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Saving a nd Paying for College. Agenda. Influence of savings Savings options for parents Impact on financial aid eligibility Saving options for students—while in school Creating a personal spending plan Working through college Impact on financial aid eligibility Next steps.

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agenda
Agenda
  • Influence of savings
  • Savings options for parents
    • Impact on financial aid eligibility
  • Saving options for students—while in school
    • Creating a personal spending plan
    • Working through college
    • Impact on financial aid eligibility
  • Next steps
influence of saving1
Influence of Saving
  • Increase college aspirations
  • Encourage personal responsibility
  • Good first step in college-planning process
savings vs investing
Savings vs. Investing
  • Investing for long-term goals
  • More than five years
  • Retirement
  • College education – 529 Savings Plan
  • Saving for short-term goals
  • Less than five years
  • Emergency fund
  • College education – 529 Savings Plan
  • Vacation
average undergraduate budget
Average undergraduate budget

Source: The College Board, Annual Survey of Colleges. Note: Expense categories are based on institutional budgets for students as reported by colleges and universities in the Annual Survey of Colleges. They do not necessarily reflect actual student expenditures.

undergraduate payment resources
Undergraduate payment resources

Federal loans – 43%

Other federal grants – 8%

Source: http://trends.collegeboard.org/student_aid/report_findings/indicator/304#f84

where to save
Where to Save
  • Banks and credit unions
    • Checking account
    • Savings account
    • Money market account
    • Certificate of deposit (CD)
    • College savings accounts
  • Investment programs
    • Individual retirement accounts (IRAs)
    • College savings accounts
savings getting started
Savings—Getting Started
  • Checking account
    • Lowest interest rate
    • For more frequent transactions
  • Savings account
    • Higher interest rates than checking
  • Savings bonds
    • Reliable, low risk option
savings larger a mounts
Savings—Larger Amounts
  • Individual retirement accounts (IRAs)
  • Traditional IRA
  • Roth IRA
  • Money market account
  • Higher rates than checking and savings
  • Limited number of monthly withdrawals
  • Certificate of deposit (CD)
  • Requires minimum deposit
  • Pays higher interest rate
  • No transactions for a set period
  • Early withdrawal penalty
college saving accounts
College saving accounts
  • Coverdell education savings account
  • Variety of investment options
  • Income and contribution limits
    • Annual cap of $2000 per year
  • Student control
  • 529 plans
  • Open with as little as $15
  • Professionally managed investment options
  • Higher income and contribution limits
  • Parent control
impact of savings on financial aid eligibility
Impact of savings on financial aid eligibility
  • Apply for most aid using Free Application for Federal Student Aid (FAFSA)
    • Collects information about student and his or her family
    • Data used to get an idea of the family’s financial strength
    • Some colleges will require the CSS profile

Source: Filling the Piggybank: Saving for College, NASFAA 2010.

impact of savings on financial aid eligibility1
Impact of savings on financial aid eligibility
  • FAFSA asset questions
    • Current balance of cash, savings and checking accounts
    • Net worth of investments, including real state
    • Net worth of current business and/or investments farms
  • Common assets not reported on FAFSA
    • Family home
    • Family farms
    • Value of retirement plans and pension funds
    • Value of none-education IRAs
    • Certain small businesses

Source: Filling the Piggybank: Saving for College, NASFAA 2010.

impact of savings on financial aid eligibility2
Impact of savings on financial aid eligibility
  • Value of 529 plans is reported as part of net worth of investments
    • Always the asset of the parent
  • Parents not expected to deplete assets to pay for college
    • Certain amount of assets protected for other uses such as retirement
    • Small percentage of asset above threshold amount available for college expenses

Source: Filling the Piggybank: Saving for College, NASFAA 2010.

savings options for students
Benefits of college education

Reducing expenses

Working through college

Reducing loan debt

Impact on financial aid eligibility

Savings options for students

benefits of a college education
Benefits of a college education

Potential income

  • High school diploma $33,800
  • Bachelor’s degree $55,700
  • Lifetime earnings difference $854,100
  • Employment
  • Quality of life

Source: www.MyFico.com. Percentage of U.S. population scoring in each range.

median earning tax payments
Median earning & tax payments

Data compiled by the College Board using U.S. Census Bureau, 2009 and IRS, 2008; data. The bars in this graph show median earnings at each education level. The taxes paid segments represent the estimated average federal, state, and local taxes paid at these income levels. Taxes include federal income, Social Security, state and local income and property taxes.

unemployment rates by education level
Unemployment rates by education level

Source: The College Board. Data from Bureau of Labor Statistics, 2010. Unemployment Rates Among Individuals Ages 25 and Older, by Educational Level, 1992-2009

typical budget
Typical budget

Average Expenses Source: Consumer Expenditure Survey, Bureau of Labor Statistics

create a personal budget
Create a personal budget
  • What is a budget?
    • Make the most of your financial resources
    • Determine your monthly income
  • Create your own personal budget
    • Reduce unnecessary expenditures
    • Better anticipate your monetary needs
      • Write out a budget
      • Track each expense
      • Adopt a “spend less, save more” lifestyle
      • Stick to it
ways to save for students
Ways to save – for students

Food

Clothes

  • Eat out less
  • Share a meal
  • Skip daily coffee
  • Shop with a list
  • Buy generic brands
  • Use coupons
  • Buy in bulk
  • Buy the basics
  • Shop sales
  • Shop thrift stores
  • Make minor repairs

Source: www.MyFico.com. Percentage of U.S. population scoring in each range.

ways to save for students1
Ways to save – for students

Transportation

Entertainment

  • Economy car
  • Used car
  • Car pool
  • Public transportation
  • Walk
  • Ride a bike
  • Entertain at home
  • Pack a picnic
  • Student discounts
  • Free concerts
  • Community events

Source: www.MyFico.com. Percentage of U.S. population scoring in each range.

saving money during school
Saving money during school
  • Clip coupons and buy bulk foods
  • Buy used books for school
  • Rent a video vs. going to the movies
  • Bring lunch to work/school
  • Live at home or with a roommate

Possible monthly savings: $300

pay yourself first
Pay yourself first

Today’s habits pay off tomorrow

  • Include savings in your budget
  • Save for emergencies
  • Save for major purchases
saving for college students
Saving for college students

Start now for high school students

  • 18-year-old will be 23 in five years
  • Last year of college
  • $25 every two weeks
five years of saving vs borrowing
Five years of saving vs. borrowing

Interest paid

Interest earned

$25 biweekly saving

Loan amount

Savings growth calculated at 4 percent interest with contributions made for five years.

Loan interest rate is 6 percent with 10-year term.

working fulltime summer 15 hours a week school year
Working fulltime summer &15 hours a week school year

Value of working for one year

  • Summer (full time) $3,015
  • School (part time) $3,130
  • Total value $6,145

Working full time for four years during 13 weeks of summer at $7.25 an hour with a 20 percent tax rate. Working during school for four years at 15 hours a week for 36 weeks at $7.25 an hour with a 20 percent tax rate.

value over four years
Value over four years

Working F/T each summer $12,060

Working P/T during school $12,520

Total value $24,580

Pay tuition instead of borrowing

  • Student loan payment
  • Save about $135 or $270 monthly for 10 year

Working full time for four years during 13 weeks of summer at $7.25 an hour with a 20 percent tax rate. Working during school for four years at 15 hours a week for 36 weeks at $7.25 an hour with a 20 percent tax rate. Student loan payment based on a $12,240 loan at 6 percent interest re-paid over 10 years.

value over four years1
Value over four years

Working F/T each summer $12,060

Working P/T during summer $12,520

Saving $15 biweekly for five years $3,600

Budgeting to save $150 a month $7,200

  • Roommate, transportation, used books, bringing lunches, etc.

Total possible money for college: $35,380

Working full time for four years during 13 weeks of summer at $7.25 an hour with a 20 percent a tax rate. Working during school for four years at 15 hours a week for 36 weeks at $7.25 an hour with a 20 percent tax rate. Saving $15 biweekly for five years at 4 percent interest.

reduce direct loan debt in school
Reduce Direct Loan debt in school
  • Borrow only what is needed, not total eligibility
  • Reduce/cancel/return remaining disbursement/s if not needed
  • Prepay during school and grace
  • Pay unsubsidized interest during school or grace before capitalization at repayment
impact of savings on financial aid eligibility3
Impact of savings on financial aid eligibility
  • Apply for most aid using Free Application for Federal Student Aid (FAFSA)
    • Collects information about student and his or her family
    • Data used to get an idea of the family’s financial strength
  • Try out EFC calculators
    • CSU Mentor
    • UC application
    • Finaid.org

Source: Filling the Piggybank: Saving for College, NASFAA 2010.

getting started
Getting started
  • Compare college costs in your area
  • Learn about the various ways to pay
    • Grants & scholarships
    • Working, budgeting and saving
    • Student loans
  • Attend college nights
  • Map out a plan to save and pay for college
where to learn more
Where to learn more
  • Search “529 plan” and your state name online
  • College Board Savings Calculator
    • apps.collegeboard.com/fincalc/college_savings.jsp
  • Talk to people who have college children
  • EFC calculators
      • http://www.csumentor.edu/
      • http://www.universityofcalifornia.edu/admissions/how-to-apply/apply-online/index.html
      • www.finaid.org/calculators/quickefc.phtml