Parents

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The cost of living at college

Every college publishes a formal Cost of Attendance (COA) figure each year. This is also known as the sticker price. It has one purpose and that is for determining a cap on financial aid, including federal student and parent loans.

But here’s the crazy part: the Cost of Attendance may be way off when it comes to your family’s costs.

Here’s why. Only a portion of the COA goes directly to the college – the tuition and fees portion. For students living on campus and taking part in a standard meal plan, the amount included for room and board will probably be fairly close to accurate. (Be careful though – many colleges have dozens of housing and meal options and the COA may only include an “average” or typical plan.)

The other items in the COA are personal expenses (spending money), books and supplies, and transportation. These are merely estimates made by the college, they do not have to be correct. In fact, the higher the estimates, the higher the sticker price and the less affordable the college looks. There is pressure to keep these ‘other’ expense estimates low.

By far, the biggest non-tuition item is room and board. What happens to your COA if you move off-campus as many students do? Let’s look at a couple of examples.

At UVa, the 2014-15 COA is the same for room and board whether you are on or off campus. The clear implication is that you can rent an apartment for the same out of pocket cost as living on campus.  If you are heading to UVa and plan to live off campus, is that a reasonable assumption? Remember, you’ll most likely be leasing an apartment for 12 months, not the 9 that you are on campus.

In Northern Virginia, there are a number of colleges. You would think that the cost of living off campus would not vary significantly in the general area. An analysis of 8 colleges in a recent edition of Money magazine showed that living expense estimates ranged from $12,800 to $20,300. The authors estimated that your actual expenses to live off campus would be $20,400.

You might think that it’s just a bad estimate and that’s no big deal, but it is a big deal if you are relying on the college to give you a fair picture of your out-of-pocket expenses. What’s more, if you are relying on financial aid, even if you max out your aid you will not have enough money to live off-campus if the COA is significantly low.

The takeaway? Do your own homework on your out of pocket expenses!  We have a number of suggestions for parents on how to do that. For freshmen, the key is to focus on books and on personal expenses. Contact us if you’d advice for your family’s situation.

 

The number one financial worry…

..is having enough money for retirement. But look at this twist.

Among families with children younger than 18, the number one worry is having enough money for college at 73% (retirement was second for this group). Source: Gallup

The battle between having enough for retirement and having enough for college is the major financial quandary for many American families. Our goal is to help you develop a plan to reduce your college costs so you can work toward achieving both of these!

 

Permission to eat Oreos?

Just a sampling of how out of whack things can get…a story today on parents needing to sign a permission slip for their child to have an Oreo at school. 

Compare that with college parents trying to find out if what their son or daughter’s GRADES are at school! If you haven’t yet had that fun experience,  you might want to read our piece on FERPA.

As we’ve seen with HIPAA and health records, put the word “privacy” in the title and people naturally think it’s about protecting information. That’s not always the case.  FERPA-protected information is collected, used, and sold to third parties. Shouldn’t parents at least be able to get the grades as easily as the invoices?

 

Can grandparents get tax benefits from 529 plans for grandchildren?

The best current tax benefit for education-related expenses is the American Opportunity Tax Credit. To qualify for the AOTC, the student must be a dependent on your tax return, so that’s going to rule out most grandparents from claiming the AOTC (or the Lifetime Learning Credit).

The biggest financial benefit to grandparents of using 529 plans is that the money comes out of your estate all at once.  You can give a grandchild an annual gift without estate or gift tax consequences ($14,000 in 2015), but you can deposit 5 years worth of annual gifts into a 529 plan today ($70,000). That money comes out of your estate but you retain control as the 529 account owner. That’s not really a current tax benefit, but it could help with your estate planning, especially with two grandparents and multiple grandchildren.

The question of how grandparents can best help with college costs is complex and often overlooked. It is very easy to make mistakes that have financial aid or tax consequences. We’ve written about this in more detail which you can find here. If you have questions about your specific situation, please drop us a note.

 

 

The Future of 529s Suddenly In Peril Under President Obama

Update: Obama pulls his own proposal due to pressure from, well, basically everyone except the totally out-of-touch people that came up with the idea in the first place. So the proposal won’t go through this time, but watch out for the future. You’ve been warned that what you think is “safe” from government taxes isn’t really safe at all.

 

President Obama is proposing changes to 529 plans that might shock you – he is in favor of taking away the tax-free nature of the accounts, essentially the entire reason for having a 529 in the first place. 

Whether or not he is successful is another matter that will unfold over the coming months. The significant takeaway for parents, though, is that what the federal government giveth, the federal government can taketh away. Families opened 529 accounts with the expectation that favorable tax treatment would continue, and now that is in doubt.

What other areas might the federal government break its supposed promise in future years? Roth IRAs perhaps?

The NY Times has a summary of the proposal here.


 

NBC12 Story: Students Missing Out on Financial Aid

Great piece by Heather Sullivan of NBC12 on college students leaving money on the table by not filling out the FAFSA and applying for all the financial aid they are entitled to. Heather was kind enough to include some of our comments, and I thought I’d share a bit more information. The NBC12 piece can be found here.

It’s a shame that students who would qualify for need-based aid don’t go through the necessary steps to receive it. If you don’t know if you qualify for need-based aid, go to null and run the calculator to see what your Expected Family Contribution will be. If your EFC is less than the cost of one year of college, you will qualify for need-based financial aid. Qualifying for aid is not the same thing as receiving aid, but you have to start with figuring out if you even qualify.

But say you don’t qualify, and many families don’t. Where do you look for money for college?

The best place to start is merit aid from the colleges themselves. But there is a catch: not all colleges award merit aid. Among those that do, the levels of generosity are all over the board. You want to apply to colleges that are generous AND at which you will be a good academic fit. The package for the most desirable students is often better than for the last student admitted. It is not uncommon to receive grants or scholarships

Virginia offers a Tuition Assistance Grant (VTAG) for residents attending private colleges in Virginia. This year the amount is $3,100. You do need to apply for this grant through your college’s financial aid office.

Tax breaks are an often overlooked way to help pay for college. There are something like 18 different provisions of the tax code for education expenses, but the biggest is the American Opportunity Tax Credit at up to $2,500 per year per child if you qualify. If you don’t qualify, is it possible for your son or daughter to claim it?

Local, private scholarships continue to fly under the radar as a means to pay for college. The key is to find scholarships you connect with! It takes work to complete the applications, so you want to make your time count. We can help: our free scholarship newsletter is filled with tips and highlights, and our CFG ScholarBank is a free database of local scholarships.

These are just a few other sources of money for college. Every family’s situation is different and your plan to pay for college will reflect that. Please let us know if we can help you figure out what works for your family.

 

The importance of getting a FERPA release

We’ve mentioned the importance of getting FERPA releases from your college students, especially right at the start of freshman year. Parents do not know that colleges will not communicate directly with them about their children. Federal rules and all that. It’s one thing to not be able to get grades or course information, but the Richmond Times-Dispatch has a incredibly tragic story of how this lack of this "educational rights" stuff can go horribly wrong. Maybe it’s well-intentioned, but it’s up to you to know what’s best for your family.

For more information on getting releases, see our newsletter piece, The Summer of Discontent.

 

Follow us on Twitter!

You can now follow us on Twitter @CFGScholarBank for the latest in local, private scholarships! We will be bringing you new listings, upcoming expirations, and helpful news and tips.

 

 

Student Debt Continues to Rise

The good folks at The Project on Student Debt have released student loan numbers for the Class of 2013 and we see a mixed report. A few takeaways:  70% of the Class of 2013 had student loan debt; the average loan amount for that group was $28,400; averages and percentages very significantly across states. Virginia students were right in the middle: 59% of students had debt, and the average amount was $25,780.

Faced with these debt levels upon graduation, it’s important that recent graduates get their financial lives in order right away.  Choosing the correct repayment plan is part of that process, as well as making a sensible spending plan that allows them to enjoy their new life while planning for the future.

The report can be found in its entirety here.

 

3 Well-intentioned mistakes paying for college

We all want to avoid mistakes, especially expensive ones. Sometimes all it takes is a little planning and thinking ahead. Here are three common mistakes that parents make when it comes to paying for college.

Selling investments at the wrong time

You might have some investments that you’ve socked away to pay for college. Great! If they are in a regular investment account (not a 529), when you sell them you will incur capital gains.  Capital gains will increase your income which will increase your Expected Family Contribution on the FAFSA.  As a result, you will not qualify for need-based aid that you might qualify for otherwise.

So what do you do? You can still sell, but you have to sell earlier than you think. Let’s say your daughter is a risking junior in high school. You will file your first FAFSA in January of her senior year.  The FAFSA will ask about your income during the calendar year that she is part junior (spring) and part senior (summer and fall).  This means that if you want to sell some investments, you should do so before December 31 of your daughter’s junior year.

(Note: the CSS Profile form that some colleges use will still pick up this income.)

Taking a retirement plan distribution

The FAFSA considers retirement plan distributions to be income in the year received. The increased income will hurt your chances for need-based aid. You won’t have to pay a penalty if the money is used for college, but you will have to pay taxes on the earnings and your EFC will go up.  Even a return of Roth contributions is picked up on the FAFSA as untaxed income.

So what do you do? It is possible in for the financial aid office to adjust your EFC if the retirement plan distribution was made for certain specific circumstances. (Just needing the money to pay for college is not going to be one of them.) If your distribution was one-time and you have a documented hardship, it might be worth pursuing an adjustment. We can help you with that. In general, though, if you have not taken the distribution, don’t!

Grandparents paying the college bill

This happens far too often – grandparents who want to help but aren’t sure how, and they learn that there are estate tax benefits to paying tuition directly, so they do. They’ve done a very nice thing, but it will likely hurt your financial aid.

So what do you do? If you are lucky enough to be in this situation, you want to be very careful in how you structure your funding plan. Don’t do anything until you’ve considered all the options and how they will impact your family. This is a great example of how ‘what works for one family doesn’t necessarily work for another’ holds true.  Understand the implications on your aid and your EFC and you’ll make wiser decisions.