863 to obtain these credits, using information provided by colleges on Form 1098.

Related:  Tax season reminders about education tax benefits (Cost of College)

January 27, 2014

Simple financial advice that works for many investors

by Grace

This 4×6 index card has all the financial advice you’ll ever need

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This summarized financial advice is the result of University of Chicago social scientist Harold Pollack’s interview with personal finance expert Helaine Olen.

Keep it simple and be wary of financial advisors.

… the lesson here is that once you have an income that you can live off of and save a little bit besides, managing your finances shouldn’t be all that hard. The people making it complicated are often trying to make money off of you.

Sometimes it is a little more complicated.

I would agree that most of this card’s advice makes sense for most people.  But buying and selling individual securities can be completely appropriate for higher income investors.  And target funds have their downsides, so they’re not for everyone.  Many of them allocate most of their assets to bond funds during the retirement years, a strategy that could leave older investors with meager income and vulnerable to the volatility caused by shifting interest rates.

Related:  ‘passively managed index funds outperform almost all actively managed funds’ (Cost of College)

January 22, 2014

The risk of promising your child that “we’ll find a way to pay” for college

by Grace

Don’t make promises you cannot keep.

In the college search and selection process, parents should think very carefully before assuring their child that “we’ll find a way to pay for it.”  That promise could be the cause of deep disappointment or crushing student debt.

In answering the question, “Should Students Apply to Reach Schools?“, Do It Yourself College Rankings discusses the pitfalls of applying to colleges that are financial reaches.

The simple answer is not to apply to any college that you can’t afford to attend.

The more detailed answer would be that it’s fine to apply to a financial reach school if everyone clearly understands that only significant financial aid would make matriculation possible should the student be accepted.  But to avoid unnecessary disappointment and stress in making the final decision where to attend, one recommendation is to get a sense about the likelihood of receiving financial aid by running the Net Price Calculator tool very early in the process.  Also consider the realistic chances of merit aid, which is often not included in the NPC estimate.

For more insight on what makes sense for your family when deciding whether to apply to a financial reach, check out the complete DIY Rankings answer.

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