College Pricing Trends
October 29, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases and trends. While costs can vary significantly by region and individual college, the College Board publishes average cost figures, which are based on its survey of 3,500 colleges across the country.
Here are highlights from its latest report:
- At four-year public colleges for in-state students, tuition, fees, and room and board increased by 5.9% from last year, with the total cost for 2009/2010 averaging $19,388
- At four-year public colleges for out-of-state students, tuition, fees, and room and board increased by 6.0% from last year, with the total cost for 2009/2010 averaging $30,196
- At four-year private colleges, tuition, fees, and room and board increased by 4.3% from last year, with the total cost for 2009/2010 averaging $39,028
“Total average cost” includes tuition and fees, room and board, books and supplies, transportation, and a small amount for miscellaneous expenses.
To read the Trends in College Pricing report, visit www.trends-collegeboard.com.
Student aid trends
The College Board is quick to point out that the average “sticker price” cost figure is not necessarily representative of what most students pay. That’s because almost two-thirds of undergraduate students receive grants that reduce the actual price of college. The largest provider of grant aid is individual colleges, followed by the federal government, private sources and employers, and state governments.
For the 2009/2010 year, the College Board estimates that students at public colleges will receive an average of $5,400 in grant aid from all sources and federal tax benefits, and students at private colleges will receive an average of $14,400 in grant aid from all sources and federal tax benefits. Federal tax benefits include the American Opportunity tax credit (formerly called the Hope credit), the Lifetime Learning tax credit, and the deduction for qualified higher education expenses.
Every year, the College Board also releases a sister report to Trends in College Pricing, called Trends in Student Aid, that examines student financial aid in more detail. To read this report, visit www.trends-collegeboard.com.
Should You Consolidate Student Loans Now?
July 8, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
If you have a federal Stafford Loan or PLUS Loan issued on or after July 1, 1998 and before July 1, 2006, consider yourself lucky. Beginning July 1, 2009, the interest rates on these variable-rate loans are set to drop to the lowest rates in the history of the federal student loan program. These new rates will be in effect through June 30, 2010, after which they will reset again.
Just how low are these rates? Well, starting July 1st, the new interest rate on Stafford Loans in repayment status is 2.48%, down from 4.21%; the new interest rate on in-school, grace period, or deferment status Stafford Loans is 1.88%, down from 3.61%; and the new interest rate on PLUS Loans is 3.28%, down from 5.01%. Remember, you are only entitled to these rates if you have a federal Stafford or PLUS Loan that was issued on or after July 1, 1998 and before July 1, 2006.
Consolidation
If you have more than one of these variable-rate federal student loans, you can convert your variable interest rate to a fixed interest rate by consolidating your loans under the federal government’s loan consolidation program. The interest rate on a consolidation loan is a fixed rate that’s equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a point (and capped at 8.25%). Lowering your interest rate can potentially save you hundreds or thousands of dollars over the life of the loan.
For example, suppose you have three separate variable rate Stafford Loans that you’re currently repaying. If you consolidate them, your new fixed interest rate for the life of the loan would be 2.5% (2.48% rounded up to the nearest 1/8th of a point). Let’s assume your balance is $20,000. Over the course of 10 years, your monthly payment on a $20,000 loan at 2.5% would be $189, and the total amount of interest you would pay over that 10 years would be $2,625. By contrast, if you had a $20,000 balance at a 6.8% interest rate (the current fixed rate for unsubsidized Stafford Loans), your monthly payment would be $230 and the total amount of interest you would pay over the life of the loan would be $7,619–a savings of $4,994 in interest. Over an extended 20-year repayment term, the savings would be even greater.
There are some things to keep in mind about loan consolidation:
- You can only consolidate your loans once, so if you did so previously, you can’t do so again
- You can’t add private student loans into a federal consolidation loan
- If you’re still in school, you can’t consolidate your loans until you graduate
If you are eligible to consolidate your loans, you’ll need to go through the Federal Direct Loan Consolidation program. For more information, visit www.loanconsolidation.ed.gov.
Loans issued on or after July 1, 2006
If you have a Stafford or PLUS Loan issued on or after July 1, 2006, you aren’t eligible for these new low rates. Instead, your loan will have a fixed interest rate for the life of the loan–the exact rate will depend on the type of loan you have. For unsubsidized Stafford Loans (”unsubsidized” means the federal government does not pay the interest while you are in school, during grace periods, or during deferment periods), the interest rate is 6.8%. For PLUS Loans, the interest rate is 8.5%. And for subsidized Stafford Loans (”subsidized” means the federal government does pay the interest while you are in school, during grace periods, and during deferment periods), the interest rates are as follows:
- 5.6% for loans first disbursed on or after July 1, 2009, and before July 1, 2010
- 4.5% for loans first disbursed on or after July 1, 2010, and before July 1, 2011
- 3.4% for loans first disbursed on or after July 1, 2011, and before July 1, 2012
Summary
The following table highlights the interest rates on different types of federal student loans.
| Stafford Loan: subsidized | Stafford Loan: unsubsidized | PLUS Loan | |
| Issued on or after July 1, 1998, and before July 1, 2006 |
|
same as subsidized Stafford Loan | 3.28% (down from 5.01%) |
| Issued on or after July 1, 2006 | 6.8% fixed |
|
8.5% fixed |
Higher Education Act
January 6, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
One of the big pie
ces of legislation that passed in 2008 was the Higher Education Opportunity Act (the Act). Aside from reauthorizing the Higher Education Act of 1965 for another six years, the Act includes many other provisions intended to improve college affordability, access, and accountability. Here are some highlights of this new law.
A new federally run college pricing website
In an effort to make it easier for students and their families to compare the cost of colleges in an apples-to-apples format, the Act directs the Department of Education to create a new website that will list up-to-date cost information on individual colleges, including tuition and fees for the current year, average price of attendance after grant aid, recent price increases, and changes in per-student spending, among other items.
The website will also include calculators that families can use to estimate their expected college costs based on income and family data, as well as the annual and total cost of attending a particular college. The hope is that this information will help students and their families during the college selection process.
A simpler financial aid application
According to remarks by U.S. Secretary of Education Margaret Spellings in a speech at Harvard University in October, 40% of college students–roughly 8 million students–don’t apply for federal aid because the process is too complicated. To address this problem, the Act directs the Department of Education to streamline the federal application, the FAFSA, over the next five years. To support this initiative, Spellings announced a revised form that has only 27 questions (down from 100), and stated that families will now learn how much aid they can expect to receive, as opposed to how much they are expected to contribute under the current system. The new FAFSA should be available for the 2009 application year.
Expanded Pell Grant and work-study
The Act increases the maximum Pell Grant, the federal government’s largest financial aid program, from $5,800 to $9,000 per academic year. The Act also expands the community service opportunities available under the federal work-study program.
Graduate PLUS loans
The Act creates a six-month grace period for repayment of all graduate student PLUS loans disbursed after July 1, 2008. Under prior law, these borrowers had to begin repaying their loans as soon as they were no longer enrolled on at least a part-time basis.
The Act also includes many other provisions:
- A requirement that textbook publishers sell unbundled versions of textbooks that previously may have been bundled with expensive DVDs and CDs
- A new scholarship program for active duty military personnel and their families
- A requirement that private student loan lenders inform students of their less costly federal borrowing options
- An expansion of student loan forgiveness for individuals who work in certain public service jobs
2009 Key Numbers
December 3, 2008 by Jean Keener, CRPC, CFDP · Leave a Comment
This document is a really handy reference. If you look at your finances on any sort of ongoing basis, you may want to print it out and keep it on your desk. It has everything from tax brackets to retirement plan limits, mileage deduction amounts, adoption credits, phase-outs, education tax credits, social security info, medicare premiums, and lots more. Enjoy! 2009-key-numbers
College Board releases 08/09 cost figures
November 2, 2008 by Jean Keener, CRPC, CFDP · Leave a Comment
Public colleges (in-state students):
* Tuition and fees increased an average of 6.4 percent
* Room and board increased an average of 5.2 percent
* Total average cost for 2008/2009 is $18,326
Public colleges (out-of-state students):
* Tuition and fees increased an average of 5.2 percent
* Room and board increased an average of 5.2 percent
* Total average cost for 2008/2009 is $29,193
Private colleges:
* Tuition and fees increased an average of 5.9 percent
* Room and board increased an average of 4.8 percent
* Total average cost for 2008/2009 is $37,390
For more details go to CollegeBoard.com.
Tax Credits and Deductions for Higher Education
November 2, 2008 by Jean Keener, CRPC, CFDP · Leave a Comment
What are the tax credits and deductions relating to higher education?
There are two education tax credits–the Hope credit and the Lifetime Learning credit–that provide some relief to families in the midst of financing their children’s college education. There is also a federal income tax deduction for certain taxpayers who pay qualified higher education expenses, as well as a deduction for certain individuals who pay student loans. As a general rule, a tax credit is a dollar-for-dollar reduction against taxes owed, and it is therefore more valuable than a tax deduction of the same dollar amount.
Hope credit
The first tax credit is called the Hope credit. In 2008, it’s worth a maximum $1,800($1,650 in 2007) per student in tax savings for the first two years of your child’s post-secondary education. The credit is calculated as 100 percent of the first $1,200 of qualified tuition and related expenses, plus 50 percent of the next $1,200 of expenses.
As one would expect, Congress has placed restrictions on the use of the Hope credit. First, the credit applies only to undergraduate students who are enrolled in college on at least a half-time basis. Second, the ability of parents to take the credit depends on their modified adjusted gross income (MAGI). In 2008, for married couples filing jointly, MAGI must be below $96,000 ($94,000 in 2007) to take advantage of the full credit. A limited credit is available to those in the $96,000 to $116,000 range ($94,000 to $114,000 in 2008). For single filers, your MAGI must be below $48,000 ($47,000 in 2007) to take the full credit. A limited credit is available to those in the $48,000 to $58,000 range ($47,000 to $57,000 in 2007).
One distinct advantage of the Hope credit is that there is no limit on the number of credits that may be claimed on a single tax return in a given year (provided each person qualifies independently). For example, if Mom and Dad have triplets who are in their freshman year of college, then Mom and Dad can claim a total of $5,400 ($1,800 x 3) in Hope credits for that year. However, the Hope credit and Lifetime Learning credit are mutually exclusive; they cannot be taken in the same year.
Lifetime Learning credit
The second tax credit is called the Lifetime Learning credit. This credit is worth a maximum yearly tax savings of $2,000. The credit is calculated as 20 percent of the first $10,000 of qualified tuition and related expenses.
As the name implies, the Lifetime Learning credit is intended to apply to higher education courses taken throughout your lifetime, whether to acquire or improve job skills. As such, it is less restrictive on the type and level of enrollment than the Hope credit. For example, the Lifetime Learning credit is available to graduate students as well as to undergraduate students. It is also available to students enrolled on less than a half-time basis. So, a single word processing course taken by a lawyer at his or her local community college will qualify for the credit.
As with the Hope credit, there are restrictions on the Lifetime Learning credit. The same MAGI limits that apply to the Hope credit also apply to the Lifetime Learning credit. One particular disadvantage of the Lifetime Learning credit is that it is limited to a total of $2,000 per tax return per year, regardless of the number of people who qualify in a family in a given year. So, in the example with the triplets, Mom and Dad would be able to take a total credit of $2,000, not $6,000. Yet on the plus side, the Lifetime Learning credit is available for an unlimited number of years, whereas the Hope credit is limited to the first two years of a child’s post-secondary education.
Deduction for qualified higher education expenses
For tax year 2007, you may also be able to deduct at least part of the qualified higher education expenses you paid during the tax year. These expenses include the tuition and fees you’ve paid for enrollment in a degree or certificate program at an accredited post-secondary educational institution. Congress has not passed legislation extending this tax deduction to subsequent years.
Student loan interest deduction
You can deduct up to $2,500 of the interest you pay on qualified student loans each year, provided you meet the income limits. In 2008, for single filers, a full deduction is available with a modified adjusted gross income (MAGI) up to $55,000; a partial deduction is available for a MAGI between $55,000 and $70,000. For joint filers, a full deduction is available with a MAGI up to $115,000; a partial deduction is available with a MAGI between $115,000 and $145,000.
This is a quick overview of education tax credits and should not be considered tax advice for your specific situation.