Financing Education Chapter doc - For Your Information

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Oct 28, 2013 (3 years and 8 months ago)

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Financing Education






1


Financing Education

Financing Education


Paying for college is a major expense in the life cycle, on par with
paying for a house or a new vehicle. While some people will have
the financial assistance and moral support
of a family while
attending school, others may have to make this difficult financial
situation work on their own.


Aside from the obvious costs associated with college

namely
tuition

there are a number of hidden expenses that you will
need to account for i
n order to effectively plan for the total costs
of attending school. This module will cover some of the common
expenses associated with returning to school while also
highlighting some of the methods available to help reduce the
financial burden.


Please k
eep in mind that while some of this information is
geared toward financing education for a child or dependent, this
module can
also
be used for reflection by adult learners or non
-
traditional students that may be returning to education later in
life and fi
nancing it on their own.


While financing higher education may be one of the most
frequent times in which families or individuals will encounter
these issues, many of the principles covered here can also apply
to financing a private or boarding education a
t younger ages.


Overview

Is Education Affordable?

Financing Education: What Are the
Costs?

Housi ng

Food

Transportati on

Computers

Stayi ng Connected

Insurance

Addi ng i t Up

How Will Your Student Pay?

Worki ng Whi l e i n School

Financial Aid

Free Application for Federal
Student Aid

El i gi bi lity

Scholarships

Basi c Informati on

Researchi ng Schol arships

Use a Free Schol arship Search
Servi ce

Insti tuti onal Schol arships

Saving for School

529 Col l ege Savi ngs Pl ans

Types of 529 Pl ans

Tax Benefi ts

Enrol l i ng i n a 529 Pl an


Financing Education






2


Financing Education

Is Education Affordable?


Sending a student off to college is supposed to be a rewarding moment to be celebrated. Unfortunately,
the finances involved can often turn this from a positive experience to a major stressor.



College is not cheap, and in 2004,
the average college student graduated with over $20,000 in debt

counting both student loans and credit cards. That figure steadily increases each year as state budgets
get tighter and tuition rates increase in response. T
his is paired with several years of recent economic
turmoil in the United States which have made higher education an increasingly costly expense on
diminishing incomes.


It appears, at first glance, that the average credit card debt decreases, but a closer

look shows that it
more than doubles from freshman to senior year. It does, however, decrease as an overall percentage
of the total debt.




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3


Financing Education

Ongoing or recurring student expenses:



Housing



Food



Transportation



C
omputers



Staying Connected



Insurance


Financing Education: What Are the Costs?


Aside from the obvious tuition costs which will vary
from school to school, there are several main
categories of expenses that students may incur. It is
important to recognize what these potentially ongoing
or recurri
ng expenses can be so that you can develop a
plan for “who will pay for what.”


Housing

Students can learn valuable life lessons by living on their own.
When considering housing options, think
about the potential loss of opportunities (like social
life/friends, activities, you’re there so you know
what’s going on, easier to get involved) or other non
-
financial benefits of living on or off campus.

Housing options may include:


Dorms



Costs are fairly straightforward.



Many freshmen are required to
live in the dorm the first year.



Many 2
-
year and technical colleges do not offer dorm living.



Newer dorms may offer more “apartment
-
style” or “suite” living.


Apartment



May require first and/or last month rent in addition to a security deposit.



Many parent
s prefer to review the lease or even check the apartment before the student makes
a final decision.



The standards of student apartments vary a great deal, from old, abused houses to luxury high
-
rise buildings.



Encourage your student to do the research to f
ind out what is included in the rent. Will they
have to pay extra for water, heat, electricity, cable, etc.?



Is parking available or will it cost extra?



Tell them to talk to their roommates about how they will pay the bills and divide household
chores. A

few good ground rules
can save

a lot of conflict in the long run.



Living at home



Consider the cost of travel: time, gas insurance, etc.




Living with relatives or friends



Have your student determine up front what their contributions to the household will

be so that
hurt feelings are not created later.


Food

Some schools will offer a meal plan, while others may not. If you decide that a meal plan is best for you
or your student, r
eview the costs and details available for each plan. You’ll find this inform
ation in the
student handbook or on the school website. Determine which meal plan best suits your student’s eating
patterns and needs.




Financing Education






4


Financing Education

A
lternatives to bringing a car

Encourage your student to
investigate whether any of the
following
would be more appropriate
for their transportation needs:




Bicycle



Public Transportation (student
discounts may be available)



Moped/scooter


If you or your student seldom eats breakfast and eats out several times a week, a meal plan that offers
three meals pe
r day is less than ideal. Remember to figure in the costs of snacks, beverages and late
night pizza when building your food budget.


Many schools, including UW
-
Madison and other UW System schools are turning to debit card systems
where the student can spen
d the available funds on food or at other university
-
related retailers. More
and more, this is being connected into the students’ ID card.


It is important to know that while some colleges allow students living off
-
campus to participate in their
campus me
al plans, others may not. If your student plans to live off campus, remind them to budget for
the cost of eating out as well as groceries.


Transportation

Most students won’t
NEED

a car during their first year of
college, as some campuses are small enough that you can
walk to any building in a few minutes and parking may be
limited. Larger campuses generally have access to buses or
shuttles.


Many students do not bring vehicles to
school, while at the
same time, many do. Encourage your student to seek out
friends and classmates who may have a car, may live near
your students’ home (for carpooling during school breaks),
or may allow your student to borrow their vehicle for
smaller ne
eds (this may depend on the car insurance). Some colleges do not allow freshmen to bring a
car due to lack of parking availability. Living off campus may make parking more available or affordable.


In many cases, the costs of driving and parking a car (veh
icle payments, insurance, gas, maintenance,
parking) on campus will quickly add up to offset the convenience of having the vehicle around.


Computers

College students use computers almost daily to search the web, check for homework assignments, e
-
mail fam
ily and friend, or check bank balances. Some universities (e.g. UW
-
Stout) provide all incoming
freshmen with a laptop computer (costs are paid through tuition).


While desktop or laptop computers can be beneficial in the home, the truth is, your student sh
ouldn’t
need to own a computer to succeed in school. Colleges provide ample access to computers in public
buildings, libraries, and computer labs.


On the other hand, it might be worth the cost of a computer for the convenience alone; newer
computers can b
e used to access the internet from many points on campus through wireless networks.


Thankfully, computer costs have steadily decreased over the past few years as technology has improved.
You will want to check the computer’s abilities with the student’s p
lanned field of study; however most
students would be able to accomplish their work with a computer that has word processor, spreadsheet,
and presentation software and the ability to connect to the internet. Realize that a computer that meets
these needs m
ay not have to be top
-
of
-
the
-
line.


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5


Financing Education

Keep in mind the additional expenses like a printer, paper and ink cartridges.


Staying Connected

Depending on you or your student’s specific needs, staying connected with home and family may be an
important part of the s
chool experience. In order to do this, consider the options:


Cell phones



A majority of college students own their own cell phone.



Some colleges are removing land lines in dorms to save costs (although they are still available
upon request).



Review your
cell phone plan to make sure it still meets your needs when your child goes away to
college (may need to add minutes or change service area). Know if there are charges for text
messages.


Calling cards

Calling cards can be an

economical way to keep in tou
ch if your student doesn’t have a cell phone.


Electronically

Many students use e
-
mail or instant messaging as a way to correspond. Again, even if they don’t own a
computer, college campuses offer access to the internet at a number of public locations.


I
nsurance

When the student moves out on his or her own, there may be new insurance needs that come up,
including car, health, property, or renters’ insurance. Ask your insurance representative for an insurance
review to make sure your coverage is up to date

and appropriate for your student’s current living status.


Car insurance



Good student discount is still available to college students.



A distant student discount may be available to families whose student is attending school at
least 100 miles away and
does not have a vehicle on campus. This is for the student who drives
only occasionally (e.g. Christmas and spring break).



Most insurance companies will not cover a student who uses their vehicle as a part of their job
(e.g. pizza delivery).



Most car insu
rance policies do not cover travel in Mexico (spring break?).


Health Insurance



Most family health insurance companies will cover full
-
time students until a certain age (usually
23 to 25).



Most colleges offer some kind of health insurance coverage for
purchase.



HMO’s may not cover costs incurred outside of their service area.



Make sure students are aware of the location of the student health care center on campus.



If student decides to take off a semester, you may want to check into short
-
term major med
ical
coverage.


Property Insurance



Most colleges offer property insurance policies for purchase.


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Financing Education



Check your homeowner’s policy for coverage. Coverage may differ depending on whether you
live in a dorm or an apartment/house.



Encourage your student to keep
a list of the things they take to college as well as any serial
numbers and pictures that may help them identify their property.


Adding It Up

Considering the diversity of the expenses above, it may become difficult to calculate the costs of a
college educ
ation. Fortunately, m
any college websites have their own templates for calculating cost. If
you can’t find it, you may want to contact your school’s admissions office.


Sallie Mae has a number of calculators including long term planning, college c
ost, and

repayment
calculators:
http://www.collegeanswer.com/global/quicktools/quicktools.jsp



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Financing Education

Tips to manage
credit card debt



Only own one card.



Set the
minimum balance low to
help control spending.



Pay the full balance each month.



Shop around for the best deal
(consider annual fees and Annual
Percentage Rates).



Avoid late or over
-
the limit fees.



Avoid maxing out the credit line
(suggests that you overspen
d).



Save receipts and review each
month. Make sure all charges
are accurate.



Keep a record of charges as you
go so you won’t be surprised
when 瑨e bill co浥s.



Protect the card from theft.


Scenario for Parents:

Your student has maxed out their credit card
on unintended expenses and doesn’t have the
浯ney 瑯 pay even 瑨e 浩ni浵洠balance.
When he or she infor浳

you abou琠hisIher
creTi琠carT Teb琬 how will you suppor琠hisIher
effor琠瑯 resolve 瑨e proble洿


How Will Your Student Pay?



What will your student use to make purchases when at
college?
The college may have a campus debit card for
students to use. Parents/students can deposit money into
the account(s) and that’s what the student uses to make
purchases. They are limited to the cash balance in the
account. No cash, no spending.


Many col
lege students will still use a checkbook to pay for
items. It is advisable to use a checkbook to pay for larger
purchases like rent or tuition payments so that you keep a
record of your payments. Be sure to balance your checkbook
to avoid overdraft fees an
d check your records against the
bank statement.


Do not assume that your student understands how debit,
checking, or credit work. In fact, confusion over the
intricacies of these options can be a contributor to building
debt. Check with your student to s
ee if he or she would
benefit from some education on these topics.


Another option for students is a debit card, which takes money directly out of a checking account each
time it is used. With debit cards

which essentially operate like checks

it is crucia
l to keep track of the
balance, even though it may be easier to make casual purchases. Hold on to receipts and continue to
balance your checking account periodically. Most banks provide on
-
line tracking systems.


Debit and credit cards may allow your stude
nt to access ATMs to deposit and withdraw cash. Be careful,
however:



There might be extra charges for machines not owned by your financial institution.



Security issues: 1) Shield the keypad when you enter your pin. 2) Don’t count your money out in
the
open.


Students need to establish a limit and a strategy if planning to use a credit card.



College students are bombarded with credit card applications. Why? Credit card companies
make a lot of money from them, especially when they don’t pay their bills
in full.



Late fees and interest payments add up to hundreds of dollars a year.










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Financing Education

Working While in School

“Many students struggle with the conflicting demands of working enough hours to afford college and
studying enough hours to do

well in their classes.” (M. Savage, 2003)


For some, the decision to work while in school is a matter of personal choice. Depending on the
student’s arrangement and the percentage of school costs they are responsible for covering; they may
need to work in

order to make ends meet. However, in some cases, students might be better off
financially by taking more low
-
interest student loans and graduating in 4 or 5 years, rather than
extending college another year or two in order to work more hours.


Balancing a
cademics and extra
-
curricular activities with employment is challenging. Parents need to
emphasize that school is the priority. Most experts recommend that students work no more than 20
hours per week. For most freshmen, 10
-
15 hrs/week is more realistic s
ince they are still adjusting to
their new environment. Start slowly with 8
-
10 hrs and work your way up if things are going smoothly.


Students should seek out jobs that allow a lot of flexibility in scheduling. Off
-
campus jobs may pay more,
but there are

advantages to on
-
campus jobs, including:



Flexibility



Practical experience related to student major



Location



Work with faculty and staff who can provide guidance on the school system and references for
future work



Commuting students can benefit from the su
pport systems and social opportunities that come
with working on campus



Some work
-
study positions may only be available to students in need of financial aid



Financing Education






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Financing Education

1. Cost of attendance



$25,000

2. Expected family contribution




Student's contri buti on

$ 2,000



Parents' contri buti on

$13,000



Total family contribution



$15,000

3. Resources



$ 1,000

4. Financial need = (1)
-

(2)
-

(3)



$ 9,000


Financial Aid


Financial Aid can take several forms:



Scholarships are generally merit based and
do not have to be repaid.



Grants are a form of financial aid, generally based on need, which you do not have to repay.



Loans can be federal or non
-
federal and must be paid back.



Federal Work
-
Study provides jobs for students with financial need.



College Sav
ings Plans (e.g. Prepaid tuition plans or 529 plans; Coverdell education savings
accounts)


According to SavingForCollege.com:

Three basic ingredients determine how much need
-
based
aid your student is eligible for:

1.

The cost of the school your child is cons
idering or already attending.

Every school calculates its
"cost of attendance" or "COA" based on federal guidelines. As you might expect, many private
colleges have a high COA while public universities and colleges have a relatively low COA for
state resid
ents.


2.

The dollar amount of "resources" provided to the student from outside sources.

Scholarships,
for example, are considered a resource. So are payments of tuition directly to the college by a
grandparent or employer. A resource will reduce the COA, an
d therefore the need
-
based aid
award, on a dollar
-
for
-
dollar basis.


3.

The "expected family contribution" or "EFC."
This is the amount your family will be expected to
pay for college based on your particular financial circumstances. This figure is determine
d each
school year by the federal government with data you provide on the Free Application for Federal
Student Aid (FAFSA). The calculation considers the student's income and assets and the parent's
income and assets. (For independent students, parental in
come and assets are excluded.) The
parents' contribution is divided by the number of family members attending college at least
half
-
time.


Assume, for example, that your child is planning to attend a private college costing $25,000 per year.
Your expected

family contribution is $15,000, consisting of the student's contribution of $2,000 and
your contribution of $13,000. A local civic organization has awarded your child a $1,000 scholarship.
Your child's financial need is determined to be $9,000 computed as

follows:











The school will attempt to put together an aid package that covers the $9,000 in need. This package
can be a combination of grants, loans, and work
-
study from federal, state, and college sources.


Source:
http://www.savingforcollege.com/financial_aid_basics/financial_aid_considerations.php


Financing Education






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Financing Education

Free Application for Federal Student Aid


The Free Application for Fe
deral Student Aid (known as the FAFSA) is a form that can be filled out
annually by current and anticipating college students (both undergraduate and graduate) in the United
States to determine their eligibility for federal student financial aid
. This can
include
Pell grants, Stafford
loans, PLUS loans, and work
-
study

programs
.


FAFSA applications are accepted each year beginning on January 1. Previous applicants are able to
renew their application at this time, but some information (such as taxes and savin
g details) must be
updated annually. Most states will use information from the FAFSA program to award non
-
federal aid.


Every family and/or student

should complete the
FAFSA form.

This will determine if and how much
financial aid your student will be elig
ible for. It is based on calculations that determine
your expected
family contribution. This needs to be completed annually and you will need to know the parents and
students financial information to complete the form. It can be completed on a written f
orm or via the
web.


Eligibility

Nearly every student is eligible for some form of financial aid. Students that may not be eligible for
need
-
based aid may still be eligible for an unsubsidized Stafford Loan regardless of income or
circumstances. A student
that can meet the following criteria may be eligible for aid:




is a U.S. citizen, a U.S. national, or an eligible non
-
citizen;



has a valid Social Security number;



has a high school diploma or GED or for adult students, pass an Ability
-
to
-
Benefit test;



is
registered with the U.S. Selective Service (male students age 18
-
25);



completes a FAFSA promising to use any federal aid for education purposes;



does not owe refunds on any federal student grants;



is not in default on any student loans; and



has not been fo
und guilty of the sale or possession of illegal drugs while federal aid was being
received.








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Financing Education

Free scholarship search services:



Scholarship S
earch:
http://apps.collegeboard.com/cbsearch_ss/welcome.jsp



FastWeb:

http://www.fastweb.com/



Sallie Mae:
http://www.collegeanswer.com/paying/scholarship_search/
pay_scholarship_search.jsp


Scholarships


M
ost student
financial
aid
will come
in the form of federal education loans and grants from colleges
.

However,
scholarships

are another very ap
pealing way to help reduce school costs. Considering the fact
that scholarships are competitive, i
f you
or

your child decides to
research scholarships
, it's important to
have an organized system to find, apply for, and win scholarship money.


Basic Inform
ation

Most scholarships will ask for some fundamental information about the student, so preparing these
items in advance can save you time when applying for multiple scholarships. For example, details on
previous schooling,
citizenship, state of residence, religion, ethnic background, disability, military status,
employer, membership organizations, and
more may come up repeatedly.


Additionally, questions may center on the academic performance, extracurricular participation and
career plans of the student. The student should take time to reflect on why he or she wants to attend
college, what subject they plan to major in, and potenti
al career plans. Simply saying, “I’m undecided”
will be a tough sell for scholarship boards who could review hundreds of applications.


Researching Scholarships

Typically, the smaller an area which is covered by the scholarship, the better your student’s
chances of
winning. High school counselors should know about local scholarship opportunities for graduating high
school students. Other scholarships may be available for residents of your town, county, and state.


From there, look into
large
r national scho
larship opportunities. There include but are not limited to the
Reserve Officer Training Corps (ROTC), National Merit, Gates Millennium, Siem
ens, Coca
-
Cola, and
Robert Byrd scholarships.


Use a Free Scholarship Search Service

A scholarship search company c
ollects information on hundreds of awards and compares your child's
student characteristics with scholarship restrictions. Based on answers to a questionnaire, your child will
receive a list of possible scholarships. It is up to

your child

to decide which
ones

to try for.


You should never have to pay for scholarship information. If you are asked to pay a fee for "exclusive"
scholarship leads, there's a good chance the scholarship service is really a
scam
.










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Financing Education

Don’t Forget Organizations and
Employers


Think of all of the organizations
you
are affiliated with or belong to:
religious, community service,
fraternal, military, union, and
professional groups, for example.
Find out if any of them sponsor
scholarships for members or
dependents of members.


Don't forget employers. Many large
com
panies offer scholarships or
tuition reimbursement programs for
dependent children of employees.
Check with your human resources
department to see if your company
offers such programs.


Employers of students such as fast
food chains, department stores, and

supermarkets often provide
scholarships. Awards related to
student employment can come from
unexpected sources. For example,
there are a number of scholarships
for golf caddies.



Institutional Scholarships

A

great deal of scholarship

money is disbursed by colleges.
Take time to loo
k into at the schools you’re applying to.
Investigate college websites, catalogs, and financial aid offices
for this information.


Institutional awards can be offered on a university
-
wide basis,
or within a particular college or major. Eligibility for suc
h
awards can be based on merit, financial need, intended major,
ethnicity, or a variety of other factors. Here are some
questions your child might want to ask about these awards:



Are scholarships awarded automatically if a student
matches certain criteria
(such as GPA or SAT score)?



What is the application procedure? What materials
are required?



Is the award renewable? What are the requirements
to maintain the award?


Non
-
traditional students in particular should be encouraged
to contact their institution
to see if they have any scholarships
available for returning adult students.


Financing Education






13


Financing Education

Check to see if your school is
eligible under 529 rules:

http://www.savi
ngforcollege.com/
eligible_institutions/

Saving for School


While you can build up the money to spend on education for yourself or for a child/dependent through
traditional savings and investment options, one savings pr
oduct that applies to this situation specifically
is the 529 college savings plan.


529 College Savings Plans

529 Plan
s, named for Section 529 of the IRS code which
created these types of savings in 1996, are
education savings
plan
s

operated by a state or educational institution designed
to help families set aside funds for future college costs.


529 Plans can be

used to meet costs of qualifying

colleges nationwide. In most plans, your choice of
school is not affected by the state y
our 529 savings plan is from.
For example, Wisconsin residents can
invest in California plans and send students to school in Texas.


EdVest
SM

is Wisconsin's official 529 college savings plan. It is administered by the Wisconsin Office of the
State Treasure
r and managed by Wells Fargo Funds Management, LLC.

http://www.wellsfargoadvantagefunds.com/wfweb/wf/ev/index.jsp


What if my child decides not to go to college or drops out at s
ome point?

* The funds can remain in the account for future use for the beneficiary to attend school

* If the beneficiary does not use the money, the account can be re
-
designated to another beneficiary
who is a member of the family.

* You can close the acc
ount and receive the balance at any time. There is a 10% additional federal tax
for withdrawing funds this way, and federal and state income taxes must be paid on the earnings
portion of the withdrawal.

* The penalty is waived if the distribution is due to

the death or disability of the beneficiary or if a
scholarship or nontaxable grant is awarded to the beneficiary.


Types of 529 plans

According to SavingForCollege.com:

529 plans are usually categorized as either prepaid or savings plans.




Savings Plans

work much like a 401K or IRA by investing your contributions in mutual funds or
similar investments. The plan will offer you several investment options from which to choose.
Your account will go up or down in value based on the performance of the particul
ar option
you select.



Prepaid Plans

let you pre
-
pay all or part of the costs of an in
-
state public college education. They
may also be converted for use at private and out
-
of
-
state colleges. The Independent 529 Plan is
a separate prepaid plan for private c
olleges.


Educational institutions can offer a 529 prepaid plan but not a 529 savings plan (the private
-
college
Independent 529 Plan is the only institution
-
sponsored 529 plan thus far).


Source:
http://www.savingforcollege.com/intro_to_529s/what
-
is
-
a
-
529
-
plan.php


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14


Financing Education


Tax Benefits

There are some tax benefits and incentives for using or investing in a 529 plan, including tax breaks,
certain deductions, and exemptions.


Enrolli
ng in a 529 plan

To invest in a 529 plan, either directly contact the 529 plan manager or work with a financial advisor.


Remember, a 529 can be used for your own continuing education.