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.
Education Funding Recap
August 10, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The world of higher education has received some attention in Washington this year. I’ve done several posts on the topic, but wanted to offer this summary of both what’s passed and what’s proposed in the budget for FY 2010.
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law by President Obama in February. This legislation, along with President Obama’s proposed budget for FY 2010, contains several provisions related to higher education.
Hope credit
The Hope credit is a tax credit for college tuition and related expenses. ARRA changed the Hope credit significantly. For 2009 and 2010, the Hope credit is renamed the American Opportunity tax credit and can be worth $2,500 per student per year, up from $1,800. (President Obama’s FY 2010 budget blueprint proposes making the credit permanent.) In addition, the credit now applies to the first four years of a student’s post-secondary education, provided he or she attends at least half-time (previously, the credit applied only to the first two years of college). And the income limits for qualifying have been increased:
- A full credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 (previously $50,000) and joint filers with a MAGI below $160,000 (previously $100,000)
- A partial credit is available to single filers with a MAGI between $80,000 and $90,000 (previously $50,000 and $60,000) and joint filers with a MAGI between $160,000 and $180,000 (previously $100,000 and $120,000)
Other points to note about the new credit:
- The credit may be claimed against an individual’s alternative minimum tax liability
- Up to 40% of an individual’s allowable credit may be refundable
- For purposes of the credit, the definition of “qualified tuition and related expenses” is expanded to include course materials
- By increasing both the amount of the credit and the income limits to qualify for it, and by expanding the availability of the credit to all four years of college, the federal government has put the focus on helping traditional college students pay for college. (Congress did not increase the amount of the Lifetime Learning credit, which is geared more toward occasional courses taken by students who are enrolled in school less than full-time.)
Qualified expenses and 529 plans
ARRA has expanded the definition of “qualified higher education expenses” for 529 plans to include expenses paid or incurred in 2009 or 2010 for computer technology, equipment, and Internet access, provided they are used by the 529 plan beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. This means you can take a tax-free withdrawal from your 529 plan to pay for these items. (Previously, a computer had to be required by the college in order to be considered a qualified education expense.) This carve out for computer-related expenses is similar to the existing provision for K-12 computer expenses currently allowed by Coverdell education savings accounts.
Pell Grants
ARRA increased the maximum Pell Grant to $5,350 for 2009/2010 and to $5,550 for 2010/2011. President Obama’s FY 2010 budget proposes making the Pell Grant program a mandatory spending program with automatic increases tied to the Consumer Price Index.
Federal Family Education Loan program
President Obama’s 2010 proposed budget seeks to eliminate the Federal Family Education Loan program in 2010. If it passes, all student loans would be made through the federal government’s Direct Loan program.
Financial aid
According to www.whitehouse.gov, President Obama wants to simplify the federal financial aid application process by eliminating the current FAFSA application and allowing families to apply by simply checking a box on their tax form, authorizing their tax information to be used. Stay tuned to see whether this major time-saving objective will happen in 2010.
Ways to Pay for Grad School
June 10, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Are you thinking about going to graduate school? Whether you want to advance in your current field or move your career in a new direction, graduate school might open doors for you. But it isn’t cheap. Here are some suggestions on where to look for financial help.
Loans
Students attending graduate school can borrow from two sources: the federal government and private lenders. Uncle Sam’s three major loan programs–the Stafford loan, Perkins loan, and graduate PLUS loan–are all available to graduate students, provided they attend school on at least a half-time basis. The following chart highlights each loan program:
To apply for federal loans, students should file the government’s aid application, the FAFSA. It can be filed online at www.fafsa.ed.gov.
Students can also obtain loans from private lenders, though such loans typically carry higher, variable interest rates.
Scholarships and grants
At the graduate level, most scholarships and grants come from the school itself, 
rather than outside organizations, and are often awarded on the basis of merit, not need. So it’s always a good idea to contact the financial aid office of any school you’re considering to see what special scholarships and grants they offer for graduate students. Many scholarships and grants are awarded at the departmental level, so your chances might depend on what subject you plan to study.
Employer educational assistance
If you plan to work while you attend graduate school, check to see if your employer offers any educational assistance.
The first $5,250 of such assistance is exempt from federal income tax. But make sure to read your employer’s fine print: some may require that you maintain a certain grade, or that you remain at the company for a certain number of years after you obtain your degree.
Education tax benefits
Education tax benefits may not help you pay the upfront costs of tuition, but they might help defray some of those costs later on when you file your taxes. For more information, see IRS Publication 970, Tax Benefits for Education. In 2009, you may qualify for the:
Lifetime Learning credit–Is worth up to $2,000 for tuition and fees if your modified adjusted gross income (MAGI) is below $50,000 (single) or $100,000 (married filing jointly).
Deduction for qualified higher education expenses–Lets you deduct $4,000 in tuition and fees if your MAGI is below $65,000 (single) or $130,000 (married filing jointly).
Student loan interest deduction–Lets you deduct up to $2,500 of qualifying student loan interest if your income is $60,000 or less (single) or $120,000 or less (married filing jointly).
A partial credit/deduction is available for each of these tax benefits for filers with slightly higher incomes than those listed.
Look before you leap
Finally, before you make that first tuition payment, ask yourself whether a graduate degree makes sense for your long-term career goals. Will you be more marketable after getting your degree? Will the return on your investment be worthwhile? Do you plan to stay in this career going forward? Assuming the answers to these questions are yes, the expense of graduate school might be a worthwhile investment for you.
Retirement V. College
April 3, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
So many parents struggle with the dilemma of whether they should prioritize saving for kids’ college or their own retirement. Some parents believe that children benefit the most from being responsible for their own college funding through personal work, savings, scholarships, and borrowing to get hrough college. Other parents have a strong desire to fully fund at least an undergraduate degree for their children because they believe their children will enjoy college the most and be best positioned for success in life by not being responsible for these costs. Both viewpoints are valid. Which category you fall into seems to have a lot to do with your personal experiences and the affect you feel they had on you — if you worked your way through college and felt it contributed to your personal responsibility and character, you probably think it would be good for your kids too. If you worked your way through and felt like you missed out on parts of college life or graduated with crippling debt, you probably want to help your children have a different experience. Or if your parents supported you through college and you felt that support made an important difference in your later success, you probably want to do the same for your children. But regardless of your motivation, if you want to help fund your children’s education, you are likely faced with a dilemma.
So how do you juggle the two?
First, know what your financial needs are for each goal. If you’re working with Keener Financial Planning, we will go through a series of questions and projections with you to help assess the cost of each goal. But if you’re working on your own, answering the following questions can help you get started.
For retirement:
- How many years until you retire?
- Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what’s your balance? Can you estimate what your balance will be when you retire?
- How much do you expect to receive in Social Security benefits? (You can estimate this amount by using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security Administration. However, if you’re under age 55 now, you may wish to count on a lesser amount than your statement indicates.)
- What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
- Do you or your spouse expect to work part-time in retirement?
For college:
- How many years until your child starts college?
- Will your child attend a public or private college? What’s the expected cost?
- Do you have more than one child whom you’ll be saving for?
- Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
- Do you expect your child to qualify for financial aid?
Figure out what you can afford to put aside each month
After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you’ll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you’ve come up with a dollar amount, you’ll need to decide how to divvy up your funds.
If possible, save for your retirement and your child’s college at the same time
Ideally, you’ll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child’s college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you’d have $18,415 in your child’s college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment.)
Help! I can’t meet both goals
If the numbers say that you can’t afford to fund your child’s education or retire with the lifestyle you expected, you can choose to scale back your goals or make some sacrifices now to fund additional savings. There are lots of financial levers you can pull. The trick is figuring out which option is the least painful for you. Options for your consideration:
- Defer retirement: The longer you work, the more money you’ll earn and the later you’ll need to dip into your retirement savings.
- Work part-time during retirement.
- Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
- Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
- Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss).
- Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
- Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don’t feel guilty–a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
- Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.
Retirement takes priority
I can not emphasize this strongly enough. Though funding college is extremely important, it should not be paid for at the expense of your retirement funds. With generous corporate pensions mostly a thing of the past and social security under-funded, the burden is primarily on you to ensure a secure retirement. Your child can always attend college by taking out loans (or maybe even with scholarships), but there’s no such thing as a retirement loan! And the biggest gift you may be able to give to your children is being financially secure in your retirement so they don’t worry about your well-being.
Can retirement accounts be used to save for college?
Yes. Should they be? NO! This is almost always a bad idea. However, if you decide to go this route, know the consequences. With IRAs, you can withdraw money penalty free for college expenses, even if you’re under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you’ll generally pay a 10 percent penalty on any withdrawals made before you reach age 59½ (age 55 in some cases), even if the money is used for college expenses. You may also be subject to a six month suspension if you make a hardship withdrawal. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)