College Planning

College Planning: 10 Key Angles on Expected Family Contributions You Should Know

One of the biggest questions that parents with college-bound children puzzle over, is whether their child has a chance for financial aid.

This is more confusing than you might think, because at some schools a family could qualify for need-based aid if they make $200,000 a year, and at another school, the ceiling for aid could be $70,000.

The first step that you should take when grappling with this issue is to obtain the Expected Family Contribution (EFC). And you should do this before seriously exploring your teenagers’ college options.

Here are the top 10 ideas parents need to know about this important number and how it affects their college planning.

1. What is an EFC?

An Expected Family Contribution is a dollar figure that represents what financial aid formulas believe a family should be able to pay for one year of a child’s college education.

2. What is the average EFC?

The EFC for the average American household with an AGI of $50,000 will usually range from $3,000 to $4,000. There is no cap on EFCs, so some very wealthy families will have EFCs that exceed the cost of an expensive private university.

3. When should we obtain our EFC?

It’s best to get a ballpark idea of what a family’s EFC will be as early as a child’s freshman year in high school. Obtaining a preliminary EFC will give parents a rough idea of the minimum amount that they would be expected to pay for college. (See “How to obtain an EFC” in No. 8 below.)

4. State vs. private school tuition

Families with household incomes of $60,000-$80,000 and above typically find that they do not qualify for need-based aid at state universities, but they may qualify for need-based aid at private schools. Determining if a student would be eligible for need-based aid requires subtracting the EFC from a school’s cost of attendance.

Example 1

Cost of In-State Public University: $22,000

EFC: $35,000

Demonstrated financial need: $0

This affluent family’s EFC exceeds the price of the state school, so the student wouldn’t qualify for need-based aid.

Example 2

Cost of In-State Private University: $60,000

EFC: $35,000

Demonstrated financial need: $25,000

In this scenario, the student would be eligible for up to $25,000 in need-based aid from the private college because the price of this institution is far more expensive and exceeds the family’s EFC.

5. Strategies for no or low EFCs

Families who discover that they have a high EFC and aren’t eligible for need-based financial aid should look for schools that provide merit scholarships that are given regardless of need. Most schools fall into this category.

If an EFC is modest, families should search for schools that provide excellent need-based assistance. Far fewer schools fit into this category

6. Find the most generous schools

Families will usually have to pay more for college than their EFC indicates they can afford, because most schools do not meet 100% of a student’s demonstrated financial need. Consequently, it’s important to identify the most generous colleges that would consider a child an attractive candidate.

7. How to estimate your EFC

Parents can obtain their Expected Family Contribution by using the College Board’s EFC Calculator. Using the calculator with clients can be an excellent way to strengthen your relationship. And the calculator can also be a great prospecting tool when used with potential clients.

With this calculator, parents will want to obtain their EFC using both the federal and institutional formulas. The calculator will produce one EFC using the federal methodology that is linked to the Free Application for Federal Student Aid. The calculator will also produce an EFC using the institutional methodology, which is linked to the CSS/Financial Aid PROFILE. The vast majority of private and public colleges and universities only use the FAFSA, while private, selective schools also use the PROFILE.

8. Getting your official EFC

After completing the FAFSA, students receive their official federal EFC via an electronic document called the Student Aid Report (SAR). The SAR will include the family’s EFC near the top of the report and also provide all the information that the family included on the FAFSA. Parents should check their SAR for accuracy.

PROFILE filers will not receive an EFC from the College Board, which owns and operates this financial aid application. Institutions that use the PROFILE customize their aid applications by choosing from hundreds of different questions, so you will end up with a different EFC for each school. Parents should ask each PROFILE school for their EFC if the institutions do not include this important dollar figure on their children’s financial aid awards.

9. Schools often don’t mention EFC

Unfortunately, many schools don’t include a family’s EFC on their financial aid awards. Some institutions suggest that including the EFC on their aid letters will confuse families. More likely, schools don’t want to share EFC figures with families because they can then determine if the package is stingy.

Once a family has their EFC and the financial aid package, compare the EFC with what a school is offering. Let’s say that the cost of a school after deducting institutional grants is $39,000 and the EFC is $28,000. That means there is an $11,000 gap between what the EFC suggests a family can pay and what the school wants to charge your client. Based on this knowledge, a family can appeal the award.

10. Remember to adjust EFC for life changes

Plug new numbers into the EFC calculator if a family’s financial situation changes due to such things as a divorce, separation, death, disability, job loss, or the care of an elderly parent.

Source:

Horsesmouth.com

It’s College Essay Season: Let’s Craft an Essay That Will Grab and Delight Admission Officers

Summer is the perfect time for rising high school seniors to be writing their college essays, well before the hectic onset of their final year in high school.. When school starts, seniors are going to be overwhelmed with classes, activities and applying to colleges. Taking advantage of free time when it’s available is vital.

Depending on the school, the admission essay can be a critical element in determining whether a student will get in or not.

Here are some tips for crafting an essay that will grab admission officers’ attention right away and stand out:

Don’t bore the admission readers with a dull opening line! During admission season, admission reps often have to read dozens of essays a day. It’s inevitable that they are going to start blurring together, which is why applicants need to make theirs stand apart.

What follows are examples of the opening essay lines of successful Stanford applicants that the university’s admission reps particularly liked:

• I have old hands.
• I change my name each time I place an order at Starbucks.
• As an Indian-American, I am forever bound to the hyphen.
• Some fathers might disapprove of their children handling noxious chemical in the garage.
• When I was in eighth grade I couldn’t read.
• I’ve been surfing Lake Michigan since I was three years old.
• Unlike many mathematicians, I live in an irrational world; I feel that my life is defined by a certain amount of irrationalities that bloom too frequently, such as my brief foray in front of 400 people without my pants.

Some of the best essay advice I’ve gotten has come from Parke Muth, a former assistant dean of admissions at the University of Virginia and now an independent college consultant.

Here is what he said:

“Most students think of their college essay as a major motion picture. They feel they need to cover the highlights (or, too often, the tragedies) of years of experience. The problem is that to write about a life in 500 words will result in a cinematic long shot. We in admission offices see little tiny figures dancing on the horizon but they are too far away for it to be personal. It is a shadow play that even Plato would be wary of.

I tell students it is not a movie they are making but a Nike ad. The time it takes me to read 500 words is about the time it takes me to watch a Nike ad.

I like Nike ads. Why? It isn’t about the fact that they have spent years in research trying to find the best materials. No, it is the close-up and the sweat…

Can I hear, see, touch, taste, and sometimes even smell what the world they live in is like? Not the whole world but a thin slice. Make a moment represent something bigger. The universal is in the particular, as the poets would put it.”

One reason why it’s possible for many students to get a jump on their essays is because the essay prompts are released early every year for the Common Application, which more than 800 colleges use.

The Common App offers students seven different essay topics, including the most popular option: “Write about whatever you want.”

Students can already apply through the Common Application for the 2019-2020 school year. Any adult can create a practice account to view the online application.

SOURCE: TheHorsesMouth – Lynn O’Shaughnessy is a nationally recognized college expert, higher education journalist, consultant, and speaker.

Where Should My Kids Apply to College?

Decision Point Planning: If you believe the hype, families these days have their kids applying to 10 or more schools, and acceptance rates are at record lows. What’s going on? Lynn O’Shaughnessy explains what a sensible college application process can look like for 2019.

Step 1: Relax! Most schools accept the majority of applicants.

Every year we have media stories declaring, “Oh my gosh, the acceptance rate at Harvard has dropped. The acceptance rates of Stanford and Yale are down.” What these dispatches fail to tell you is that this is just a teeny tiny part of college admissions. What I wish the media would add when they shout about Harvard accepting less than 5% of applicants is, “You know, most kids get into their first-choice school.”

Every year UCLA does a survey of hundreds of thousands of college freshman, and every year the survey results show that about 75% of kids get into their first-choice school. When you think about it, there are 2.2 million traditional students who start in college every year. The number of kids who apply to schools like Yale, for instance, is something like 36,000. This is a teeny tiny percentage of college admissions and yet the media is focused on these few schools, and that just makes everybody panicky.

Most kids aren’t applying to 17 schools, no matter what the newspapers are saying. Roughly a third of students apply to seven or more schools. That means most kids aren’t even doing that many.

The number of colleges a student applies to should be based on what kind of schools are on a college list. If you are looking for schools that want you, that’s one thing, but if all seven are Duke, Rice, Harvard, Stanford, and other Ivies, then it is crazy to apply to that few. At these elite schools there is no admission guarantee unless you have a hook—you’re the child of a billionaire who can donate millions of dollars to a school, you’re a legacy, or you’re a recruited athlete. Then you have a better shot. No one should be applying strictly to elite schools.

Building craziness

This fixation with the most highly ranked schools is more of a problem for high-income students and their parents. These schools are status symbols. And beyond the bragging rights, families don’t know about the different types of schools out there. They recognize only the names of their own state schools and brand-name research universities.

Low- and middle-income families are generally not even thinking about private schools, elite or not. They tend to go to community colleges or nearby state schools.

Part of the reason we see so much more craziness now is that more kids are going to college. When I went to college, maybe 15%-18% of the teenagers my age were going to college.

And there is a perception that there are only a few schools worth going to. Some people feel, “We want our kids to have the best,” and they have to go to these so-called golden ticket schools. Parents feel more desperate as they see headlines every year that say it’s harder and harder to gain admission. So they feel they have to apply to more and more of them. It just feeds on itself.

Step 2: Find colleges with academic profiles that fit your student

Parents can help their kids put together a good college list that considers how they would fit in at a school and where they are likely to be accepted. You can look at test scores, GPAs, and the typical freshman class of each specific school. These kinds of statistics are readily available on College Board, CollegeData, the federal College Navigator, and other places.

And definitely look at the school’s acceptance rate. You could have a perfect test score and grade point average aiming for Princeton, but there’s still almost no chance you’re going to get in.

But that’s just an outlier. Most schools, as I said, accept the majority of their applicants. You can look at a school’s acceptance rate and where a child fits in terms of her GPA and test scores.

You can also look at what other criteria a particular school is interested in by going to Collegedata.com. You type in the name of any school and then click on the “Admissions” tab. You will see a box that has 19 admission factors listed and an “x” that indicates whether the school considers each one “very important,” “important,” “considered,” or “not considered.” Pay attention to that.

Oftentimes schools will say they consider “demonstrated interest” which means they want to know that the student is really interested in their school in particular—and not just applying for the sake of applying to a bunch of schools.

The rise in numbers of applications has made more schools consider demonstrated interest. One reason for the growing applications is the Common Application, which roughly 600 schools now use. With the Common Application, you fill out the online document once and you can send it to as many schools as you want. Each school can ask for answers to a few supplemental questions like, “Why are you interested in this school?” Or they may have a specific essay question. But once you’ve filled out the main application, it’s easy for kids to just shoot it off to a lot of colleges.

Make sure to figure out the cost.

One of the most important things is to use net price calculators. Every school, by federal mandate, has to have a net price calculator on its site. Using the tool, you’ll be able to see what a college says you will have to pay after any merit scholarships are deducted. That’s why it’s called a “net” price calculator. That’s super important.

Step 3: Consider early decision

If a child is focused on one particular school and the parents are prepared to pay the cost of going there, applying “early decision” or “early action” is an option. This growing trend in the college application space favors wealthy students, and it really does give you an advantage in the application process. Not every school has early decision, but a lot of private schools do.

When students get into a college via early decision, they agree to attend no matter what. (With early action, you’re not required to go to the school even if you are accepted.) The school could stiff a student and offer no money (scholarships and grants), but the teenager is still supposed to attend. That’s why it’s considered a benefit to high-income students whose parents can pay no matter what the school costs. Other families can’t take that risk.

Because of the promise to attend, whether to apply early decision can depend on whether or not the school has good financial aid. If you have demonstrated need, most elite schools have excellent financial aid. If you apply early decision and get in, you’re likely to get some aid. If you don’t need it, and you apply and get in, you are obligated to pay full price.

Of course, it is kind of based on the honor system that you will definitely go to this school if you get in. That’s what schools are counting on. They like to lock in a good portion of their freshman class early decision because then they don’t have to worry about all those kids applying to 20 schools and leaving the school up in the air as to where they stand.

See what kind of edge it gives you.

If you want statistics on acceptance rates for early decision/early action versus regular decision, go to College Transitions.com. There are many admissions statistics on the site. You can see how much of a crazy advantage you get with early decision. For instance, for students who applied early decision to American University, the acceptance rate is 84.5%, and for students who applied regular decision the acceptance rate was 26.6%. That is biggest advantage that I’ve seen.

Keep in mind, however, that American University doesn’t have great aid. So you would be really risking it if you applied early decision to this school. You’d probably have to pay the full price.

Here’s another example: Dartmouth College’s early decision acceptance rate now is 28% versus 8.5% for regular decision. If you apply there and you need aid, they give really good aid. To me that’s not as much of a risk if you’re looking for financial aid, since the school is on record as giving a lot of aid to students who demonstrate need.

As I mentioned, with early action, you’re not required to go to the school even if you are accepted. Yet amazingly the early action acceptance rate is still often higher than regular decision even though you’re not required to attend that school.

I’m looking at Fordham University, which by the way has horrible financial aid, and I see that its regular decision rate is 42.5%, but early action is 50%. So it’s a little boost even though you’re not taking any kind of risk.

Step 4: Choose a good mix of schools

Families who are building a college list need to choose a good mix of schools. A list could contain public universities (both in-state and out-of-state) and private colleges of various selectivity.

Parents should compare their teenager’s academic profile to that of the latest freshmen class at a college and figure out whether they would qualify for need-based aid or merit scholarships. Again, keep in mind that most schools accept the majority of the students who apply. It’s not that hard to get into college, unless you have restricted yourself to a list of only the elite schools that reject almost everyone, which is just setting yourself up for disaster.

Source: Horses Mouth By Lynn O’Shaughnessy

4 Ways to Evaluate a Financial-Aid Award Letter

Financial aid award letters are confusing primarily because colleges like it that way. It’s in a school’s interest to confuse families so they think an award letter is more generous than it really is.

This award letter from the University of Arizona illustrates just how misleading these letters can be:

Figure 1: Example of an Unclear Financial Aid Award

Source: Lynn O’Shaughnessy

It’s easy to see how the recipient of this award might have thought that his first year of college would be free. In reality, this student would have to pay $42,385. The only free money in this award is the “gift aid” of $5,815.

The university has a bizarre way of describing loans in this award. For instance, the “Self-Help Options excluding Credit Based Loans” is actually the federal Direct Loan for students. You’ll also see it referred to as a Stafford Loan.

Identifying terms that schools use in a financial aid letter can be challenging when a school wants to hide just how stingy an award really is. Too many colleges view the award letter as a marketing document to persuade families that they are affordable rather than laying out what the true costs would be.

Here are four tips to use when evaluating award letters:

1. Absolutely pinpoint the Expected Family Contribution!

It’s extremely important to identify a household’s Expected Family Contribution, or EFC, when analyzing any award letter. Without having the all-important EFC, it will be impossible to know if the award is a generous one or not.

The EFC, which is generated as a dollar figure, represents what the relevant financial aid formula says the family should be able to pay for one year of college.

Example: College cost of attendance: $60,000 Institutional grant: $25,000 Direct student loan: $5,500

Excluding the student loan, the real cost to the recipient of the above award would be $35,000. Now the important question: Is this a good award or not?

You can’t possibly answer this question without knowing what the financial aid formula says the family could actually afford. In other words, you need the household’s EFC figure.

Let’s say the household’s EFC is $18,000. In this case, the award would be poor. Subtracting the EFC of $18,000 from the school’s $60,000 price tag would have ideally generated an award worth $42,000.

Nearly all schools—except for some of the most elite—would include the federal Direct Loan ($5,500) in the package for an incoming freshman, but that would still leave the family eligible for assistance worth $36,500.

2. Know where to find an applicant’s official EFC

There are three ways to identify the relevant EFC from a college.

• Ideally, the EFC will be included on the award letter. All schools should include this all-important figure, but often they do not.
• Families can obtain the federal EFC from the federal government.

When a family files the Free Application for Federal Student Aid (FAFSA), the formula generates its official EFC. All institutions will use this EFC to determine eligibility for federal and state aid. The vast majority of colleges will also use this figure when determining whether an applicant will qualify for in-house aid. A household will discover what its federal EFC is three to five days after filing the FAFSA electronically. That’s when they will receive a federal document called the Student Aid Report (SAR). The EFC will be displayed in the top right-hand corner of this document.

• A household’s EFC can vary for schools that also use the financial aid application called the CSS Profile. About 200 colleges, nearly all private, use the Profile information to generate its institutional EFC for a household. This EFC is used to determine which applicants will qualify for a Profile school’s own financial aid dollars.

Profile colleges can personalize their aid formula by choosing from hundreds of optional questions, which means that each Profile institution can generate a different EFC. Often these EFC figures will be quite similar, but there can be outliers.

If a Profile school does not provide the EFC on the award letter, your will have to contact each Profile institution for its EFC number.

3. Appeal based on the EFC

Once parents have their relevant EFC, they can appeal an award that is a disappointing one. It’s a buyer’s market at many colleges so appealing an award that an EFC indicates is inadequate can definitely be worthwhile.

4. Consult a model financial aid award

The best way to get up to speed on evaluating an award is to use a handy cheat sheet that shows you what a model award letter looks like.

The federal government created the cheat sheet, shown below. This is called the College Financing Plan. Until recently, it was called the Shopping Sheet.

Figure 2: The College Financing Plan Template

Source:Department of Education

As you can see from the screenshot of the model letter, the EFC is prominently shared at the top. With the cheat sheet, there will be no confusion about which line items are loans rather than free money.

Also importantly, the award letter shares what the family’s net price would be.

The federal government would like all schools to use the template for their award letters, but many colleges have stubbornly continued to use their own flawed ones. And that’s why it’s so important to plan in advance.

If you want to have a deeper look into your College plan, contact us!!

Source:Horsesmouth

Your friends and family are going to give gifts anyway—why not give the gift of education?

If the thought of paying for college keeps you up at night, you are not alone. Between 2005 and 2016, the cost of an undergraduate education at public colleges and universities increased 34%. And it goes up more each year—by an average rate of 3.1% for a 4-year public university. That’s on top of the average annual rate of inflation.

Given the steep price and the well-documented financial impact of student loans, it may be worth asking your friends and family to contribute to your child’s education with a gift to their 529 college savings account. It’s likely that the people who know and love your family give gifts at birthdays and holidays. Instead of toys and games, why not ask for a contribution to a 529 savings account? It’s a gift that can have a lasting and meaningful impact.

It may not be difficult to convince family members about giving gifts to a 529 account: 90% of grandparents in a Fidelity survey said that they would contribute to a college fund, but only 23% of parents have actually asked.

The great thing is that gifts to your 529 don’t have to cost a lot of money. There’s no minimum and every dollar helps. If five friends give $20 each for the first 10 birthdays of your child’s life, that adds up to $100 a year. It’s $1,000 over the course of a decade—plus any potential compounding investment returns that come with it.

If your 529 account is with Fidelity, you can create and share a link to your child’s personalized gift page with family and friends. From there, they can easily gift money online using an electronic check if they want to contribute. You can edit your gift page and track the gifts you’ve received from your private dashboard.

As the account owner, only you can access your dashboard, so your account information is kept private.

Consider this hypothetical illustration showing the power of gifting over time.

Gifts can supercharge your college savings

Estimated numbers in chart above have been rounded to the nearest dollar. This hypothetical example assumes the following: (1) monthly contributions to a 529 account from the account owner of $416.66 only, made on the first of each month beginning when the child is born and continuing through age 18; (2) monthly contributions from the account owner of $416.66, and monthly gifted amount of $83.33 to a 529 account made on the first of each month beginning when the child is born and continuing through age 18; (3) annual rate of return of 7.5%, compounded monthly; and (4) no taxes on any potential earnings within the 529 College Savings Plan account.

Local and state taxes, inflation, fees, and/or expenses were not taken into account. If they had been deducted, performance would have been lower. The hypothetical is not intended to predict or project the investment performance of any security.

Past performance is no guarantee of future results. Your performance will vary and you may have a gain or a loss when you sell your units.

Research has found that people may feel uncomfortable about asking for a gift to their child’s 529 savings account. But it can be worth getting over that initial discomfort and speaking up.

Giving gifts to children is one of life’s great joys—it usually makes the gift-receiver very happy and that makes the gifter happy. But children may not immediately appreciate the long-term gift of education in place of the next amazing toy or game. So it can be important to make sure that your child understands how important their education is and the value of saving for the future.

To get your friends and family, and your children, to understand the significance of gifts to a 529, consider these seven tried-and-true strategies straight from Fidelity customers.

• While your child is still young, open the account and start mentioning to your friends and family that gifted contributions to the 529 are always an option. When your child is old enough to understand, tell them about the account and that sometimes people give them gifts that way too. That will normalize it and make it a routine around birthdays and holidays.
• If your family wants to help celebrate academic success, consider sharing report cards along with a link to your child’s gift page if your 529 account is with Fidelity, or an address to send checks to if they want to give gifts directly to the account but don’t want to do it online.
• People are more likely to give small amounts frequently rather than a large amount once. Help your friends and family feel comfortable with small contributions by showing how impactful saving small amounts can be over time.

For instance, a $50 gift contributed to the account today could potentially be worth nearly $200 in 20 years.

Consider educating friends and family about the power of compound interest and saving. It’s important to emphasize how financially meaningful contributing even a small amount to the college fund could be. You could even show them the chart above that illustrates growth potential over time. With more money available to earn returns, the snowball effect of compounding could potentially help you hit your savings goal sooner than you would without those gift contributions.

• After you’ve introduced the idea of gifting to your child’s 529 account, leave it up to the gifter to decide how much money they would like to give—and how they would like to do it. You can offer to deposit checks or cash gifts too.
• If you have the option, posting the link to your child’s gift page on social media could be helpful—that way everyone who’s interested in your child’s educational growth can help out.
• For birthdays, include the link to your child’s gift page in your digital party invitation and explain in a short note that making a contribution to the 529 savings account is an option if they want to give a gift.
• Holidays can be a big deal. If you’re like many people, you may feel like your child already has enough toys and that you could even go into business selling them. At the same time, you may be reluctant to tamp down on the gift-giving fun. Gifts to your 529 account could be the answer.

Once you’ve set your child’s expectations for gifts and educated them about their college fund, let your family know that contributions to the 529 account will be celebrated with a high level of fanfare from everyone. That doesn’t have to mean a ban on fun gifts, of course, but striking a balance could reduce clutter and toy overload—while boosting college savings.

A Fidelity survey found that many parents would like to see a two-to-one split between traditional gifts and college savings: 65% traditional gifts and 35% college savings.6

• Graduations of all kinds are celebrated—as they should be, right? When the pre-K or 5th-grade graduation rolls around, if your friends and family are inclined to give gifts, think about encouraging them to give a small personalized gift from their own alma mater (t-shirt, socks, stuffed animal, a graduation photo, or keepsake) along with a contribution to a 529 account. That could help reinforce the importance and relevance of a college education to the child.

You could even get your child to actively participate in saving by keeping him or her updated about the balance in the 529 account. Give your child the option of saving some of the money from gifts or allowance. On birthdays and holidays, you could offer to match any cash gifts put toward college. Family members might be interested in doing that too!

Gifting can help with estate planning:

Gifts to 529 accounts can also help with estate planning. Gifters can contribute up to $15,000 to a 529 account per person, per year with no gift tax ramifications. So a married couple could gift up to $30,000 per year without having to pay a gift tax or erode their lifetime gift tax exclusion. Once the annual gift has been made to the 529 plan, the money is no longer considered part of the gifter’s estate, for estate tax purposes.

The good news for people who receive gifts: When someone makes a gift to your 529 account, you generally will not owe taxes on the amounts. The rules can be complicated, though, so be sure to consult your tax and financial advisor.

The gift of education

However people choose to give, whatever amount they choose to give, every little bit helps to fund your child’s educational success. That can help give your child the key tools to thrive throughout college and for the rest of his or her life.