January 2013 is here– it’s time for the FAFSA!  We have a few tips to help you through this challenging time.  If you get stuck, please drop us a note.



Average student debt for 2011 is…

$26,600.  The Project on Student Debt is back with the annual update and estimates that 66% of college seniors who graduated in 2011 has student loan debt, and the average is $26,600.  But wait, there’s more.

37% of working young graduates had jobs that did not require a college degree.

19% were either working part-time or had given up looking for work entirely.  Given up at age 24?

The unemployment rate for the young grads was 8.8%.

High debt and depressed income is not a recipe for success.   The twenties are the time for you to get ahead financially and get out of debt, not to struggle and get further behind.  Your daily decisions about spending will make a difference for years.  Financial education tools are widely available for free, so there is no excuse to be uninformed.  If you are the kind of person who does better with guided help, our financial coaching program might be the ticket for you.

Parents, if you see your kids struggling with financial matters or student loans, please urge them to get some advice.  They might not want to hear the advice from you, but that doesn’t mean they won’t listen to anyone.



Grandparents helping with college costs

It’s incredibly nice when grandparents want to, and are able to, make a financial contribution for college costs.  Parents want to honor that, but there are good ways and not-so-good ways for those contributions to be made.  Here are some guidelines.

Sometimes grandparents have some strong feelings on how they want to make their contribution.  They might not know the intricacies of the financial aid system and what the ramifications can be of doing it wrong.  For example, when made incorrectly, a $13,000 contribution can reduce financial aid by $9,100.  No grandparent would want that to happen!  Still, you want to honor the grandparents wishes, so it can be a delicate situation.

 The main thing to keep in mind is, “Will this help affect our eligibility for financial aid?”  To answer that, you need to know where you are likely to fall on the financial aid spectrum.  If your family is likely to get need-based aid, you want to be very careful with grandparent contributions.  If your family is clearly unlikely to get need-based aid, you can pretty much handle the grandparent help in any way they prefer.

If you are “maybe yes, maybe no” when it comes to need-based aid, you’ll want to lean to the side of being careful.  The best place to start is the EFC Calculator at null.  This will give you an estimate of your Expected Family Contribution, the minimum amount that the federal government (and colleges) expect you to be able to pay.  If that number is close to or less than the cost of the colleges on your list, you might be in the running for need-based aid, so be careful.

The timing and the amount of the gift are important.  It can be awkward to ask about these details when your parents are being so generous.  But the details matter.  Why?  The gift will count as “income” when it comes time to fill out financial aid forms.  If the grandparents give the money directly to the student, it will be “income” to the student.  That’s bad.  However, students can have income of roughly $6,000 and it will not impact the EFC, so if the gift is less than that amount, and the student does not have any other earnings, the grandparents can give the money directly to their grandchild.  But what if the gift is larger or the student has income from a job?

The better alternative would be to give the money to the parents.  Parent assets are counted at a relatively low rate in the EFC formula.  But you cannot stop there because now the timing of the gift becomes important.  In the best case scenario, the grandparents would make the gift before December 31 of the student’s junior year in high school.  That’s far in advance of college application season, but due to the way the EFC is calculated, it is the best way to avoid extra “penalties”.

Another approach is to open a grandparent-owned 529 account for the student.  This approach has some benefits in terms of financial aid but it also has one serious drawback.  When the money is withdrawn from the grandparent 529, presumably during the college years, it will count as income to the student in that year.  This could reduce aid by up to 50% of the amount of the distribution.

To avoid this and still use a 529, the parents could open the 529 as a parent-owned 529 and then the grandparents could make a deposit to the account.

When grandparents are making a very large contribution, they often wonder about using a trust.  Trusts are fine legal entities, but they will pretty much end any need-based aid hopes.  Run the null BEFORE that is set up so you know where you stand.

Grandparents are sometimes motivated by estate tax considerations.  2012 might be the end of a fantastic opportunity for moving money out of an estate, and setting aside a chunk for the college costs of grandchildren is one strategy to reduce the size of their estate.  Also, one option is direct payment of tuition to the college (not room and board, just tuition.)  Again, this will significantly hurt need-based aid, but if you won’t get it anyway it doesn’t matter.  Some grandparents like this option because it is a good estate planning tool and because there is no question how the money is being spent.

One other option that many grandparents choose is to set some money aside, keep it, but earmark it to help pay off student loans after graduation.  This approach does not impact financial aid at all.  However, it does open up the potentially uncomfortable question of what happens if the grandparent is not alive to give the money to the grandchild after graduation.  If something happens, you want to be sure those original wishes are honored.

As you can see, grandparent help quickly becomes a complicated situation.  We’ve only touched on some situations here and this is not a complete guide to all the possibilities.  We can help sort out the details of your family’s circumstances as part of your overall college funding plan.


Financial Wakeup Call

Fidelity Investments recently came out with their College Savings Indicator study and check out these findings:

  • 31% of parents of college-bound students have adequately considered how much college will cost
  • Parents plan on paying for 57% of their kids’ college costs, but if you look at their savings, they are on track to cover only 30% of costs.
  • Parents expect their children’s first job out of college will pay over $70,000 per year.  The average salary of 2012 grads (those with jobs) is $44,000, according to this study, and other studies show the number to be much lower, more like $27,000.

These numbers show a shocking disconnect with reality.  Parents, don’t fall into these traps.  Learn the ropes and how the system works before you get locked-in to your college plans.  If you need help figuring out what college will cost your family, drop us a note.


Insurance and College Students

Many parents associate their kids going to college with things like buying sheets and finding boxes and whether or not they need a small refrigerator.  Those are important for sure, but there is something else to put on your checklist, and that is insurance.  How will your teenager going to college affect your different insurance coverages?


First, let’s look at possessions or personal property.  Will your homeowners policy cover your student’s possessions at school if there is a loss, like a theft or a fire?  Does it matter if they live in on-campus housing or not?  Is there a limit on the amount of coverage for your son or daughter?  Most policies do cover a college student’s possessions but the only sure way is to check with your insurer.  If you are not covered, you want to find out about a renters insurance policy which will then provide coverage.


Next, car insurance.  If your son or daughter is on your automobile insurance now, moving to college can save you money.  Many insurers will reduce premiums if your previously driving teen does not have access to one of your vehicles because they are so far from home.  The details on these situations vary widely-some companies have certain distance limits for example, so you’ll want to find out what the specifics are in your case.  Also, if your student is taking a car with them, you’ll want to let the insurance company know that too.  The coverage may need to be adjusted for the new state’s requirements.


One study showed that half of all parents failed to make adjustments to their auto policies when their kids went to college.  The lost savings can add up to $3,000 over four years.


Finally, let’s look at health insurance.  You do want your son or daughter to be covered with health insurance while at school.  Start with the existing policy and be sure that it will “go with” your teenager to their new home.  Check specifically for in-network vs. out-of-network care.   If you need to find new coverage, many colleges offer student health plans that are seemingly affordable, but you want to look at the coverage details closely.  Are there low caps on claims? What items are excluded?  It might help to have a conversation with the staff at the college’s medical facility to find out what other students do and what works well in that geographic area.  One choice where there is no other coverage is to buy a high-deductible policy for your teenager.  You’ll end up paying for most care that is needed since the deductible is high, but the policy will provide coverage for very expensive care, should that be necessary.


The common theme with insurance matters is to get on the phone to your agent or insurance company and talk over your situation with them.  Know what coverage you have and what changes you might need to make, and in the event of a claim, you’ll be glad you did.


New Whitepaper on Tuition Payment Plans

With high school barely in the rear view mirror, it is time for parents to start thinking about the upcoming college bills.  We have just released a new study on tuition payment plans at Virginia’s public colleges, available here.  The payment plans should be part of every family’s college funding strategy.  However, there are a number of twists and turns that you’ll want to know about, so we urge you to read the whitepaper before you enroll.  If your son or daughter will be going to a private school or out-of-state school, the tips will still apply–tuition payment plans do not differ that much by college.

Please let us know if you have any questions about payment plans.


The $3,600 solution for student loans

The hot topic of the current season is whether or not Congress should extend the subsidized (lower) interest rate on need-based Stafford loans to college students beyond the July 1 expiration date.  The subsidized rate is currently 3.4%.  After July 1, all loans will be at 6.8%, which is what the unsubsidized loan rate is at present.

But this argument totally  misses the point about student financial aid.  First, loans are not financial aid in the sense that a grant or scholarship is.  Do you call your mortgage or car loan aid? Of course not, they are just a payment plan.  That’s all a student loan is.

Second, student loan terms don’t call for payments to begin until months after the student has graduated.  The rate could be 0% or 20%, and the cash help to the student today is exactly the same.  What the student receives today is the assistance in the form of the principal amount of the loan being paid to the college he or she is attending.  The interest rate on that loan is irrelevant today.

Finally, is this good public policy?  Move ahead four years, two graduates earn their diplomas.  One has parents who qualified for need-based aid, one does not.  Why does the first student deserve a lower interest rate on his loan going forward?  They each are competing for jobs in the marketplace, using their education and experiences and talents to make a living.  Does it make sense to handicap their financial futures in such a way?

Here’s a better solution.  What is the lower interest rate on a ten year loan that starts repayment after graduation worth to a student today? Answer: $3,600.  So let’s give students that qualify for need based student loans $3,600 in aid today, and let everyone pay the same rate after graduation.


UVA Differential Tuition

The McIntire School of Commerce at UVA will cost $4,000 more per year than other undergraduate programs in 2012-13.  This extra charge is known as “differential tuition” and will apply to in-state and out of state students alike.  This extra charge will increase the cost of attendance by a like amount, bringing the COA for McIntire students to close to $30,000 per year.

For families with Virginia Prepaid 529 plans (VPEP) who thought they had tuition and fees covered, think again.  This differential is not covered by VPEP, according to UVA.  You will want to budget accordingly.  This is not an isolated occurrence either; the concept of different tuition rates for different course work is growing among community colleges and public institutions.  Parents, if your son or daughter is interested in a specialized area of study (like business, engineering, or nursing), be sure what the college charges for all four years so you can plan ahead.



Student loans at 50?

According to a piece in the Washington Post by Ylan Q. Mui, student loans are not just for students.  The Federal Reserve Bank of New York released data that show that roughly 20% of student loans that are in default are owed by borrowers over the age of 50.  Ms. Mui attributes this to co-signing, to adults returning to college, and to the inability of borrowers to discharge student loans through bankruptcy.  Who knows.  Borrowers over 50 would have gone to college in the 1970s and 1980s and college was not so expensive then, nor were loans so easily available, so these debts are most likely not lingering from their undergraduate years.  And, note that the 20% figure is for loans in default, so it’s not just that they have the loans, it’s that they aren’t paying.

What does that mean for the hordes of new borrowers who are leaving college with average loans of $25,000 and facing a grim job market?  Student loans might affect life decisions like getting married and buying a home.  (Theories have been postulated that the decline in marriage rates is due in part to debt problems.) The loans certainly delay retirement savings since money is being diverted to repayment of debt.  Now, with data showing the impact on seniors, the real effects might be worse than we knew, at least for some families.

The clear takeaway:  avoid debt if you can.  If you have to include loans in your financial aid package, treat them with respect.  Make a financial plan for your future that shows what you expect to earn after college, what you will need to live on, what you can donate, and what you need for debt.  Parents:  no one will make your teenagers do this if you don’t.


Shocking report about Virginia colleges

Most parents don’t really know what is going on during four years of college.  We know what it costs, certainly, but beyond that, we only hear what is reported through the filter of our young adults.  We don’t see the opportunities not taken, the courses not offered, the ability of the teachers to connect.  Not that we necessarily should; our kids are on the road to adulthood and are those things really our job?

So when you read the report issued by the American Council of Trustees and Alumni, you will be shocked.

  • Over 33% of Virginia schools do not require math.
  • No Virginia schools require a course in economics.
  • Only two schools require a basic course (one) in American history or government.
  • The notion of a core curriculum as fundamental is only lip service.
  • At 22 of the 39 colleges, less than 50% of students graduate in 4 years.
  • At 17 of 39 schools, tuition and fess (notice this excludes room and board and living costs) now represent more than 40% of the median household income.
  • Facilities are significantly underutilized in terms of hours of average weekly use.
  • Most colleges require all sorts of testing of students before they are admitted.  Only a small handful of Virginia schools participate in any sort of academic accountability program once the students are enrolled.

Parents and students, are you getting what you are paying for?