Parents

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UVA – differential tuition by any other name

UVA has coined one of the best euphemisms of all time.  But what else would expect from our leading state university?  Instead of calling a planned tuition increase a tuition increase, UVA is calling it an “academic excellence fee.”  This makes you wonder if you can just choose the “average” education and avoid the fee.

The plan is not yet set in stone and has only been reported in the newspapers.  The fee for this academic excellence for juniors and seniors would start at $500 this fall and increase to $2,000 by 2016.  The business  program already has a differential tuition plan in place which we wrote about here.  Engineering students will be asked to pay $2,000 extra as well as a $750 lab fee that exists now.

This fee is in addition to a discussed tuition increase of 2.9%.  This has not yet been approved.

UVAs chief operating officer noted that the planned fees were less than what the market would bear.  That statements holds the answer to the question, “why does college cost so much?” Because they can get away with charging it.

An academic excellence fee.  Really?

 

Free review of award letters

April is the month for acceptance and award letters. It can be incredibly frustrating to try to decipher the language and format of different award letters from different colleges.  Our April newsletter gives you some tips on how to do that, and we have a special offer for new subscribers too. 

If you sign up for our newsletter during April, and would like help understanding and comparing financial aid award letters, we will do a side by side comparison of up to 5 letters for free. 

To take advantage of this offer and sign up for our newsletter, please click here.

 

 

Free review of merit aid awards

Many students are getting fantastic letters from colleges detailing awards, scholarships, and grants that come with the offer of admission.  Great job!  These awards are NOT need-based, they are merit aid.  The colleges want you to attend, and this is one of the tools they use to get you to say yes. 

But is your award amount fair based on what the college has done in the past?

We’d be glad to help you determine that.  If you sign up for our newsletter in March, we will send you a list of average merit aid awards for Virginia colleges.  In addition, we will do the research for other colleges on your list, just drop us a note.

Merit aid is the best aid there is, but college remains a huge financial transaction. Be thrilled you received some, but be sure the amount is fair.

To take advantage of this offer and sign up for our newsletter, please click here.

 

What does college cost?

Excerpted from our February newsletter – if you would like to sign up for free, please do so here

 

You might think a word as simple as “cost” would have a simple definition. It doesn’t when it comes to college.

 What does college cost?

 There are two ways to answer this question. The first is to look at the annual, published sticker price. The second is to examine Net Price, the amount that a college will cost your family after deducting any grants and scholarships.

 The current cost of the freshman year at UVA for an in-state student is $25,354. That number is the 2012-13 Cost of Attendance (COA) for UVA. It is the sticker price and it includes the following components:

Tuition and Fees

$12,224

Room and Board

9,440

Books and Supplies

1,220

Travel

360

Personal

2,110

Total COA

$25,354

You’ll never see an invoice for $25,354 and in fact you might pay more or less for your first year of college. Let’s consider the items one at a time.

Tuition and Fees: This is paid directly to the college. You do get an invoice for this, on a semester basis (actually, your teenager will get the invoice – watch their face when you ask them how they are planning to pay for it!). We’ve written before about tuition payment plans and what a help they can be in making the payment of Tuition and Fees more manageable.

Some schools charge extra fees or tuition for special programs. Known as differential tuition, these programs are becoming more common, especially with engineering and business majors. Some science programs have extra lab fees as well. Your actual invoice might vary from the amount included in the COA, but for most students it will be similar.

Room and Board: Now things start to get tricky. Many larger schools have a number of housing options. Single rooms vs. doubles vs. suites and some dorms cost more than others. What that means is that there is no single cost for housing. Colleges handle this by using an average or typical amount in the COA.

If you are living off-campus, your costs can be significantly different than the amount in the COA. You could be paying rent to a landlord, a student’s parents, or a management company. Tip: for upperclassmen, learning to pay monthly rent can be a great financial literacy step in a relatively safe environment.

Meal plans vary widely too. Off-campus students might decide to not participate in a meal plan at all and cook their own food (read: eat at Moe’s). How much that costs is anyone’s guess, and you’ll be wise to establish a food budget in advance. Most schools require freshmen to select a meal plan.

Finally, Room and Board costs can be exorbitant at some schools, over $14,000 per year. Some accommodations are nothing short of luxurious. Know what you will be paying and what you will be paying for.

Books and Supplies: With all the different courses and options for books, there is no way the school knows what your student’s cost will be, so they throw a number out there and move on. Our tips on saving money on book purchases are a great place to start. The biggest mistake you can make is to wait until you get to school in the fall to buy your books at the college bookstore. Ouch!

Transportation: Gas money or air fare? Where are you going to? How many trips per year? This number is another wild guess and you’ll see lots of variation from school to school. UVA’s number is low and reflects the idea that most students come from in-state. (But the same is true for James Madison students, and JMU uses $2,112 for travel.)

Personal: Who knows what this includes. UVA adds a footnote that it does include loan fees for student loans, if you get any. The rest of the category is for college student spending money: entertainment, pizza, Target, this list goes on and on. Again, you’ll see variety across schools. UVA uses $2,000 but Virginia Tech uses $1,200. College students don’t spend 45% more at UVA than Tech. The numbers are little more than a guess.

Add each of these numbers up and you get the Cost of Attendance, but as you can see by now, the number is largely random and very subjective. Understanding the numbers is the first step in figuring out what college will cost.

For families with juniors who are putting together college lists, our free Student Research Sheet can be a great help in organizing the information. We include a section on Cost, where you itemize the components of the COA for each school. If you would like a copy, please drop us a note.

As you can see, your actual out-of-pocket costs will vary based on a number of factors. Many families benefit from putting together a personal cash flow plan for college that takes into account realistic spending and funding amounts. Let us know if we can help you with your plan.

 

FAFSA Tips

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.

FAFSA Tips

 

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.