College Planning

Picking a College is an Important Decision

It’s very often the first “big decision” a young person makes. Although paying for a college education remains a financial challenge for many families, it can also yield the greatest rewards. While the earnings power of a college-educated person is generally greater than that of someone without a degree, spending four years at a private, four-year college, can create a bill resembling a mortgage.

Like with most important decisions, it’s usually wise to begin early. Most experts recommend attending local college fairs by the sophomore and junior year of high school. Good teachers are found just as easily in small schools as they are in large ones. And while many may seek schools that may have a famous basketball team or favorable weather, there are many other often more serious factors to consider such as location, class size, courses of study (degrees offered), faculty, financial aid, placement assistance, social/extracurricular activities, graduation rate, technical, lab and research facilities, dormitory facilities, reputation and of course cost.

Many highly successful people, however, have attended little-known colleges. President Ronald Reagan studied at tiny Eureka College, a small liberal arts institution in Illinois. Writer Sandra Cisneros is a graduate of Chicago’s Loyola University.

Although college enrollment rates continue to rise according to the College Board, the patterns are uneven across demographic groups. Among students with similar high school math test scores, those from wealthier families are much more likely to enroll in college immediately after high school, but the enrollment gaps by socioeconomic background are largest for those who are least academically prepared. Among those who enroll in college, students from disadvantaged backgrounds are less likely to begin at a public or private nonprofit four-year institution than others.

Campus visits are often the best way to get a feel for a school. Tour the campus. Speak with students. Eat in its cafeteria and spend a night in a dorm. Colleges often have welcome weekends for a prospective freshman. A website visit or call to the Admissions Office will let you know of such events.

While it’s not unusual for students to transfer, typically after their first year at a new college, ideally one would prefer to avoid such a situation. Transferring often results in the loss of credits and a lesser financial aid package.

Consider that individuals with higher education levels earn more, pay more taxes, and are more likely than others to be employed and to have job benefits such as retirement and health insurance. Adults with more education are also more likely to move up the socioeconomic ladder and less likely to rely on public assistance, according to Education Pays 2016, the latest report from the College Board’s Trends in Higher Education series.

Although paying for a college education remains a financial challenge for many families, it can also yield the greatest rewards. While the earnings power of a college-educated person is generally greater than that of someone without a degree, spending four years at a private, four-year college, can create a bill resembling a mortgage.

But consider the price of not going to college. Individuals with higher education levels earn more, pay more taxes, and are more likely than others to be employed and to have job benefits such as retirement and health insurance. Adults with more education are also more likely to move up the socioeconomic ladder and less likely to rely on public assistance, according to Education Pays 2016, the latest report from the College Board’s Trends in Higher Education series. Consider the below from The College Board (www.collegeboard.com), an independent education association:

• Average published tuition and fees for full-time in-state students at public four-year colleges and universities increased 2.4% before adjusting for inflation, rising from $9,420 in 2015-16 to $9,650 in 2016-17.
  
  
• The $1,930 increase in average grant aid from all sources and federal education tax credits for in-state students at public four-year institutions over the last decade covered 69% of the tuition and fee price increase over these years.
  
  
• Average published tuition and fees for full-time out-of-state students at public four-year colleges and universities increased 3.6% before adjusting for inflation, rising from $24,070 in 2015-16 to $24,930 in 2016-17.
  
  
• Average published tuition and fees at private nonprofit four-year institutions increased 3.6% before adjusting for inflation, rising from $32,330 in 2015-16 to $33,480 in 2016-17.
  
  
• The increase in average grant aid and tax benefits for full-time students at private nonprofit institutions was larger than the increase in tuition and fee prices between 2006-07 and 2016-17; between 2011-12 and 2016-17, the increase in grants and tax benefits per student covered 62% of the increase in average tuition and fees at these institutions.
  
  
• Besides tuition and fees, students have to pay for housing, food, books and supplies, additional college fees and other living expenses, such as transportation and entertainment and health care costs.

A 529 college-savings plan is a flexible and tax-advantaged way to save for qualified higher-education expenses such as tuition, fees, room and board, books, equipment and supplies at any accredited college, university, professional or technical school anywhere in the nation, as well as at some foreign schools. Vocational schools, those teaching trades such as culinary arts, technical skills, and art or music may also qualify. Many say it is the most evolved education-savings tool available as they offer more features for students and more benefits for parents (and grandparents) than traditional means of saving for college, such as prepaid tuition plans.

Every dollar in a 529 college-savings plan account grows tax-deferred until the money is withdrawn. Upon withdrawal, earnings are taxed at the child’s rate. Eligibility to contribute is not limited by income. Contributions can be as low as $50 per month and can be increased or terminated at the account owner’s discretion. You may also realize estate-planning benefits. While a 529 plan is generally a long-term investment, one can be opened for any person at any age, from newborn to adult, at any time. If the money is withdrawn and not used for qualified education expenses, a 10% federal tax penalty will apply and possibly a state penalty.

The payment levels are very flexible and the funds deposited grow on a tax-deferred basis. Prepaid tuition plans do not offer tax benefits, only help pay for tuition and limit one’s choice of schools.

Unlike many other savings choices, with a 529 plan, the donor is the “account owner” and retains control of the assets, even when the beneficiary turns 18 and funds in the plan must be used for higher education. Lots of parents and grandparents like this. Many earlier savings plans gave control of the account to the child upon turning 18.

There are many competing 529 plans on the market. While banks and insurance companies offer them, their selections are often very limited. Helping to fund a young person’s education may be one of the best investments a family can ever make. Choosing a financial advisor who’s already done his homework can help you find the right plan.

It Can Pay to Know Your Expected Family Contribution or EFC

It’s a rewarding site when a young person leaves for college. If your child or grandchild will soon be attending college are you aware of what your Expected Family Contribution (EFC) may be?

Your EFC is an index number that college financial aid offices use to calculate how much financial aid your child may receive if she were to attend their school. The information reported on your FAFSA is used to calculate your EFC. FAFSA is the Free Application for Federal Student Aid (www.fafsa.ed.gov). The EFC is calculated according to a formula established by law. The College Board website (www.collegeboard.org) is a good place to start learning about the EFC where you will also find an EFC Calculator.

For those with a specific college in mind, a more accurate estimate of your real cost can be found by using the net price calculator which is also available on the College Board website. Net price is the full cost of attendance minus the grants and scholarships a student may receive from their desired college.

When it comes to giving aid, not all colleges are equal. There are two basic types of college financial aid – need-based and merit-based. Need-based aid is a reflection of the student’s family economic status. Merit aid is awarded strictly on academic standings. Students can cobble together various forms of aid to meet their collegiate financial obligations including loans, which are considered aid, as well as jobs in the form of work-study plans. While some schools are more generous than others, they often vary when it comes to determining how “attractive” a student may be to a particular school. Frequently if a student’s Scholastic Aptitude Test (SAT) score is above a school’s median acceptance level, that student has a reasonable chance of getting merit aid from it providing most other qualifying conditions are met. The SAT is one of the standardized tests commonly used for college admissions.

It can be advantageous to know one’s EFC before beginning the college-application process as it is what a school will expect you to pay at a one-year minimum. A higher EFC typically means less financial aid. However, 529 accounts owned by a grandparent, other relative or anyone else besides a dependent student or one of their parents will not affect the student's FAFSA. Most schools set their own rules when distributing need-based scholarships and other awards. Some may adjust aid amounts upon discovering 529 accounts in the family. Also consider that federal financial aid rules are subject to frequent change and that most financial aid comes in the form of loans, not grants or scholarships.