Paying For College For Dummies book cover

Paying For College For Dummies

By: Eric Tyson Published: 04-21-2020

Discover a concrete financial plan to finance a college education

Financing a college education is a daunting task no matter what your circumstances. Bestselling author and personal finance expert, Eric Tyson offers tried and true strategic advice on how to understand loans, know your options, and how to improve your financial fitness while paying down your student loan debt. Armed with the checklists and timelines, you’ll be able to:

  • Figure out what colleges actually cost
  • Get to know the FAFSA® and CSS Profile(TM)
  • Research scholarship opportunities
  • Quickly compare financial aid offers from different schools
  • Find creative ways to lighten your debt load
  • Explore alternatives such as apprenticeships, online programs

Paying for College For Dummies helps parents and independent students navigate everything from planning strategically as a married/separated/divorced/widowed parent, completing every question on the FAFSA and CSS PROFILE forms, understanding tax laws, and so much more. No other book offers this much practical guidance on choosing and paying or college.

Articles From Paying For College For Dummies

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Paying For College For Dummies Cheat Sheet

Cheat Sheet / Updated 04-08-2022

If you’re thinking of sending your child to college one day (or attending college yourself), you have a lot of decisions to make: how to save money for college, which colleges may be a good fit, whether an alternative to a four-year college may be a better option, plus seeking financial aid, scholarships, and grants. Paying For College For Dummies can help you make the most of your money and guide you through the decisions of choosing which post-high school path is right for your child.

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10 Education Tax Breaks and Rules You Should Know About

Article / Updated 05-05-2020

The U.S. tax laws are unnecessarily complicated and extensive. But it’s worth taking the time to understand how to make them work for you, because paying for a college education is an expensive undertaking. The tax rules and regulations include numerous breaks for parents of college students and some for young adults as well who have previously incurred college costs and taken out some college loans. Those who are knowledgeable about the tax laws and associated strategies can save themselves a lot of tax dollars. This article highlights ten things you should know related to educational expenses that can legally and permanently reduce the income taxes that you pay. Contributing to Retirement Accounts As a parent working and earning money, one of the financially smartest things you can generally do (unless you pay low federal income taxes), is to contribute to a retirement savings plan. Besides reducing your current and future federal (and state) income taxes, funding retirement plans helps you build up a nest egg, so you don’t have to work for the rest of your life. Also, for purposes of the financial aid system, your retirement accounts are generally the best places your assets to reside. As you’re earning it, you can exclude money from your taxable income by tucking it away in employer-based retirement plans, such as 401(k) or 403(b) accounts, or self-employed retirement plans, such as SEP-IRAs. If your combined federal and state marginal tax rate is, say, 30 percent and you contribute $1,000 to one of these plans, you reduce your federal and state taxes by $300. Also, some employer plans provide free matching money. And when your money is inside a retirement account, it can compound and grow without taxation. Many people miss this great opportunity to reduce their income taxes because they spend all (or too much) of their current employment income and, therefore, have nothing (or little) left to put into a retirement account. If you’re in this predicament, you first need to reduce your spending before you can contribute money to a retirement plan. If your employer doesn’t offer the option of saving money through a retirement plan, lobby the benefits and human resources departments. If they resist, you may want to add this to your list of reasons for considering another employer. Many employers offer this valuable benefit, but some don’t. Some company decision-makers either don’t understand the value of these accounts or feel that they’re too costly to set up and administer. If your employer doesn’t offer a retirement savings plan, individual retirement account (IRA) contributions may or may not be tax-deductible, depending on your circumstances. Do you qualify for the saver’s tax credit? Married couples filing jointly with adjusted gross incomes (AGIs) of less than $65,000 and single taxpayers with an adjusted gross income of less than $32,500 can earn a federal income tax credit (claimed on Form 8880) for retirement account contributions. Unlike a deduction, a tax credit directly reduces your income tax bill by the amount of the credit. This saver’s income tax credit, which is detailed in this table, is a percentage of the first $2,000 contributed (or $4,000 on a joint return). The credit is not available to those under the age of 18, full-time students, or people who are claimed as dependents on someone else’s tax return. Special Tax Credit for Retirement Plan Contributions Singles Adjusted Gross Income Married-Filing-Jointly Adjusted Gross Income Tax Credit for Retirement Account Contributions $0–$19,500 $0–$39,000 50% $19,500–$21,250 $39,000–$42,500 20% $21,250–$32,500 $42,500–$65,000 10% The tax benefits of 529 plans Money invested in section 529 plans is sheltered from taxation and is not taxed upon withdrawal as long as the money is used to pay for eligible education expenses. Some states also provide small tax incentives to fund these accounts. Subject to eligibility requirements, 529 plans allow you to sock away upwards of $200,000. Please be aware, however, that funding such accounts may reduce your potential financial aid. Coverdell Education Savings Accounts (ESAs) Coverdell Education Savings Accounts (ESAs) are similar to 529 plan accounts. The contribution limits, however, are dramatically lower — up to just $2,000 per year per child. Money in ESAs grows without taxation and isn’t taxed when withdrawn if used for qualified educational expenses, which includes college as well as K–12 education. Higher income earners lose the ability to fund these accounts. The single taxpayers’ phase-out range is from $95,000 to $110,000 of income. The range is $190,000 to $220,000 for all other taxpayers. The American Opportunity tax credit The American Opportunity (AO) tax credit provides up to $2,500 per student per year of college that families incur at least $4,000 of educational expenses. Up to $1,000 of this credit is refundable. Use of this credit is limited for each child for up to four years of undergraduate expenses. There are income limitations for using this credit. Single taxpayers’ phase out of being able to take this credit at modified adjusted gross incomes (MAGIs) of $80,000 to $90,000. Other taxpayers’ phase-out is from $160,000 to $180,000. When parents claim this credit for one of their children for a particular tax year, they may not claim the next credit — the Lifetime Learning credit. Each tax year, for a particular child, you may only take one or the other of these credits. The Lifetime Learning credit Like the American Opportunity tax credit, the Lifetime Learning (LL) credit also was designed to provide tax relief to low- and moderate-income earners facing higher education costs. The LL credit may be up to 20 percent of the first $10,000 of qualified educational expenses — up to $2,000 per taxpayer. For parents filing tax returns, only one of these credits may be claimed for each child per tax year, and parents are subject to the same income limitations. Single taxpayers’ phase-out being able to take this credit at modified adjusted gross incomes (MAGIs) of $59,000 to $69,000. Other taxpayers’ phase-out is from $118,000 to $138,000. The retirement account withdrawal penalty waiver Normally, when you withdraw money from a retirement account early (the year in which you turn 59-1/2), you pay a 10 percent federal income tax penalty and whatever penalty your state assesses. You also owe current federal and state income tax on the taxable amount withdrawn. If withdrawn retirement account money is used to pay for higher education expenses, the penalty is waived. That’s a good thing and perhaps worth considering. However, taking money from retirement accounts to pay for college costs is generally not advised. For starters, you’re tapping money you’ve earmarked for your nonworking future years. Second, despite the penalty for early withdrawal being waived, the taxable amount withdrawn will show up on your federal and state income tax returns and you will owe federal and state income tax. Your higher reported income will harm your financial aid chances. Finish on time without high income earning years When students continually take breaks from college, especially due to the financial stress of full-time attendance and the associated costs, the likelihood of not finishing rises. Also, when a student is working enough to be making $10,000, $15,000, $20,000 or more in a tax year, that really begins to affect the financial aid/pricing that the school assesses the family. If a student’s interest in college courses has noticeably dropped in the first or second year, it’s worth examining why and doing so with an open mind. Given the high cost of attendance and the fact that increasing numbers of lower cost and potentially more effective alternatives exist, consider the alternatives to high-cost colleges. The student loan interest deduction You may take up to a $2,500 deduction for student loan interest that you pay on IRS Form 1040 for college costs as long as your modified adjusted gross income (AGI) is less than or equal to $70,000 for single taxpayers and $140,000 for married couples filing jointly. Your deduction is phased out if your AGI is between $70,000 and $85,000 for single taxpayers and between $140,000 and $170,000 for married couples filing jointly. This deduction is not an itemized deduction, so anyone can take it on Form 1040 as a so-called “adjustment to income.” Each of your lenders should be able to provide you with a yearly summary that shows how much you paid in interest for the tax year. If you paid $600 or more in interest to a single lender, that lender is required to provide you with Form 1098-E, which documents the interest you paid for the year.

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The Value of Academic Success (Good Grades)

Article / Updated 05-05-2020

Your kids should strive to do their best in school. Their grades do matter. Now, that’s not to say they should stay up past midnight, hole up in their rooms, and toil away to get every point possible on that next test or try to write the perfect paper. Perfection isn’t possible, and kids (and adults) can make themselves miserable trying to attain the impossible. Balance matters, and there’s more to life than high grades, making more money, and so on. While an imperfect measure, grades and test scores indicate mastery and achievement. Unless a student is taking easy courses or is a naturally gifted whiz at something, getting better grades and higher test scores usually takes more effort and work. Want your kids to get more out of their pre-college education and improve their chances of getting into a desired college and other post–high school options? Here’s what they can do leading up to and during high school: Strive for better grades. All other things being equal, colleges are going to admit students with better grades (higher GPAs) and also give more merit scholarship money to students with better grades. This doesn’t mean that your kids should take easier courses that enable them to get higher grades. High schools today use a weighted GPA, which gives a higher point value to grades earned in harder courses. And, more selective colleges also expect students to challenge themselves with higher level courses. Take advanced placement (AP) courses. Not only do AP courses demonstrate that your children are taking challenging courses, but some colleges also offer credits to students who earn a good score (typically four or five on a scale of five) on AP tests, which are typically administered in May. These credits may allow your child to accelerate his college experience by a semester or even a full year, saving you some serious money. Some colleges simply use mastery of AP subjects to place a student out of a comparable introductory course in that area. Prepare for taking the SAT (Scholastic Aptitude Test) or ACT (American College Testing). The first step for students in preparing is for them to study and do their best throughout middle school and high school. Many high schools administer a practice test in 10th or 11th grade. On their website, the College Board offers ten free practice SAT tests for students to download. Once completed, the test is scored through your phone by simply taking a picture of your answer sheet. Or through the same link on that College Board webpage, you can take entire SAT practice tests through Khan Academy. The ACT folks charge $39.95 for their six-month online prep course with practice tests. Some colleges offer a lower price (through grants and scholarships) referred to as “preferential packaging.” This simply means that the college or university can choose to offer a better mix of aid (pricing) to academically stronger candidates they are trying to attract to their school. A bonus for those students who worked hard in school! The table shows a list compiled by U.S. News & World Report of the colleges that offer merit scholarships to the greatest percentage of their students. (Note: This list excludes athletic awards.) The list includes a real mix of schools in terms of quality. The colleges that are consistently ranked as the top colleges are absent from this list for good reason — they don’t have any trouble attracting plenty of qualified applicants. To help your kids’ chances of getting merit money offers from colleges, in addition to being sure to apply to numerous colleges that make such offers, they should also apply to schools that are likely to accept (and therefore want) them. To really maximize their chances of getting merit money, your child should apply not just to colleges that are likely to accept them, but to schools for which they are somewhat overqualified and where they’ll stand out from the crowd of applicants. (Of course, you don’t want to take this to an extreme and have your offspring be the absolute biggest fish in a little pond and not have peers who are like them.) Merit Scholarship Percentages by School School Location Percent of Students Receiving Merit-Based Aid Hellenic College Brookline, MA 100% Fort Valley State University Fort Valley, GA 94% Oklahoma Baptist University Shawnee, OK 94% Vanguard University of Southern California Costa Mesa, CA 94% Webb Institute Glen Cove, NY 81% Keiser University Ft. Lauderdale, FL 73% Indiana Wesleyan University Marion, IN 60% Franklin W. Olin College of Engineering Needham, MA 56% New England Conservatory of Music Boston, MA 53% Fairfield University Fairfield, CT 52% Trinity University San Antonio, TX 50% Oberlin College Oberlin, OH 49% Samford University Birmingham, AL 49% Denison University Granville, OH 48% The New School New York, NY 47% Cooper Union New York, NY 46% Furman University Greenville, SC 46% Hillsdale College Hillsdale, MI 46% Gonzaga University Spokane, WA 45% San Francisco Art Institute San Francisco, CA 45% University of Puget Sound Tacoma, WA 45% Rhodes College Memphis, TN 44% The University of the South Sewanee, TN 44% Rose-Hulman Institute of Technology Terre Haute, IN 43% Savannah College of Art and Design Savannah, GA 43% University of Dayton Dayton, OH 42% University of Denver Denver, CO 42% Alcorn State University Lorman, MS 41% Andrews University Berrien Springs, MI 41% Creighton University Omaha, NE 41% Golden Gate University San Francisco, CA 41% Centre College Danville, KY 40% Eckerd College St. Petersburg, FL 40% Southern Methodist University Dallas, TX 40% Tulane University New Orleans, LA 40% Augustana University Sioux Falls, SD 39% DePauw University Greencastle, IN 39% Truman State University Kirksville, MO 39% Beloit College Beloit, WI 38% Birmingham-Southern College Birmingham, AL 38% Calvin University Grand Rapids, MI 38% Marquette University Milwaukee, WI 38% University of Portland Portland, OR 38% Worcester Polytechnic Institute Worcester, MA 38% Baylor University Waco, TX 37% Butler University Indianapolis, IN 37% Landmark College Putney, VT 37% New College of Florida Sarasota, FL 37% Ave Maria University Ave Maria, FL 36% College of Idaho Caldwell, ID 36% Lawrence University Appleton, WI 36% University of Findlay Findlay, OH 36% Case Western Reserve University Cleveland, OH 35% Guilford College Greensboro, NC 35% Holy Cross College Notre Dame, IN 35% Mississippi College Clinton, MS 35% Pratt Institute Brooklyn, NY 35% Southwestern University Georgetown, TX 35% University of Texas of the Permian Basin Odessa, TX 35% Abilene Christian University Abilene, TX 34% Benedictine College Atchison, KS 34% The Catholic University of America Washington, DC 34% High Point University High Point, NC 34% Whitman College Walla Walla, WA 34% Willamette University Salem, OR 34% College of Wooster Wooster, OH 33% Colorado School of Mines Golden, CO 33% Illinois Institute of Technology Chicago, IL 33% Iowa State University Ames, IA 33% Lewis & Clark College Portland, OR 33% Saint Louis University St. Louis, MO 33% St. Lawrence University Canton, NY 33% St. Michael’s College Colchester, VT 33% Stonehill College Easton, MA 33% University of South Carolina Columbia, SC 33% Carroll College Helena, MT 32% Drake University Des Moines, IA 32% Florida Polytechnic University Lakeland, FL 32% Florida Southern College Lakeland, FL 32% Gordon College Wenham, MA 32% Hobart and William Smith Colleges Geneva, NY 32% John Brown University Siloam Springs, AR 32% Miami University—Oxford Oxford, OH 32% New Mexico Institute of Mining and Technology Socorro, NM 32% Sacred Heart University Fairfield, CT 32% Suffolk University Boston, MA 32% Biola University La Mirada, CA 31% California College of the Arts San Francisco, CA 31% Covenant College Lookout Mountain, GA 31% Drexel University Philadelphia, PA 31% Drury University Springfield, MO 31% Harding University Searcy, AR 31% Loyola University Chicago Chicago, IL 31% Marist College Poughkeepsie, NY 31% Pepperdine University Malibu, CA 31% Ringling College of Art and Design Sarasota, FL 31% Rollins College Winter Park, FL 31% Union College Schenectady, NY 31% University of North Alabama Florence, AL 31% University of Tampa Tampa, FL 31% Source: U.S. News & World Report

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Raising Money-Smart Kids in the Early Years

Article / Updated 05-05-2020

Although high school is a terrific time to teach kids key personal financial concepts before they’re nudged out of the family nest and go to college, you can and should begin to teach kids about money much sooner. The latter preschool and elementary school years, when kids are learning math concepts and getting comfortable with numbers, are an excellent time to lay a solid knowledge base. According to a survey conducted by the National Bureau for Economic Research, children who get personal-finance education in high school save 5 percent more of their future employment incomes than kids who aren’t exposed to such education. Five percent may not sound like a lot, but when you consider that most adults should be saving about 10 percent annually to accomplish their financial goals and actually save less, saving 5 percent more is a huge difference. When you welcome a new baby into your family, he needs you to do everything for him. You must feed him, clothe him, change his diaper, and so on. Slowly and gradually over time, your baby learns to do some simple things like beginning to crawl and then walk. That creates a whole new set of hazards as the more he is able to move on his own, the more trouble he can get into! In the early years, you will need to make all the choices for your children with regard to spending money. Eventually, as they go through the preschool years, they will begin to understand that you buy them things and they can have some influence over those purchases and decisions. Educate when shopping One of your child’s first money lessons is likely to come by accompanying you shopping. Take her grocery shopping so she can see all the items available for purchase and the price on each of them. You can explain to your child how you pay for food and how the money is earned in the first place. She can also learn how to comparison shop and live within a budget. (Note: I don’t generally think you should share personal financial information like your salary with your children. This is highly personal information, and kids don’t have a context for understanding it nor can you be sure that they won’t share it with others.) Kids obviously get much more out of shopping when they’ve been introduced to counting and basic math. This typically happens late in the preschool years and early in elementary school. Of course, you don’t have to visit a physical store to teach your kids these concepts. You can plop them down at your side while you shop online, but when you do that, you lose something, I think. But online shopping is certainly more convenient, especially for time-pressed families. Being a smart consumer requires doing your homework, especially when buying more costly products. Teach your kids the value of product research (including using sources like Consumer Reports for product reviews) and comparison shopping. Demonstrate how to identify overpriced and shoddy merchandise. Finally, show them how to voice a complaint when returning defective products and go to bat for better treatment in service environments, two additional tasks that are part of being a savvy consumer. Take your kid to work Even better, I think, than taking your kid shopping and focusing on the consumer and spending side of money, how about talking to them about your work? After all, this is the reality that most people deal with for most of their adult years. I’m not suggesting that you need to tell your kids everything about work, but when your children are young, you can certainly explain the basics of your work and job. You can begin by describing what your job entails and who your employer is and what, broadly speaking, your employer does. Importantly, you can explain how you get paid money to perform your job and that money helps provide and pay for the things that your family needs and wants like your home, food, clothing, car, medical and dental care, vacations, and so on.

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10 Tips for Getting Your College Degree More Quickly

Article / Updated 05-05-2020

At the traditional length of four years, completing a four-year college education is both time consuming and costly. Too many students don’t complete their college degrees or take a longer time to do so. Private nonprofit colleges have an overall six-year graduation rate of just 66 percent; public colleges graduate about 59 percent, and for-profit colleges graduate only 21 percent of their first-time, full-time students within six years. So, if some or all of your kids are going to go for a four-year college degree, it’s imperative that you and they have a clear and well-thought-out plan for getting the job done efficiently and cost effectively. This article highlights ten tips for doing just that. Communicating is key These are big decisions. College is tremendously expensive and takes a good deal of time. And, it’s hard to really know what you’re getting until the student is there and well into the experience. Of course, you should expect that parents and aspiring college students aren’t going to think the same thoughts or have the same concerns and priorities when it comes to selecting colleges. Take your time and be open to your kid’s thoughts, ideas, and concerns. And be patient explaining your thoughts, ideas, and concerns. Be candid with your kids about your financial constraints but be careful in using those concerns to steer your kids too much to what you want for them. Yes, you should lead and guide. You’re the parent and have decades of experience as an adult in the real world, which your teenagers lack. And, yes, you should sometimes say no because sometimes kids get goofy and unrealistic ideas in their heads. Remember to continue the dialogue with them to find some common ground. Keep all your options open Be sure you and your children explore all the reasonable post–high school options that help prepare them to work and have a career. A four-year college degree isn’t the only way to do that. Among families and students that end up the most unhappy with college are those who too quickly zeroed in on that option without having good reasons or having considered alternatives. Pay attention to the warning signs in the early semesters of attendance at college. If your student is unmotivated, uninspired, and having a hard time staying focused on school, it may be a sign that you need to evaluate and consider other options. Plan ahead financially A common mistake that some families make when addressing the cost of college is that in the beginning, they are thinking about the first-year expenses and meeting those. It’s imperative, however, that you consider the whole four-year cost and how those expenses will be paid. Students who stop out for a semester, a year, or more are at far greater risk of failing to complete their college degree. Often, these breaks in attendance are caused by strained family finances and the student feeling pressured to work and earn money to meet current living costs and potential future college costs. By coming up with a strong financial plan, you can minimize these issues from arising. Pick colleges with high graduation rates Colleges calculate and report their graduation rates, typically over four and six years. Colleges with higher graduation rates are generally better choices. For starters, high graduation rates show that the college is doing the necessary things to ensure that students can complete their degrees in a reasonable amount of time. Higher graduation rates also indicate a motivated student population that is demonstrating that they can complete the degree requirements in a timely fashion. I’m not suggesting that you immediately rule out colleges with graduation rates that are merely good but not exceptional. A school that takes more risks on accepting a more financially diverse student body, for example, will tend to have a somewhat lower graduation rate. If a particular college seems to check all the right boxes but has a lower graduation rate, inquire as to why that is. Select colleges that offer your desired courses and majors Especially at larger colleges and universities, and those that are public, it may take longer to complete all required courses for the simple reason that there are so many students competing for limited spaces in some courses. So, be sure to ask lots of questions when you’re considering such schools so that you have an informed perspective on the realities of getting into and completing certain courses and majors. Also, be aware that changing majors can lead to problems graduating within four years at some colleges, again with more issues at the larger public schools. Choose schools with affordable housing Besides having trouble getting their desired courses in a timely fashion, another challenge for some college students getting through college efficiently is being able to find and retain affordable housing. This can be especially problematic in high cost of living areas where there aren’t a lot of rentals available at reasonable prices. I can tell you from the personal experience of having toured dozens of college and university campuses that too many schools gloss over and fail to disclose their lack of housing. At numerous schools, housing may only be guaranteed, for example, for the first two years. If you look at the attendance numbers for a college and then compare them with the number of students living on campus, you can get to the bottom of the campus housing situation. Get college credit in high school Some colleges will give you course credits for college-level classes — for example, advanced placement (AP) courses — that you have completed and done well on the AP exam taken at your high school. At most colleges, on the AP exam grading scale of 1 to 5, with 5 being the highest and best score possible, scores from 3 to 5 are considered passing grades. More selective colleges, however, may only consider a 4 or 5 score acceptable. Especially at the most selective colleges, the credits won’t typically help you to graduate earlier or sooner. For example, if a student did well in AP calculus or statistics, such colleges will then place that student into a higher-level introductory course so that at a minimum, they aren’t taking the same course in college that they recently took in high school. Some colleges do offer credits for high school AP and equivalent courses that may be used toward meeting graduation requirements. So, investigate that option as you survey colleges to consider, because knocking a semester or full year off your kid’s college attendance plans can save your family quite a bit of money. Make use of advisors and deans Many college administrators enjoy working with students — that’s part of the reason they were attracted to a job on a college campus. (The flip side, unfortunately, as you may experience, is they are generally less enthusiastic about hearing from parents despite the fact that you’re the ones paying the bills!) Part of what students (and their families) are paying for are all the advisors and deans who can help in many situations. So, when it comes to issues with course scheduling, planning for majors, graduating in a timely fashion, and not breaking the bank, administrators often can help and enjoy doing so. Remember — your student has to ask! Try your best to have your student contact the administrator on their own. If they repeatedly refuse to do so, then I think it’s fair game for you to contact someone to raise the issue and solicit help for your student. Work during college Upperclassmen can earn up to about $7,000 per calendar (tax) year without impacting their financial aid awards. (For freshman, the income limit at some private schools that utilize an institutional methodology is about $5,200.) So, during the summer and while working part-time during some of the school year, students can help pitch in and earn some money toward their college costs and living expenses. Ideally, they would earn up to the levels allowed without affecting financial aid awards. Avoid stopping school to work Stopping out for a semester or going to college part-time may sound financially appealing when you consider all the income a student can earn. However, that doesn’t consider the entire picture. What about the impact that the higher income will have on the pricing/financial aid package the college offers? Also, working more and going to college less will inevitably lead to a four-year college experience stretching out to five, six, or even seven years. Part-time jobs during college generally pay much less than full-time, post-college jobs.

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10 Important Money Management Steps for Young Adults

Article / Updated 05-05-2020

Hopefully you will soon complete your college degree or other desired training. And, even better, you will find a job and become financially independent. Make sure that you set out into the real world with important knowledge regarding managing your money and making the most of the money that you earn. This article highlights ten important things that you should know. Get financially fit, now! Moving to a full-time (first) job is a big deal and a big change for most young adults. Embrace getting your feet on the ground financially speaking! Probably the most important thing you can do is to keep your living expenses down and subdued so that you can live within your paycheck and hopefully save some money regularly (more on that in a moment). Some say to live like a college student! Most people are happy during college despite living in small living quarters and not wasting a lot of money on clothing, furniture, and so on. Maybe you even saved money then by taking care of your own food preparation. But, if you got most or all of your meals in a dining hall, know that having someone else make all your meals is usually pretty costly! Don’t procrastinate getting on top of your personal finances. You may overspend and accumulate high-cost debts, fail to save toward goals and things you care about, lack proper insurance coverage, or take other unnecessary risks. Early preparation can save you from these pitfalls. Learn as soon as possible how to live within your means, save and invest regularly, legally minimize your taxes, and so forth. Adapt and adjust along the way Changes require change. Over the years, your life will inevitably evolve and change. Even once your financial house is in order, a life change — such as moving to a new area, switching careers, getting married, buying a home, starting a business, and so forth — should prompt you to review your personal financial strategies. Life changes affect your income, spending, insurance needs, and ability to take financial risk. Making the most of changes and transitions requires managing stress and your emotions. Life changes often are accompanied by stress and other emotional upheavals. Don’t make snap decisions during these changes. Take the time to become fully informed and recognize and acknowledge your feelings and financial considerations. Educating yourself is key. Cancel consumer credit The use and abuse of consumer credit can cause long-term financial pain and hardship. To get off on the right financial foot, young workers need to shun the habit of making purchases on credit cards that they can’t pay for in full when the monthly bill is due. If you keep a credit card, be certain that you can pay each month’s bill in full and on time. Setting up for automatic electronic payment from your bank/investment account can help you accomplish that. I have no problem with your using “reward cards” to earn benefits from your credit card transactions. Just be sure that you’re not spending/buying more to get more rewards! Here’s the simple solution to not run up outstanding credit card balances if you have had or may have that tendency: Don’t carry a credit card. If you need the convenience of making purchases with a piece of plastic, get a debit card. Just be aware that debit cards quickly deduct transacted amounts within a day or two from the connected bank checking account in contrast with a credit card, which sends you a monthly statement and has you pay once per month. Review your budget and spending plans Even before getting your first full-time job and moving into your apartment, how about putting together a preliminary budget/spending plan? This will take some research, especially with regards to apartment rental costs. Go out and look at actual apartments. And take one of your parents with you. You may not always agree with them, but they have decades of experience in the real world including making housing decisions. They can help you avoid common mistakes. Your parents, who have been paying bills for decades, can clue you into the cost of the other things in your prospective budget. You could also speak with older siblings and friends. In addition to housing costs, here are some other important expenses to consider and understand: Income and other taxes: Employers quote you the gross (before-tax) salary or wage they will pay you. What matters, though, is your take-home pay after taxes. Social security taxes will lop 7.65 percent right off the top, and you will pay federal income taxes as well as state income taxes in most but not all states. The IRS website and your state’s website have tools that enable you to estimate the tax withholding that you will face. Transportation: If you expect to have a car, you can figure your insurance costs by contacting insurers and getting quotes for a car you may be considering. Gasoline and maintenance costs will add to those expenses – your folks can help you estimate those too. If you’re going to take public transit or use taxis/ride-share services on occasion, be realistic when you estimate those costs. Personal insurance: You need to have health insurance and should also have long-term disability insurance. Your employer may offer them both and can tell you what your cost for these will be. That’s another reason you should always take the time to understand your employer’s benefits. You don’t need life insurance unless others are financially dependent upon you. Food: Some employers offer subsidized meals so that may help. Estimate what you will spend for food that you buy in grocery stores and for meals out or delivered. If you’re a bar hopper with your friends — which is a costly habit — include those expected expenses as well. Clothing: Again, be realistic here! Entertainment: This can include cable and streaming services, sporting events, concerts, comedy clubs, or whatever else you enjoy that costs money. Cell phone and internet service: Be sure to shop around as prices vary quite a bit and there’s lots of competition these days. Also, if you have student loans, you should understand when you will be required to begin repayment and what those monthly payments will be. Strive to regularly save and invest Ideally, you should start saving and investing money from your first paycheck. Try saving 5 percent of every paycheck and then eventually increase your saving to 10 percent. If you’re having trouble saving money, track your spending and make cutbacks as needed. You may want to first accumulate an emergency/rainy day fund and then direct some savings into a retirement account that offers you some tax benefits. Some employers even match a portion of contributions. You may not want to save in a retirement account if you have some other shorter-term goal in mind, like accumulating down-payment money for a home purchase or saving money to someday start your own small business. Thinking about a home purchase or retirement is usually not in the active thought patterns of first-time job seekers. Regardless, saving money as you’re earning is a great habit and widens your options over time! Ensure that you’re properly insured When you’re young and healthy, imagining yourself feeling otherwise is hard for most people to do. Many twenty-somethings give little thought to the potential for healthcare expenses. But because accidents and unexpected illnesses can strike at any age, forgoing coverage can be financially devastating. You don’t want to again become financially dependent upon your folks, do you? Check your employer’s benefit package to see whether it includes long-term disability insurance coverage. Smaller employers are more likely not to offer it. When you’re in your first full-time job with more-limited benefits, buying disability coverage, which replaces income lost due to a long-term disability, is wise if you’re not covered through your employer. Continue your education After you get out in the workforce, you (like many other people) may realize how little you learned in formal higher education that can actually be used in the real world and, conversely, how much you need to learn that school never taught you. Lucky for you that some companies provide training and make entry-level hires often for “aptitude and attitude,” not specific skills. Read, learn, and continue to grow. Continuing education, and the increasing numbers of alternatives to college, can help you advance in your career and enjoy the world around you. Always be prepared for a job change During your adult life, you’ll almost surely change jobs — perhaps several times a decade. I hope that most of the time you’ll be changing by your own choice. But let’s face it: Job security is not what it used to be. Downsizing has impacted even the most talented workers, and more industries are subjected to global competition. No matter how happy you are in your current job, knowing that your world won’t fall apart if you’re not working tomorrow can give you an added sense of security and encourage openness to possibility. So, structure your finances to afford an income dip. Spending less than you earn always makes good financial sense, but if you’re approaching a possible job change, spending less is even more important, particularly if you’re entering a new field or starting your own company and you expect a short-term income dip. Many people view a lifestyle of thriftiness as restrictive, but ultimately those thrifty habits can give you more freedom to do what you want to do. Be sure to keep an emergency reserve fund – three month’s worth of living expenses is a good start. Evaluate the total cost of relocating At some point in your career, you may have the option of relocating. But don’t call the moving company until you understand the financial consequences of such a move. You shouldn’t simply compare salaries between the two jobs. Benefits matter too, and benefits can be worth quite a bit. You also need to compare the cost of living between the two areas: housing, commuting, state income taxes and other taxes, food, utilities, and all the other major expenditure categories. Ensure compatibility when picking a partner Think you’re ready to tie the knot with the one you love? In addition to the emotional and moral commitments that you and your spouse will make to one another, you’re probably going to be merging many of your financial decisions and resources. Even if you’re largely in agreement about your financial goals and strategies, managing your finances in partnership with another person is far different than managing your money on your own. Many couples never talk about their goals and plans before marriage and failing to do so breaks up some marriages. Finances are just one of numerous issues you should discuss. Ensuring that you know what you’re getting yourself into is a good way to minimize your chances for heartache. Ministers, priests, and rabbis sometimes offer premarital counseling to help bring issues and differences to the surface.

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Do College Graduates Make More Money?

Article / Updated 05-05-2020

Plenty of studies and analyses show that those who have more education generally enjoy lower rates of unemployment and higher employment income. The graphic in the following figure clearly shows that those with higher levels of education reap considerably higher wages from work and lower unemployment rates. There’s no question that education is a good thing and can develop your brain, critical thinking skills, interpersonal skills, etc. What jumps out at me from the graphic is that it looks like there’s value in completing high school, completing college if you’re going to attend and possibly considering an advanced degree. But that doesn’t mean that all education, or formal education is worthwhile regardless of the cost. You should always consider the expected cost versus benefit or the return on the investment since attaining a college degree takes a good deal of time and money. Another important point about the figure: the “income premium” associated with college (compared with a high school degree) peaked in the year 2000 and declined about 10 percent over the next 15 years. College costs of course continued rising rapidly over this period further undermining the potential value of a college degree. Parents and families should also be aware of the research report titled, “Is College Still Worth It? The New Calculus of Falling Returns” by William R. Emmons, Ana H. Kent, and Lowell R. Ricketts published by the Federal Reserve Bank of St. Louis Review, Fourth Quarter 2019. That report found: “The college income premium is the extra income earned by a family whose head has a college degree over the income earned by an otherwise similar family whose head does not have a college degree. This premium remains positive but has declined for recent graduates. The college wealth premium (extra net worth) has declined more noticeably among all cohorts born after 1940. Among families whose head is White and born in the 1980s, the college wealth premium of a terminal four-year bachelor’s degree is at a historic low; among families whose head is any other race and ethnicity born in that decade, the premium is statistically indistinguishable from zero. Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is also indistinguishable from zero. Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.” Clearly, there’s likely to be value in completing a college degree and getting a degree from a program with a good reputation and track record for graduates with that type of degree. Conversely, those who don’t complete their degree or who get a degree from a program with a subpar or mediocre track record will probably get a poor return on their invested education dollars. Successful people who never got a college degree You’ve surely heard of a number of “successful” people who accomplished significantly without a college degree. This would include folks like Michael Dell founder of Dell Computers, Steve Jobs founder of Apple, Bill Gates founder of Microsoft, John Mackey founder of Whole Foods Markets, Travis Kalanick founder of Uber, Larry Ellison founder of Oracle, performers Russell Simmons and Ellen DeGeneres, fashion designer Anna Wintour, and food guru Rachel Ray to name a few. These folks obviously are outliers in terms of their high level of professional success and associated financial earnings. And there are plenty of lower profile people who have done quite well for themselves without a college degree including some plumbers, landscapers, dental hygienists, MRI technologists, commercial pilots, physical therapist assistants, respiratory therapists, air traffic controllers, transportation inspectors, diagnostic medical sonographers, electricians, construction managers, licensed practical nurses, web developers, elevator installers, radiation therapists, massage therapists, medical assistants, firemen and police officers. I chose to highlight some of these occupations because they are populated with relatively high numbers of people without a college degree. Now, this is not in any way to suggest that the majority of people or your kids should bypass college! Each person’s situation is unique and different. But the point is that there are many paths to career success and some of those paths include going to college whereas others do not.

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Athletic Scholarships—Realities for Recruited Athletes

Article / Updated 05-05-2020

Parents and their offspring have all sorts of dreams and fantasies about their kids playing sports, getting scholarships, and perhaps even turning pro and making big money from their sport. There’s nothing inherently wrong with having dreams and aspirations, but it’s important that they be largely grounded in reality and tempered with solid, back-up plans. This article discusses some numbers showing the prevalence of different types of athletes at the college level and the realities surrounding athletic scholarships and being a recruited student-athlete. Few people are fortunate enough to have the talent, drive, and luck that is often required to actually make decent money playing a sport. And even if that does happen years down the road, I can guarantee you that the money-making period won’t last long, and your son or daughter will have many more years of adult working life remaining. Try to stay focused on the long-term benefits that sports can provide, including: Physical fitness and wellness: This can also include understanding the value of good nutrition and not putting bad stuff (drugs, alcohol, and so on) into your body because of how it makes you feel and the damage it can do. Understanding the value of effort and focus: To master a sport and excel at it, a student-athlete has to put in a good deal of practice. Of course, this should be done in moderation and not infringe upon having enough time to do well in school. Experiencing the value of teamwork and having a role: I think this is one of the greatest benefits of playing sports, especially team sports. Think about it — when your son or daughter enters the workforce, those teamwork skills will come into play and be quite useful. Mastering time-management and juggling different responsibilities: You can’t take challenging courses and have a significant outside commitment like a varsity sport if you aren’t good at managing your time. To that I would also add that it’s an activity to keep teenagers out of trouble. It sops up free time and leads participants to be tired! The probability of competing in college athletics The NCAA has compiled some useful statistics that show what portion of high school athletes go on to make teams at the collegiate level for different men and women’s sports. The data also show how the collegiate sports opportunities break out by the division of play. Overall, the NCAA calculates that there are approximately 8 million high school athletes, and of those, about 480,000 of them (or 6 percent) go on to compete at the college level. Please keep in mind as you review the data in the following figure that just because someone makes a college team, doesn’t mean that they get much — if any — playing time or even a roster spot on a team over four years. The likelihood of competing in professional sports Another reason that some are attracted to sports and college athletics is the hope or dream of making it professionally. This is, of course, limited to a handful of sports. The following figure shows what portion of eligible collegiate athletes are drafted in a given year. Please keep in mind that getting drafted doesn’t in any way mean that these athletes are able to make a good living for any length of time on the pro circuit. The vast majority of drafted athletes never make it to the “Big Show” or equivalent and end up moving on to something else after one or a few years in the minor leagues (at low pay) for their chosen sport. The numbers in the following table show a decent number of college baseball players get drafted. However, only about 17 percent of players who were drafted and signed a minor league contract ultimately made it to Major League Baseball, and many of those for a short period of time. Here’s how the odds of making it to the MLB vary by the round drafted (note that there are 40 rounds in the MLB draft). Drafted Baseball Players Who Make it to Major Leagues Draft Round Played in MLB Played 3+ yrs in MLB 1st round 67% 47% 2nd round 49% 31% 3rd round 40% 21% 4th round 35% 18% 5th round 33% 18% 6th round 24% 10% 10th round 17% 8% 12th–20th rounds 10% 4% How college athletic scholarships work There are plenty of misperceptions and misunderstandings regarding collegiate sport scholarships. And, there’s ample opportunity to be taken advantage of and end up without good college options for those who pursue being recruited as a student-athlete, whether or not a scholarship is involved. Being an educated customer is key to making sound decisions. Full versus partial scholarships The vast majority of athletic scholarships (99 percent in fact) are partial scholarships and are for so-called equivalency sports. Division 1 men equivalency sports are baseball, cross-country, fencing, golf, gymnastics, ice hockey, lacrosse, rifle, skiing, soccer, swimming, tennis, track and field, volleyball, water polo, and wrestling. For Division 1 women, equivalency sports are bowling, cross-country, fencing, field hockey, golf, ice hockey, lacrosse, rowing, skiing, track and field, soccer, softball, swimming, and water polo. Additionally, all DII sports and National Association of Intercollegiate Athletics (NAIA) sports are equivalency sports. The NAIA is a competitor to the NCAA and is comprised primarily of smaller colleges. (NCAA Division III sports do not offer athletic scholarships.) Some full scholarships are awarded for equivalency sport athletes for the most coveted and valued recruits. This is more likely to happen for athletes who have offers from multiple colleges to consider and/or who could play a division higher. Some student-athletes choose to play in a lower division for a better collegiate/academic fit or because of lower cost of attendance. In contrast to equivalency sports, there are so-called head count sports, and scholarships from those teams are always full scholarships (in other words, 100 percent). Just one percent of all collegiate student-athletes enjoy full scholarships. With men’s sports, such teams can include DI basketball and DI-A football (now known as Football Bowl Subdivision). For women’s sports, the head count full scholarships come from DI basketball, gymnastics, tennis, and volleyball. As you may imagine, it’s the bigger name sports colleges you may have heard of that fit the bill here. These include the following collegiate athletic conferences: American Athletic Conference, Atlantic Coast Conference, Big 12 Conference, Big Ten Conference, Conference USA, Division I FBS Independents, Mid-American Conference, Mountain West Conference, Pac-12 Conference, Southeastern Conference, and Sun Belt Conference. Dealing with recruited athlete offers Most recruited athletes don’t receive athletic scholarships. Being “recruited” means the following typically happens. College coaches try to identify promising high school student athletes during their high school tenure. When they find a good fit (which includes academically) for their program, they may make an offer or extend an invitation for that student-athlete to visit their campus and program. Most coaches in most programs are given a certain number of recruiting slots by the admission’s office. What this typically means is that with the coach’s support, most of these recruited student-athletes are admitted, typically through the early action/decision period. Coaches, in conjunction with the admission’s office, will do a preliminary screening of a possible recruit early in the process to ensure that the student-athlete meets academic and other requirements important to the college. While a student-athlete can rack up multiple offers from various schools, he needs to select just one school to which to commit and apply early. This potentially puts the student-athlete in a vulnerable spot because if the coach changes his mind or doesn’t offer enthusiastic support in the admissions process or the admission’s office chooses not to admit the student, the student-athlete will likely have lost the other recruited athlete offers he had at other institutions. Coaches can’t wait around and will move on to other candidates when it is clear they aren’t an athlete’s first choice. Do your homework and be sure you understand what the offer and support a given coach is making to your student-athlete means and the likelihood of getting an offer of admission. Ask around to find out what the coach’s and school’s track records are with prior recruiting overtures. At some colleges, nearly all student-athletes who are offered a coach’s support may gain admission whereas at other schools, half or less may eventually succeed. Of course, your student-athlete should do some soul searching and be sure that the college she seeks to apply to early as a recruited athlete is really the one that she desires. A good question to ponder: If your child isn’t able to play at some point due to injury, the coach cutting the player, or the player becoming disenchanted with and choosing to leave a team, how is your student going to feel about being at that college without playing her chosen sport? The worst that can happen, in my observation and opinion, is that chasing after playing a collegiate sport can distort the process of college applications and selection for some student-athletes. It’s all about priorities and focus. Finding the right academic schools should take precedence over finding a particular sports program. A good student-athlete should be able to do both. At a small speaking event for talented high school baseball players wanting to learn more about playing college baseball, MLB manager and player Joe Girardi advised student-athletes getting the best education that they can and said to the players that they will be found if they have talent to play beyond college. In his own case, he turned down a baseball offer from a small school with weak academics in the south and ended up getting an engineering degree and playing baseball at Northwestern and was drafted into the MLB. Make sure your student fully understands what he is signing up for when it comes to a college sport. Some coaches put the sport ahead of academics and everything else. Be sure to explore alternatives, including playing in a lower division where you may get a better financial aid offer or have more free time to pursue academics or other interests. With baseball, for example, plenty of pitchers get drafted out of Division III play and end up making it to play Major League Baseball. Club sports are worth considering at some schools and can be quite good, especially at larger or big sports schools. Finally, don’t rule out the possibility of your son or daughter getting into a school that fits them well and then trying out (walking on) for their desired sport. The realities of athletic scholarship offers When a scholarship is involved, be sure that you understand the process. The first step typically is for the coach to extend what is called a verbal scholarship offer. As you may imagine, a verbal offer is not a legally binding offer on either party. The next step is for the school to offer the student-athlete a national letter of intent. If the student-athlete accepts and signs this, the school is committing to offer an athletic scholarship for one year and the student is accepting the offer and is committing to come to that school and program. See the NCAA’s website on this topic. Many folks don’t understand that athletic scholarships are not four-year commitments on the school’s part. It’s a year-to-year proposition and can be discontinued for a variety of reasons, including but not limited to breaking of program behavior or academic rules or guidelines, change of coaches, inadequate performance (judged solely by the coach), injuries, low grades, and so on. Don’t be shy about inquiring about what has happened with prior student-athlete scholarship recipients and what portion of them received that money all four years. For those who didn’t last that long, find out why.

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Filling Out the FAFSA® Form: Free Application for Federal Student Aid

Article / Updated 05-05-2020

The Free Application for Federal Student Aid — also known as FAFSA® form — is the starting point in applying for college financial aid. The name of this statement is kind of misleading because you may assume that you’re completing to qualify for student aid through or sponsored by the federal government. While you are, the FAFSA® form information and the analysis of the answers you provide on it are also used by many colleges and universities as a starting point for determining your aid eligibility and ultimately how much a given school will charge your offspring to attend. For a look at the complete FAFSA® form, see the figures at the end of this article. Many schools also require completing other financial aid forms because they like to gain additional detailed information beyond what the FAFSA® form captures. Following are highlights of the important parts of the FAFSA® form and how to best complete them. Completing the FAFSA® form online versus on paper You can complete the FAFSA® form online or print and complete a PDF version by hand. With every version, you work on it as you have time — the website enables you to save your work to return for completion later.(There is an app for the FAFSA® form, but I don’t recommend using it and entering your personal and financial data through your cellphone.) There is an important difference between completing the FAFSAâ form online versus doing so on paper. The online version information can be sent to up to ten schools versus only four for the printed version. If you’re applying to more than that many schools, you can have your FAFSAâ form sent to additional schools by jumping through some hoops. I recommend that you go with the online version of the FAFSA® form if at all possible. Like the paper version, you can complete it over time, and the website allows you to save your work and return later. Filling it out by hand means you need to be neat, and if you want to make changes or revisions, you’re going to have to complete at least two versions so that your final one is clean and accurate. Also consider that another potential downside to the paper version is that you have to mail it, which means that like any other piece of mail, it could be lost by the U.S. Postal Service. And, finally, the online version enables you to zap your information out to up to ten colleges at a time whereas the paper version only allows sharing the information with up to four colleges at a time. Sending your FAFSA® form to more than the “allowed” number of colleges According to the U.S. Department of Education, you can list up to ten colleges on your Free Application for Federal Student Aid (FAFSA®) form. Once you receive your Student Aid Report (SAR), which provides you with the info you submitted on your FAFSA® form and summarizes your eligibility for federal student aid, you can make the information available to more than ten colleges through one of the following options. Each option will allow the college to receive an electronic copy of your SAR, and you will also receive an updated SAR. Option 1: Click Log In on the home page and log in to your FAFSA® account. You will be given the option to Make FAFSA® Corrections. Remove some of the colleges listed on your FAFSA® form, add the additional school codes, and submit the corrections for processing. Option 2: Call the Federal Student Aid Information Center (800-433-3243) and have them add the colleges for you. When you call, you must provide the DRN from your SAR or confirmation page. Refer to the Help page for contact information. Option 3: If you have a paper SAR, you can replace the colleges listed on the SAR with other colleges and mail the SAR back to Federal Student Aid. Note that the paper SAR allows you to change up to four colleges — not all ten. Important note: If there are ten colleges on your FAFSA® form, any new school codes that you add will replace one or more of the school codes already listed. When this change is made, any college removed from the list will not have automatic access to any new information you provide after you’ve removed that college. However, the college will still have the data you submitted when you listed that college on your FAFSA® form. You are not deleting your FAFSA® form information from the college’s system. A Federal Student Aid (FSA) ID If you want to complete, sign, and file your FAFSA® form online, you will need to get what is called an FSA ID, which, “. . . allows students and parents to identify themselves electronically to access Federal Student Aid websites.” Per the FAFSA® website, “An FSA ID is made up of a username and password and can be used to log into the online Free Application for Federal Student Aid (FAFSA®) form. While you aren’t required to have an FSA ID to complete and submit a FAFSA® form, it’s the fastest way to sign your application and have it processed. It’s also the only way to access or correct your information online, or to prefill an online FAFSA® form with information from your previous year’s FAFSA® form.” Student is applying for aid As you begin to complete the FAFSA® form, keep in mind that the questions presume that the student is applying for aid. There is an aspect of this that some people find perplexing and frankly annoying, and dare I say a tad disrespectful, to the people who generally foot most and in some cases all of the college bills — the parents! There also seems to be an assumption that parents are comfortable providing all of their financial details to their teenager in order for them to complete the form. The student is the one applying to college and hence the one applying for aid, at least in the minds of those folks running colleges these days. That doesn’t mean that students are the ones actually completing these financial aid forms unless they are independent of their parents (for example, a student age 25 or older). I generally think that parents should be the ones completing the forms. Questions like name, address, social security number, date of birth, and so on in the beginning part of the form refer to the student. Parent information is collected later in the form. Entering parent information in a student section is a common mistake, and when it’s an important field like social security number or income, it can cause big problems for your financial aid application. The form could stand some design improvements to address so many people making mistakes like this! Selective service registration Many parents and their sons are surprised by the question on the FAFSA® form pertaining to whether the student is registered with United States’ selective service, which is the system used to draft young adults into the armed services. Males 18 years of age and older must be registered in order to be considered for federal aid (which for most people would be loans). You can check a box to initiate and complete that registration process. Registering doesn’t commit a person to serve in the unlikely event that there is ever a future draft. Interested in work-study consideration? The FAFSA® form asks if the student is willing to consider “work-study,” whereby students are simply given low-paying, on-campus, part-time jobs (working in the dining hall, library, gym, and so on). The time commitment is generally quite minimal and probably no more than ten hours per week, and the schedule is quite flexible so as to not interfere with a student’s academic and other campus obligations. I would recommend saying yes as there’s no real downside to saying you’re open to this. Students are not in any way committed to follow through on this should it be part of a financial aid award. They can always choose to opt-out of accepting that part of the financial aid package, which simply means your family is on the hook for paying a bit more to make up for that. Your answer to this question has no impact on the grant or other money offered to you elsewhere in the proposed financial aid package. Federal income tax return questions A number of FAFSA® form questions ask you to report specific data and line items from your prior year’s federal income tax return. You have two options for handling this. First, you can get out your copy of the return (which you should always keep) and look up and record the information yourself. The second option is to use the IRS data retrieval tool to import data from your tax return to answer these questions. You are under no obligation to do it this way. And, I’m well aware that plenty of folks feel that giving the process access to your federal income tax return is an even more invasive approach to financial aid data collection. In the unlikely event you are quite late in filing and still haven’t filed your prior year’s federal income tax return, you’re just going to have to do your best and estimate. Income earned from work Income earned from work is an item you need to report that’s not directly on a line of your federal income tax return. (It’s possible that a single line item on your tax return — for example for wage income or Schedule C — may correspond to a person’s income.) This includes wages paid to you by an employer, business income you may report on Schedule C, and so on. And, the amount should be before contributions you’ve made to a retirement savings account. Value of your assets Under the federal financial aid rules and calculations, retirement account assets are ignored, so don’t include their value in this or any other section of the FAFSA® form! Also, your home is not considered an asset under FAFSA® guidelines, so don’t include its value here either. If you own financial assets like mutual funds and stocks outside of retirement accounts, you know their value fluctuates, so that does give you some latitude in reporting their current/recent value. Suppose that a recent quarterly statement shows the value of your investments during a recent depressed period. That would be a good date to choose for completing the asked-for data on the form. If you own a business or investment real estate, be sure to subtract any debt or other obligations owed on those against a reasonable estimate of those assets’ current values. Also, recognize that if you had to sell any of those assets to free up money to pay for college expenses, you would have expenses related to that sale that can easily amount to about 10 percent of the value of that asset. Coverdell education savings account balances and 529 plan assets are generally considered a parent’s assets for students who are still financially dependent upon their parents. For independent students who don’t report parental information on their FAFSA® form, 529 and Coverdell balances owned by the student should be listed as student assets. Any custodial account balances are listed as a student’s assets. You may want to consider using those assets on your son’s or daughter’s current needs, as having more money in their name harms their financial aid awards. Number of college students in household If you have more than one member of your household who is attending college at least half-time during the same academic year, that generally will improve the financial aid packages offered. This makes sense since the expected family contribution is divided up among the number of colleges attended rather than all going to one college if just one family member were in college. Source: U.S. Department of Education The FAFSA® form: Free Application for Federal Student Aid. Page 1

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Should Your Family Apply for Financial Aid?

Article / Updated 05-05-2020

Before jumping into completing the specific college financial aid forms that you are likely to encounter, consider whether you should apply for aid, learn how to use the net price calculator to estimate what a particular college may charge your family, explore financial aid form deadlines, and so forth. As a general rule, you should apply for financial aid — especially and including so-called merit aid, which isn’t based upon financial need (which is called needs-based aid). Colleges provide merit money to high-achieving academic students and athletic scholarships to exceptional athletes. Financial aid consultants say that you should assume you’re eligible. Don’t rule yourself out because of income or academics. And don’t rule out a college because you think it’s too expensive. The higher the cost, the more aid you may receive. Some families are rightfully concerned that applying for financial aid may affect the attractiveness of their student to the college. Don’t colleges prefer accepting students from families that can pay in full? This is indeed a legitimate concern, which I help to make clear in this and the following sections. Just over 100 colleges (see the figure) state that they engage in “need-blind admissions.” This denotes that the college admissions committee is making their admissions decisions regardless of a family’s ability to pay. Many of the colleges on this list are those that enjoy a hefty endowment and thus have stronger finances to be able to admit students on this basis. Now, this is not to suggest that admissions committees literally know nothing about a family’s likely financial situation, because indeed they do. Consider the fact that the information a candidate’s admissions application conveys to the college admissions officers includes where the candidate lives and what his parents do for a living, among other information. Knowing this information, though, may not help a candidate with admission in the way that you might imagine. For example, admissions committees at the more selective and popular schools see lots of candidates applying from zip codes populated with affluent families. So, if you work at a well-paying occupation and are yourself well-educated, admissions officers will typically think that your kids grew up with advantages compared with kids raised in lower-income areas with parents engaged in lower-paying jobs. And, from an admissions perspective, especially at need-blind colleges like those listed in the following figure, high-achieving students from lower socio-economic backgrounds actually have a leg up on their peers who grew up with supposed financial advantages. How to use the “net price calculator” to estimate costs There is a relatively simple method you can use right now to get a general idea as to what price you may pay at a given college or university (and therefore how much financial aid or discount you will receive from those institutions). Colleges are required to have a net price calculator (NPC) on their websites. You can usually find this in the tuition and financial aid section of a school’s website or simply type “net price calculator” in the college’s homepage search box. You will be taken to the College Board’s webpage for that particular college and be asked a series of questions about your family’s financial situation. Alternatively, you can go to the College Board’s “Tools and Calculators” page. Then select the link for “The College Board’s Net Price Calculator,” which provides access to each school’s own such calculator. You don’t need to sign in or personally identify yourself, so rest assured the college won’t be receiving any of your information at this time. The NPC is different for each college, so while you will be asked similar questions by each college, the resulting prices can vary quite widely. One reason for this is that different colleges treat various aspects of your situation — like your home’s equity (difference between market value and the mortgage on the property) quite differently. I’ve seen situations for a given family where the pricing among private colleges can differ by tens of thousands of dollars among schools driven by factors like how much equity a family has in their home. Know if financial aid harms your chances for admission This is a great and important question. And the answer and truth is that outside of the 100 or so colleges that use a need-blind admission policy (listed in Figure 10-1), your applying for need-based financial aid may have a negative impact on your child’s admissions chances. Is this to suggest that you shouldn’t apply for financial aid at so-called “need-aware” colleges, which comprise the vast majority of schools? No, not necessarily. Here’s how I would think about the situation when applying to colleges that do not use a need-blind admissions policy: If you’re a higher-income family and are not going to qualify for need-based aid, you may not want to apply for financial aid. The reasoning here is that at some need-aware schools, you could put your child at a disadvantage in the admissions process. If you’re in this group, be sure to apply for merit-based aid. Moderate- and lower-income families that see per the net price calculator that they will be eligible for a decent or large amount of financial aid should apply for such aid. Doing so will be necessary to afford college. Be sure to apply to some need-blind schools and that you have at least one safety school that appears to offer good pricing for a family like yours and is going to accept your child. Meet deadlines Before getting into the nitty gritty of completing some specific financial aid forms, here’s some important overarching advice about the financial aid process and deadlines: Don’t wait to be accepted to a college to apply for aid. The coffers may be empty by spring. Get application forms as soon as possible. You’ll need the latest version of the federal FAFSA® form. You may also need to complete the College Board’s CSS Profile application, state aid forms, and/or forms provided by the colleges. The FAFSA® form and Profile become available for the next academic year on October 1 of the current year (meaning the soonest you can apply for financial aid for your first year of college is October 1 of senior year of high school). Know the deadlines and be sure to meet each one. Many colleges have different deadlines for different forms. Some may be due as early as November, though most are due in January–March. Maximize your aid eligibility. Freshman year aid awards are based in part on income for the year ending Dec. 31 of the student’s sophomore year in high school. Consider also making appropriate adjustments to your assets, debts, and retirement provisions before you apply. Follow instructions carefully on the application forms. Common mistakes that can disqualify your applications are forgetting to sign them, leaving lines blank, or using the wrong academic year’s version of the forms. Know that only the college’s financial aid office will see the information provided on the financial aid forms. Admission office people aren’t supposed to know you applied for aid if the school is a need-blind admission policy school; otherwise, assume they will know. Professors and any other staff at the college outside of the financial aid and admissions offices will neither see nor have access to this information.

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