This article was originally written for University Parent as a part of their parent program.
Everyone likes a good bargain.
We rush out on Black Friday to get the best deals for Christmas — we stand in line in the freezing cold to save money! But do parents put as much effort and attention into finding a college bargain? Student debt statistics would say they don’t. Would you want your student graduating from college saddled with that debt? I imagine not!
College bargains do exist and if you have a student who intends to start college in the fall, it’s your job as a parent to point him in their direction. College is a huge consumer purchase which you can and should approach much as you would the purchase of a home or car. Do your research, compare the prices, and help your student choose a school that gives you the best bang for your buck.
One of my favorite movies is Mr. Blandings Builds His Dream House. In it, Mr. Blandings tells his lawyer that “some purchases you make with your heart and not your head.” As I said, I love the movie, but this is bad advice. When it comes to your college “purchase,” use your head first and then listen to your heart.
I understand that it can be challenging to get students to look at the college choice from this point of view. When my daughter was applying, all her choices were east coast private schools with huge price tags. As a parent, I wanted her to have her dream but, also as her parent, I wanted her to graduate without being burdened with debt. Her heart told her to go to the college that offered the least amount of merit aid. Her head, after a long “money talk” and re-evaluation of her second choice, led her to a school that allowed her to graduate with a small amount of student loan debt. She’s grateful every day that I guided her in that direction.
Studies have shown that students who spent time working during college actually do better in the classroom. Students who work must learn how to structure and manage their time to work around class assignments. This translates into not delaying assignments and scheduling time to study for exams. However, many experts suggest that freshmen students wait until the second semester to take on the added responsibility of a job. This allows them time to ascertain their academic strengths and decide whether or not a job would detract from their study time.
When college students do decide to work, there are three options available to them: on-campus jobs, off-campus jobs and internships. Each of these job opportunities has its own set of advantages.
Parents and students who understand and plan for the cost of college are wise consumers. Before applying to college, it makes sense to plan ahead and know your options before making a decision about college. The College Board and FinAid.org provide parents and students with several different college calculators to determine college costs, the expected family contribution for financial aid, and how much student loan payments will be upon repayment. Knowing these figures will help you better plan for the costs associated with college.
Many families are aware of the aid the federal government provides to college students. But did you know that states also have financial aid available for college students?
In 2018-2019, states awarded an average of $930 per full-time-equivalent undergraduate student in the U.S., according to the College Board’s Trends in College Pricing and Student Aid 2020 report. This continues a seven-year trend of rising state grant aid. But as state budgets see significant cuts in response to the economic impact of the coronavirus pandemic, experts say the trend may pause or reverse.
In the wake of the coronavirus crisis, many American families are under severe financial strain and parents of college-bound students are in need of financial aid. Many are facing a $40,000 college tuition bill.
Nearly 40% of parents who didn’t plan to apply for federal aid, now will as a result of the pandemic, according to a recent survey by Discover Student Loans.
Roughly half of parents lost income as a result of the pandemic and 44% said they can’t afford to pay for as much of their child’s education as they had originally planned, the survey found.
A recent educational survey conducted by T. Rowe Price has revealed that almost 45% of parents who are saving for college are using a normal savings account. Only 31% of parents are using a 529 plan for the college-savings purpose.
The prime reason so fewer people are saving through the 529 plan is people are not aware of the 529 plan. The T. Rowe Price survey has revealed that nearly one-third (28%) of the parents are not aware of what the 529 plan is all about.
So, if you are one of the 28% people who are still not aware of the benefits you’ll get from the 529 plan then please read the article once.
The 4 Key points of the 529 plan that you should read first
The 529 plan helps you to save for the education-related expenses of any student in your family. The education-related expenses include college or post-secondary education, tuition fees for elementary, secondary, and religious schools.
The person who opens the 529 account plan is called the ‘Account Holder’ or the saver.
The person for whom the 529 account plan is opened is called the ‘Beneficiary’ or the student.
The ‘Account Holder’ or the ‘Beneficiary’ doesn’t need to be two separate persons, there will be nothing illegal if both are the same person.
10 Benefits of a 529 Plan
Now, maybe you are one of those parents who have heard about the 529 plan but do not have any information about it. Below are 10 benefits of a 529 Plan.
1. You will get the benefit of tax while saving money in the 529 account
In many of the US states, you will get a tax deduction or credit for contribution if you save your money in the 529 accounts. Your money will grow on a tax-advantaged basis in the 529 accounts and if you spend the money saved in the 529 accounts, for qualified education expenses then you can withdraw the money in a tax-free way.
2. The 529 plan helps you to reduce the student loan borrowing
It is a concern that the expenses of higher education are increasing every year. You have nowhere to go but to take out the student loan with a high-interest rate. The 529 plan can provide you with adequate support to lessen your dependence on the student loan.
According to student loan experts, there is nothing better option than a 529 plan to reduce your student loan.
“Every dollar you save is about a dollar less you’ll have to borrow…. Saving money for college lets you avoid paying interest on the money you’d otherwise have to borrow.” Mark Kantrowitz, college finance advisor
3. The grandparents can benefit by contributing to the 529 plan of the grandchild
The grandparents can benefit from the significant tax break by contributing to the 529 plan of the grandchild.
If a grandparent owns the 529 plan for the grandchild, it will reduce the potential tax liability of the grandparents.
The grandparents can also get benefit from the state income tax deduction as per their state rule if they contribute to the 529 plan.
4. The 529 plan is good for them who have started contributing in the account a little late
If you open the 529 plan for your child and grandchild when he/she is in middle or high school, it will not be too late.
Even the college savers can also get the benefit by opening the 529 plan a little bit late. According to the Washington Post, around 46% of Americans live in a state which offers state-specific-income-tax benefit for contributing to the 529 plan. The plan can reduce your tax burden.
There are rules in the 529 plan that if you have started late in contributing to the 529 plan and want the asset to grow then you can withdraw the money from the account a little bit late.
5. Your home state-sponsored 529 plan can provide you some additional tax advantages
Almost all the states, in the USA,sponsors the 529 plan for accredited schools in any state. Many US states offer state income tax deduction for residents who are contributing to their home state’s 529 plan.
This is the benefit of contributing to the 529 plan of your home state, it will give you additional tax benefits.
6. The child won’t lose the other financial aids if you contribute to the 529 plan
Many parents fear that opening a 529 plan can force their child to get less federal financial aid. But this is a wrong conception. The 529 savings plan is considered a parental asset. The child will never get less federal financial aid if the parents contribute to the 529 plan.
7. With the 529 plan, both the amount and date of contribution will be in your hand
The advantage of using the 529 plan is you can contribute in the account whatever amount you will be able to contribute and the annual payment date too will be as you choose to pay.
The minimum initial contribution requirement for most of the 529 plans is $25 and the upper limit of contribution is up to you. Like the contribution amount has no limit, the payment date also is not bound by anything.
Many people prefer to pay a monthly contribution to the 529 plan and others love to pay an annual contribution.
So, you can contribute any amount as you wish and whatever time you may like for contributing the amount.
8. You can have your own choice while selecting a 529 plan
There is a good number of 529 savings plan options available to choose from. If your state is offering a prepaid tuition plan or if you have selected the private college independent 529 plan then you can choose from a wide array of 529 plans.
The selection will give you an advantage if your child prefers to go to a particular type of school.
9. Money withdrawals from the 529 account are both penalty-added and penalty-free
If the student earns a scholarship then the same amount can be withdrawn from the 529 plan without paying any penalty and in tax-free manner.
For any urgent and nonqualified purpose if you need to withdraw money from the 529 accounts then you have to pay the federal income tax and 10% penalty.
However, for any urgent money requirement, you have other ways to obtain the required amount than making non-qualified withdrawals from the 529 plan or by going to the payday lenders.
None of the options will be considered a good decision taken by you. You’ll be penalized for the non-qualified withdrawals from the 529 account or have to make a payday loan debt settlement for repaying the urgent payday loan.
So, use other options if you need money for some urgent purposes.
10. The 529 plan will provide special benefits for students that a traditional savings account cannot give you
To bear the educational expenses, the 529 plan is best in the USA. The problem is parents are not aware of the 529 plan and they cannot differentiate between the 529 plan and the regular savings account, traditional and Roth IRA.
You won’t get any tax benefit for saving your money in the regular savings account, traditional and Roth IRA for educational purposes. You will get the tax benefit only by contributing to the 529 plan.
So, when you aim to save for education, you should depend only on the 529 plan.
For many parents, this will be the first year you will complete the FAFSA. Since you have never completed it before, you won’t notice the changes. However, it’s important to note the functionality of the form and the functions of the mobile app.
The Department of Education (ED) released a document this month summarizing the changes to the 2021-22 FAFSA. The most notable changes are the increase of the income threshold for the automatic-zero expected family contribution (EFC) and questions asked about the Schedule 1 tax form.
The 2021–22 FAFSA changes include the following:
The income threshold for an automatic zero Expected Family Contribution (EFC) increased from $26,000 to $27,000 for the 2021–22 award year.
When students and parents use the IRS Data Retrieval Tool (DRT), the IRS DRT will now transfer information about whether they filed a Schedule 1. The answer will be based on all current exceptions for filing a Schedule 1. The transferred data for the Schedule 1 fields will be masked.
For students and parents who don’t use the IRS DRT, the Schedule 1 help topics will be updated to include all current exceptions for filing a Schedule 1. “Capital Gains” has been removed as an exception and “Virtual Currency” has been added as an exception.
Many FAFSA help topics referencing financial forms now feature images of those forms with relevant line numbers highlighted.
In early June, ED published the federal need analysis methodology for the 2021-22 award year in the Federal Register. Per Section 479(c) of the Higher Education Act (HEA), ED is required to annually adjust the income level necessary to qualify an applicant for the zero expected family contribution. This adjustment is made according to increases in the Consumer Price Index (CPI).
New functionalities in the MyStudentAid mobile app will include:
Dashboard – Access various types of popular tasks and a personalized page to help you determine what actions to take.
Settings – Edit/manage your account, using your username and password (FSA ID).
Aid Summary – View your federal student loan and grant history.
Notification Center – View and manage notifications regarding your student aid; household member and enrolled in college calculation assistance.
The paper FAFSA PDF will become available in October, and the color rotation for the paper form is green for 2021-22. FAFSA worksheets in English and Spanish will also be available.
When completing the FAFSA, even though it’s available October 1, it’s generally good to wait a week or two before filing because there will most certainly be kinks in the system–it happens. Don’t wait too long, however. With financial aid, the sooner you apply the better chances you have of snagging some of that free money!
Don’t forget to read the other articles related to FAFSA Week:
If you break it down, the 2021-22 FAFSA isn’t that complicated. Because it’s a federal form (like income taxes), many parents and students are hesitant to tackle it. If you take it step-by-step, it’s much easier. Here’s a synopsis of the requirements and the sections of the 2021-22 FAFSA.
Information you will need to complete the FAFSA
Use this list to gather all the information necessary before you begin:
Your FSA ID, which you can create on fsaid.ed.gov. Note that students and parents will need to create their own FSA ID and keep it private.
Your social security number and driver’s license, and/or alien registration number if you are not a U.S. citizen.
Your federal income tax returns, W-2s, and other records of money earned.
Your parents income tax returns, W-2 forms and 1040 forms if you’re a dependent.
Bank statements and records of investments (if applicable).
At each online step, a “help and hints” box pops up at the side, in case you need guidance. Here’s a short synopsis of each section from CollegeXpress.
Student eligibility
This is pretty basic: the name of your high school, what year in college you’ll be entering, and your parents’ level of education. This is also your chance to opt into federal work-study. Consider saying yes if you aren’t sure; you can always decline later if you change your mind.
You will also be asked if you have registered with Selective Service (the military draft). Nearly all men age 18–26, including undocumented immigrants and people with disabilities, are required by law to register—and if you aren’t registered, you will be denied federal financial aid. You can register via the FAFSA form by checking a box.
School selection
Here’s where you enter the names of the colleges you plan to apply to. You can add as many as 10, but don’t worry if you haven’t finalized your list. If you want to add another or make changes, you can do it later.
For each school you include, you will be asked if you plan to live on campus, off campus, or with your parents (because you won’t need funds for room and board if you will live at home). For state aid, some states require that colleges are listed in a specific order; check the federal aid website to see if your own state is fussy about this.
Dependency determination
Colleges want to know if your parents support you or if you are an independent adult. The vast majority of high school students are considered dependent for college financial aid/FAFSA purposes. However, you’re generally considered an independent student if you are:
24 years old by December 31 of the award year
A graduate or professional student during the award year
Married (or separated)
A parent or have other dependents who currently receive more than half their support from you
An orphan or a ward of the court
A veteran of the US Armed Forces
Otherwise, you are most likely a dependent student.
If your family situation is complex (for example, you are a minor but don’t live with your parents or don’t have access to their financial information), you can find some guidance on the federal student aid website.
Parent demographics
You fill this FAFSA section out if you are a dependent. Aid decisions will consider your parents’ age (because older parents may need to conserve more for retirement), how many children they support, and, most important, if they will have additional children in college that year. Each of these elements affects the calculation for your Expected Family Contribution (EFC), so answer the questions carefully. For example:
Older parents are expected to contribute less since they are closer to retirement.
Parental contribution is divided by the number of students in college.
If the parents are divorced or separated, include only the financial data of the parent with whom the student lives for the greater part of the 12 months preceding the date of the application. If that parent has remarried, the student must include that stepparent’s income and asset data as well. Note: some colleges request information on the “other” natural parent and may expect a contribution from that parent as well.
Financial information
You will need to fill in your parents’ adjusted gross income from the 1040 form, or whichever form they file. (Or your income, if you are independent.)
The IRS Data Retrieval Tool really shines with this part of the FAFSA, because it transfers your tax information directly to the form, saving time and eliminating the chance of a mistake.
You’ll also be asked about assets—both your parents’ and yours. That’s right: the money you’ve saved from summer jobs, birthdays, or bat mitzvah gifts—all of it is fair game. And your colleges will expect you to contribute a percentage of your savings to your college tuition.
Of course, your parents will need to report their savings and investments too, including money market accounts, mutual funds, 529 college savings accounts (yours and any siblings’), and investment real estate (not your family’s primary home).
Qualified retirement accounts—IRAs, 401(k), 403(b), or pension plans—aren’t counted as assets. As always, you can find guidance in the pop-up help boxes at the right side of the page.
Sign and submit
After you’ve finished the FAFSA’s financial section, you add your electronic signature with your FSA ID and hit submit. That’s it.
For a visual step-by-step guide to completing the FAFSA, follow this link:
This week is FAFSA week. An entire week devoted to the FAFSA. Today, I am debunking some FAFSA myths.
As the week progresses, I’m going to scour the my blog, the web, and social media to find you the best information, tips and advice related to the FAFSA. If you’re not sure it’s worth your time, this advice should answer that question. If you want to be informed before you complete the form, this information will most definitely help.
Myth 1: If you can’t qualify for federal aid, there’s no point in filing out the FAFSA.
Reality: There’s more to the FAFSA than federal aid. Colleges use this form to disburse merit aid and grants. Also, if your student is considering a student loan or you are considering a Parent PLUS loan, you must complete the FAFSA. In addition, many states use your FAFSA data to determine your eligibility for their aid and many scholarships ask if you have completed the FAFSA.
Myth 2: I make too much money to qualify for financial aid.
Reality: There is no income cut-off to qualify for federal student aid. Many factors—such as the size of your family and your year in school—are taken into account. Your eligibility for financial aid is based on a number of factors and not just your income.
Myth 3: I have too many assets to qualify for aid.
Reality: Most colleges won’t care if you own a house and won’t count home equity against you if you do. The majority of schools rely on the federal aid application, FAFSA, which doesn’t ask parents if they own a home. If the college requires the CSS Profile, home equity is required, but because of the equity cap, has little impact on the award decision. In addition, money in qualified retirement plans, such as a 401(k), 403(b), IRA, pension, SEP, SIMPLE, Keogh and certain annuities, is not reported as an asset on the FAFSA.
Myth 4: I didn’t qualify for financial aid last year, so filling out the FAFSA form again is just a waste of time.
Reality: It’s super important to fill out a FAFSA form every year you’re in college. Why? Because things can change. For instance, your school or state might create a new grant or scholarship, or the factors used to calculate your aid could change from one year to the next. Either way, if you don’t submit a new FAFSA form, you’re out of luck.
Myth 5: The form is too complicated and since I’m sure I won’t qualify, it’s a waste of my time.
Reality: The FAFSA is actually pretty straightforward and can be completed in one sitting; and filing out the FAFSA is never a waste of your time. Colleges and states use this information when awarding grants and scholarships. (See Myth 1)
The bottom line: there is no excuse to not complete the FAFSA. It’s free and is well worth your time. Even if you can afford to pay for the entire cost of college, you should complete the FAFSA. Colleges use this data when dispersing merit aid as well.
Financial aid can be a confusing part of the college application process. Even if you can afford to pay for college, it’s a good idea to learn what aid is available and apply for it. You aren’t obligated to accept it, but most students qualify for some form of aid and, if it’s available, why not use it?
What is financial aid?
Financial aid is intended to make up the difference between what your family can afford to pay and what college actually costs. With college tuition rising rapidly, more than half of the students currently enrolled in college receive some sort of financial aid to help pay for college. The system is based on the premise that anyone should be able to attend college, regardless of financial circumstances. However, students and their families are expected to contribute to the extent that they are able.
There are two types of aid: need-based, and non need-based. Need-based aid includes grants and scholarships that are issued based on the family’s ability to contribute to education costs. Non-need-based aid is allocated solely based on availability, not need.
There are three main types of financial aid: grants and scholarships, loans and work study.
What is “free” money?
Not all aid is equal and the best aid is the aid you don’t have to pay back. It’s like getting a huge coupon of savings to use for your college education.
What types of education loans are available?
Not all college loans are equal.
There are two types of government-based loans: subsidized and unsubsidized. Subsidized loans have lower interest rates and are awarded based on the student’s financial need with interest deferred until after graduation. Unsubsidized loans are awarded without regard to financial need with interest payments beginning immediately and regular payments due after graduation.
What is work study?
The Federal Work-Study Program provides a method for college students to earn funds to be used toward their education. The program is based on financial need and students must be accepted into the program to qualify which is determined by completing the Free Application for Federal Student Aid or FAFSA.
What is the FAFSA and do I need to file it?
The FAFSA is the Free Application for Federal Student Aid and you should apply if you want any chance to receive federal and state student grants, work study, loans or merit-based aid. If you don’t complete the FAFSA, you can’t apply for student loans. Colleges also use these figures when determining financial aid eligibility for grants and scholarships. Plus, many states use your FAFSA data to determine your eligibility for their aid.
The FAFSA is available on Oct. 1 of every year and you should complete it as close to that date as possible in the fall of your senior year. Aid is dispersed on a first-come, first-served basis. The sooner you apply, the more likely you will receive a portion of the financial aid pie.
What is the EFC?
The Expected Family Contribution (EFC) is how much money your family is expected to contribute to your college education for one year. Typically, the lower your EFC, the more financial aid you will receive. Factors such as family size, number of family members in college, family savings, and current earnings (information you provide on the FAFSA) are used to calculate this figure. Once your FAFSA is processed, you will receive a Student Aid Report (SAR) with your official EFC figure.
You can calculate your EFC by visiting FinAid.org.
What is an award letter and how do you use it?
As the offers of admission arrive from colleges, the financial aid award letters will follow. They can be confusing and vague. Added to the confusion is that every award letter is different, making it hard to easily compare them side by side.
Thankfully, there are tools available and information to help you look at these letters for what they are: the college’s pitch for you to accept their offer of admission. You are in control of this process and you hold the cards. It’s your decision to accept or reject their offer based on the amount of aid they are willing to give you. Money, in this situation, is everything.
If a college wants you to attend, they will back it up with money. No money means their offer is probably based on filling a quota and expecting you will decline to attend. And you should. Who wants to attend a college that doesn’t value you as a student?
