College Planning

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

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.


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

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.

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Where Should My Kids Apply to College?

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 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 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

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4 Ways to Evaluate a Financial-Aid Award Letter

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!!


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

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.

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7 Ways to Help You Cut College Costs

7 Ways to Help You Cut College Costs

Parents may assume they earn too much to qualify for financial aid. However, there are a number of strategies that even wealthy families can employ to cut expenses.

While it’s no surprise that parents stress about how they’re going to pay for college, you may be shocked at those who are arguably the biggest worriers. Usually, the people who are most proactive in seeking ways to cut college costs are affluent and wealthy parents. The good news is that simple yet effective strategies exist to help you make college more affordable for your children.

Here are seven steps for estimating costs and maximizing financial aid:

1. Don’t make assumptions about financial aid You may think you won’t qualify for financial aid, but parents are often terrible judges of their potential eligibility. When money is an issue—and it usually is for even affluent families—determining whether a student will qualify for need-based aid is a critical first step in reducing college costs. Once a family knows the answer to this question, they can target the right sources for college money.

To illustrate this, here are three financial aid scenarios: Example 1 Parents have an adjusted gross income of $225,000. With this level of income, only a few elite schools might give this child need-based aid. This family should aim for colleges that award merit scholarships to high-income students. Nearly all colleges do, except for a tiny number of schools, including the Ivy League institutions.

Example 2 The parents in the above example now have two children attending college. The aid formulas are much more generous when siblings are attending college simultaneously. This family would now enjoy a much greater chance of qualifying for need-based aid at many private institutions but would only be eligible for merit scholarships at state universities.

Example 3 Parents have an adjusted gross income of $130,000. At expensive private institutions, this student would be eligible for need-based aid, but the family would be looking exclusively for merit awards at state schools.

2. Get familiar with the EFC You may ask: “How rich is too rich for financial aid?” The answer to this popular question involves a critical number called the “Expected Family Contribution” (EFC). An EFC is a dollar figure that represents what a financial aid formula says a family should be able to pay, at a minimum, for one year of a child’s college education. The EFC for an impoverished family can be as low as $0. That means they don’t have the ability to pay even a single dollar for college. The wealthier the family, the higher the EFC will be, and there is no cap. An executive at a national restaurant chain once told me that he calculated his EFC at $108,000. As you can see from the examples below, once you have generated the EFC, it’s simple to determine if need-based financial aid is a possibility.

Example 1 Family’s EFC is $35,000 and the school’s sticker price is $59,000. Cost of attendence: $59,000 Minus EFC: $35,000 $24,000 Student’s financial need In this case, the student would ideally receive $24,000 in aid to bridge the gap between what the formula says the family can afford and the school’s price tag.

Example 2 Family’s EFC is $60,000 and school price is $32,000. Cost of attendence: $32,000 Minus EFC: $60,000 $0 Financial need With no chance for financial aid at this school, the child should look for a merit award from the institution to cut the price.

3. How to obtain your EFC You can generate your EFC by heading to the College Board and using the site’s EFC Calculator click this link for EFC calculator web. To use the calculator, you must gather your latest income tax return and your investment and savings account statements. Questions the EFC calculator asks includes: • Number in household • Marital status of parents • Number of children in college • Parents’ adjusted gross income • Parents’ income taxes paid • Student’s adjusted gross income • Student’s income taxes paid • Claimed education tax credits • Medical expenses • Cash, savings, checking for parent(s) and child • Non-retirement investments for parent(s) and child

Using the calculator, you can generate the following two EFC figures: • Federal EFC is linked to the Free Application for Federal Student AID (FAFSA), the federal form that anyone wanting need-based aid must complete. • Institutional EFC is connected to a second aid form called the CSS Profile, which about 200 mostly private schools use to determine which students will get their in-house assistance.

In addition to the FAFSA, many prestigious private schools use the PROFILE.

EFC Example Married couple’s AGI: $150,000 Taxable accounts: $100,000 Home equity: $200,000 Federal EFC: $36,652 Institutional EFC: $35,006 Start using an EFC calculator as early as your child’s middle-school years. You’ll need to know what kind of college tab you’ll will be facing soon.

4. Use net price calculators Students apply in blind faith to colleges and then often wait months to find out if they’ve been admitted and what their awards, if any, will be. Thanks to a relatively new online tool called the “net price calculator,” your child doesn’t need to apply in the dark. A net price calculator generates an estimate of what a particular school will cost your family based on your financial strength and your child’s academic profile after any potential grants/scholarships are deducted from the price tag. A good net price calculator will require the same type of financial information that an EFC calculator needs. It may also ask about a student’s GPA, class rank, and standardized test scores to calculate merit awards. • Bad calculators. Beware that about half of the nation’s NPCs are bad. These calculators rely on the federal calculator template, which only asks for income ranges and doesn’t inquire about assets at all! Without that information, you can’t generate an accurate estimate. A federal calculator should only take a minute or less to use. • Hidden tool. Schools sometimes hide these federally mandated calculators on their websites. The easiest way to find one is to Google the name of the school and “net price calculator.” • When to use. If money is an issue, you may run net price calculators for individual schools before allowing your children to apply anywhere. If the net price is too high, keep looking for more affordable options.

5. How your investments impact aid awards Parents tend to be quite concerned about how their savings will impact their ability to get college awards. It’s often not as big an issue as they assume, because many assets aren’t considered in the aid formulas, including retirement accounts. Depending on the financial aid form, schools assess relevant parent assets from 5% to 5.64%. Any 529 college accounts are treated as a parent’s asset.

Example Parent’s assets: $100,000 5% Assessment: x .05 ($5,000) Family’s eligibility for financial aid. In this scenario, the family’s eligibility for financial aid would decrease by $5,000. Most families will only need to complete the FAFSA when seeking financial aid, and the following assets aren’t considered and should not be included on the application: • Retirement assets • Home equity in primary home • Annuities • Cash value in life insurance Nearly all PROFILE schools also ignore retirement assets in aid calculations. These institutions, however, are interested in home equity, non-qualified annuities, and sometimes the cash value in life insurance.

6. How child assets impact aid awards Financial aid formulas treat child assets more harshly. The PROFILE assesses child assets at 25%, while a child’s savings will reduce potential aid by 20% with the FAFSA. UGMA and UTMA custodial accounts are considered a child’s assets.

Example Child’s assets: $25,000 5% Assessment: x .25 ($6,250) Aid eligibility drops by $6,250 One potential solution is that you could close a custodial account, pay any applicable taxes and then move the assets into a “custodial” 529 account. Money in a custodial 529 is treated for aid purposes as if it belongs to the parent. Important: If a family is wealthy and will not qualify for need-based aid, the amount of investments that parents and children possess is irrelevant.

7. Check graduation rates Parents typically assume that their children will graduate from college in four years, but that usually doesn’t happen. According to federal statistics, 33% of students attending state universities graduate in four years, while nearly 53% of students at private colleges pull this off. Making sure a child graduates on time is a sure-fire way to limit ballooning college costs. Check out the following two resources to research grad rates at individual schools before your children apply anywhere: • College Completion ( • College Results Online (

Bottom line Knowing these late-stage college planning tools can put you in a much better position to help your college-bound teens maximize their financial aid and avoid accumulating mountains of college debt that takes many years to pay off. Consult with us on how to set up the best college plan for your specific situation.

SOURCE: The Horsesmouth

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Child ID Theft: 8 Steps to Keep Your Kids Safe

Child ID Theft: 8 Steps to Keep Your Kids Safe

You are not the only one who needs to be on guard about their personal data safety. Minor children are 35 times more likely than adults to suffer ID theft. Here’s what parents need to know.

The latest target of identity thieves is not you, but rather your children. With little to no financial history, minors make an unsuspecting and easily exploited target. According to a Child Identity Fraud Survey conducted by Javelin Strategy and Research, one in 40 households has had one child who has suffered from identity theft. In fact, children are affected by identity theft and fraud 35 times more frequently than adults.

What makes a nine-year-old’s identity so attractive? Children are not financially active, so this theft is likely to go unnoticed for years. The majority of parents and guardians do not request copies of their child’s credit report, so they don’t notice any fraudulent activity. Yet the damage done can affect a child well into his or her adult life.

The theft that keeps on giving

Take Gabriel Jiminez, who shared his story with the New York Times. Jiminez’s identity was stolen when he was a child. His mother discovered the breach in 1993 when she went to file taxes for the work he did as a child model at age 11. The IRS notified her that taxes have already been filed under Gabriel’s Social Security number.

That’s where Jiminez’s frustrations began. His Social Security number had been stolen by an illegal immigrant, who used it for many years. As an adult, he had issues with his credit report, setting up bank accounts, and getting approved for car insurance. Jiminez was denied credit when he tried to set up phone, gas, and electricity in his first apartment because the thief had already created accounts. His credit rating was badly damaged. Jiminez and his mother were able to identify the thief years ago, but that did not release Jiminez from having to prove his own identity time and time again.

He is not alone in this experience. An estimated 500,000 children are affected by identity theft each year. Children who have their identities stolen can spend the rest of their lives dealing with complications regarding their personal information and identity. Fortunately, there are measures you can take now to prevent these never-ending frustrations.

How to keep the thieves away

Protecting a child’s identity from thieves and fraudsters is similar to protecting your own identity. The first step is to educate yourself and your children on keeping their information safe. You should also:

  1. Keep all of your children’s personal documents locked up. This includes their birth certificates and Social Security numbers, as well as any other documents that contain sensitive personal information.
  2. Protect your children’s Social Security numbers. Before you give it out, ask why someone needs it, how they will keep it safe, and how they will dispose of it. You should also inquire if there is another personal identifier they can use instead for your child. For example, some schools have started to issue randomly selected ID numbers rather than Social Security numbers to identify students.
  3. Check with your children’s school. Some schools share information about their students with third parties. You have the right to opt out of having a child’s information shared in directories or online.
  4. Create a joint bank account. When setting up a child’s bank account, make sure it is a joint account. This ensures that no one can access the account without your approval.
  5. Opt out of marketing materials. When creating bank accounts for your children, you also should opt out of receiving marketing materials in their name. Children should not be receiving credit offers. A pre-approved credit card offer addressed to your child is a goldmine for identity thieves. Opting out ensures that kids will not be sent these offers. If your child starts to receive pre-approved credit cards in the mail, it could be a sign of identity theft. Take proper measures to check your child’s credit report and call the company that sent the materials immediately to remove your child’s name. You should also add your child’s name to the Do Not Mail list. You can do so through the Direct Marketing Association.
  6. Monitor your child’s internet usage. Until your children are at an age where they understand the dangers of the Internet, you should monitor what they are doing online. If your child has an email address to communicate with family members, maintain access to his or her password and check up on who is contacting the child, keeping an eye out for spammers and fraudsters. Set up parental controls and read privacy policies before signing your child up for any online account.
  7. Teach your child how to be safe online. While monitoring your child’s accounts online is important, children themselves should also be taught how to keep their information safe on the Internet. Explain to them that they should not share any personal information on the computer or visit sites without permission. Advise them to show you any emails before they open them and teach them the dangers of phishing. Explain that by opening emails from people they do not know, they risk accidentally giving their personal information to the bad guys. Teach them how to create strong passwords for their accounts and warn them not use any information in usernames that could identify them.
  8. Update your child’s electronic devices. Keep any computer or tablet your child uses up to date with antivirus, firewall, and security software.

Stay alert

Being aware is the first step in protecting a child’s identity. If someone has fraudulently used your child’s identity, there will be an associated credit report on file, so it is a good idea to periodically check for a credit report in your child’s name. To do so, you should contact all three of the nationwide credit reporting agencies ( Experian, Equifax, and TransUnion) and ask them to do a manual search of your child’s Social Security number. When doing so, you will need to provide proof that you are the child’s legal parent or guardian. You can do so by sending a cover letter with your child’s information as well as copies of your child’s birth certificate listing you as the parent, your driver’s license, and proof of address.

If your child’s identity has been compromised, there are steps to take to regain control. First, you should alert the three credit reporting agencies of the fraud. You must request a credit freeze on your child’s account so no new accounts can be opened by the thief. You should also file a report with the Federal Trade Commission as well as your local police department.

Even if your child’s Social Security number has not been fraudulently used, you should still freeze their credit file with the big three credit bureaus. As of September 2019, parents and guardians in all 50 states can freeze their child’s credit report—a great improvement in the fight against child identity theft.

Your own identity is not the only one you have to protect. Following these eight steps can help keep a child’s identity away from thieves and fraudsters, and avoid what could become life-long credit issues.


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How Rising Interest Rates Affect Financial Plans

How Rising Interest Rates Affect Financial Plans

Whether you are managing debt, investing assets, or developing an estate plan, changes in interest rates represent an excellent opportunity to review your financial plan and consider new strategies designed to capitalize on changing conditions. If you talk with your financial advisors, they will tell you too.

Calling the direction of interest rates has always been an iffy proposition. In many cases, even the experts disagree. But when the economy is in recovery and rates are inching up, it may be time to plan a new strategy. Here are some ways you can tweak your financial plans to take advantage of—or lessen the sting of—higher interest rates.

Liability management

Because debt is the area most directly and most negatively affected by a rise in interest rates, start by reviewing any debt portfolios. Look at credit card debt, mortgage debt (on one or two properties), home equity loans or lines of credit, and auto loans. Check to see if any adjustments need to be made to either pay down debt or switch to a less costly form of debt.

Credit card debt. According to Bankrate, variable-rate cards tied to the prime rate move in direct response to Fed interest rate action. Fixed-rate cards are less volatile, but they are not a haven from higher rates because issuers can—and will—raise the rate.

•Check your credit card bills to see what interest rate you are being charged and how much the debt is costing you each month in dollars and cents. Options for lowering credit card costs include negotiating for a lower rate or paying off the debt with available assets or with proceeds from another loan, such as a home equity loan, a lower-interest credit card, or even a loan from family members.

•Home mortgage. If you have a fixed mortgage, you can sit tight and keep making your regular mortgage payments. Although accelerating payments to pay off the mortgage faster may fit with your personal financial goals, this is generally a declining-rate strategy, not one undertaken in anticipation of rising rates.

•If you have an adjustable-rate mortgage (ARM), on the other hand, you have a decision to make: Should you switch to a fixed-rate mortgage before rates go higher, or stick with their ARM (depending on what the spread is)? The ARM can be a better deal if you don’t plan to stay in the home for more than a few years.

•Home equity loans and lines of credit. Here you’re dealing with the fixed vs. adjustable question again. If you have a fixed-rate home equity loan you can sit tight. If you have small, short-term loans or lines of credit tied to the prime rate, you may want to lock in a fixed-rate loan before rates go much higher or you plan to pay off the loan fairly soon.

•Auto loans and leases. According to Bankrate, auto loans typically reflect rate increases before the Fed’s move, responding to yields on Treasury securities. If you are thinking of buying a car, you may want to do it when financing incentives offered by dealers are most attractive.

•401(k) loans. Rates on 401(k) loans are usually tied to the prime rate, so it is not possible to lock in a rate on these loans. Better to pay them off, perhaps taking out a fixed-rate home equity loan to do so.

Asset management

Savers typically rejoice at the prospect of rising interest rates, but use caution if you are thinking of locking in higher yields while rates are still rising.

Ladder maturities.

Laddering CDs or short-term fixed-income securities is a classic strategy when rates are in flux and you don’t want to commit too much of your portfolio to one particular scenario. If rates jump, you’ve always got something coming due that can be reinvested at the higher rate. When rates are rising, you want to keep the ladder fairly short—say, up to three years—gradually lengthening the ladder as rates continue to rise.

Special situation

Believe it or not, some bonds hold their value when interest rates go up. This can happen when something other than interest rates exerts a greater influence on the bond’s price, such as when a bond’s credit quality improves.

By searching out special situations (or finding professional money managers who have the time and resources to thoroughly analyze the bond market), you may be able to achieve long-term yields with minimal interest-rate risk, but since this strategy involves buying bonds of lower quality in the hope that the fortunes of the issuer improve, there’s still a good deal of risk involved. Definitely discuss a special situations strategy with an investment professional.

Estate planning

Certain estate planning strategies are worth more if they are implemented when rates are low and the strategies are appropriate for your situation. It is also a good idea to check with your financial advisor before making any irrevocable decisions:

  • Grantor-retained annuity trust (GRAT). A GRAT is used to shift assets to family members before they appreciate in value. The grantor places assets in trust and receives a portion of the assets each year in the form of an annuity. A gift tax is triggered at the time the assets are transferred into the trust, with the value of the gift being the fair market value of the assets minus the grantor’s retained interest, which is the present value of all of the annuity payments over the term of the trust.
  • Both the annuity payments and the present-value calculation are tied to the 7520 rate, which changes every month based on Treasury bond yields. The lower the 7520 rate, the less income the grantor is forced to accept, which means more assets remain in the trust for heirs.

Also, the lower the initial interest rate when the present value of the income stream is established, the higher the grantor’s retained interest will be, thus lowering the value of the gift for gift-tax purposes.

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