This presentation is authorized only when accompanied or preceded by a current Franklin Templeton 529 College Savings Plan Investor Handbook.

Transcription

1 This presentation is authorized only when accompanied or preceded by a current Franklin Templeton 529 College Savings lan Investor Handbook. Investors should carefully consider lan investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook, which contains this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the manager and underwriter for the lan at (800) You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary s home state offers any state tax or other benefits that are only available for investments in its qualified tuition program. Not FDIC Insured May Lose Value No Bank Guarantee

2 02/2014 Heim, Young & Associates, Inc. Understanding the Financial Aid rocess and College Savings Solutions

3 UNDERSTANDING THE FINANCIAL AID ROCESS & COLLEGE SAVINGS SOLUTIONS 2 An investment in knowledge always pays the best interest. BENJAMIN FRANKLIN, U.S. author, diplomat, inventor, physicist, politician & printer

4 UNDERSTANDING THE FINANCIAL AID ROCESS & COLLEGE SAVINGS SOLUTIONS 3 Syllabus Value of a College Education College Costs Grants, Loans and Savings Starting the Financial Aid rocess Saving for College Impact of Saving on Financial Aid

5 Value of a College Education

6 VALUE OF A COLLEGE EDUCATION 5 A college education is an investment in a child s future that pays handsomely over time. $1,186,470 1 College graduates earn an average of 79% more per year than high school graduates, and over a lifetime that difference amounts to over $1 million in earnings Source: U.S. Census Bureau, Current opulation Survey, 2010 Annual Social and Economic Supplement.

7 VALUE OF A COLLEGE EDUCATION 6 Average Earnings in 2010 Based on Level of Education 1 In 2009 average earnings, based on level of education, were: 1 Without a high school diploma: $24,620 High school diploma: $33,371 Associate s degree: $41,144 Bachelor s degree: $59,737 Master s degree: $71, Source: U.S. Census Bureau, Current opulation Survey, 2010 Annual Social and Economic Supplement.

8 VALUE OF A COLLEGE EDUCATION 7 Unemployment Rates by Education Unemployment rates are consistently higher than the National average for those without a college degree. 1 As of the statistics show that: Without a high school diploma, the unemployment rate is 12.0% With a high school diploma, 8.1% Some college education, 7.0% However, college graduates (bachelor or above) see an unemployment rate of 3.7%, significantly lower than the national average No High School 8.1 High School 7.0 Some College 6.5 National Average 3.7 College Graduate Unemployment figures are seasonally-adjusted and include individuals age 25 years and over. Source: U.S. Department of Labor, Bureau of Labor Statistics, Current opulation Survey.

9 College Costs

10 COLLEGE COSTS 9 Can you guess what this number represents? 414,311

11 COLLEGE COSTS 10 The Rising Cost of College Education $414,311 represents the projected cost of a four-year college education from a private university in the year 2030 (18 years from now). 1 You may be surprised to see that the cost of a public university is projected to increase to over $255,000. rojected Cost of a Four-Year College Education 1 UBLIC COLLEGE RIVATE COLLEGE These figures can be considered sizeable, and the prospect of paying for these expenses can be daunting. That s why becoming informed about your options for paying for college is so important. Today In 2030 Today In Source: The College Board, Trends in College ricing 2011 The College Board, rojected cost based upon child's entrance to a 4-year public or private college. As reported by the College Board for , the $17,131 public college cost and $38,589 private college cost include tuition, fees, room and board. College cost inflation figures of 6.61% (public) and 4.93% (private) are based on the 10-year average annual increase in public and private college costs respectively, as reported by The College Board for

12 Grants, Loans and Savings

13 GRANTS, LOANS & SAVINGS 12 Sources of College Funding 1 STUDENT INCOME & SAVINGS STUDENT BORROWING 14% GRANTS & CHOLARSHIS FRIENDS & RELATIVES 9% 23% 7% ARENT BORROWING 10% 37% 14% ARENT INCOME & SAVINGS 1. Source: Sallie Mae and Gallup. Survey results released in August 2010, How America ays for College So what about financial aid to pay for college? Over the last 15 years there s been a shift in available aid in the form of grants, loans, work study and now, tax credits. According to a 2010 survey conducted by Sallie Mae and Gallup 1 of 801 college students and 823 parents arents are the primary source of college funding, representing 47% of college funding. It is important to note that of the 37% of arent Income and Savings, twentyone percent of funding, or one-fifth of college costs, came from parent earnings the single largest source of funds used to pay for college. The savings sources included college savings plans such as 529s (7% of college costs), other parent savings funds and investments (7%), and withdrawal from parent retirement savings accounts (2%).

14 GRANTS, LOANS & SAVINGS 13 arents: The Biggest Contributor According to a 2011 College Savings Foundation survey of 843 parents from various income levels and parts of the nation, this chart shows the efforts parents are willing to make. When asked, How do you plan on financing college costs? 60% are relying on their current income, followed by 48% who are planning to use educational loans. Source: College Savings Foundation (CSF), 2011 Survey of arents. arents Become More Self Reliant in aying for High Costs of College.

15 GRANTS, LOANS & SAVINGS 14 Common Grants rograms 1 Federal rogram Federal ell Grant $5,550 Teacher Education Assistance for College and Higher Education (TEACH) Federal Supplemental Educational Opportunity Grant (FSEOG) Other rograms Institutional Grants State-Sponsored Grants Max Amount er Year $4,000 per year $4,000 Max Amount er Year varies varies Needs Based Needs Based Merit Based Merit Based The ell Grant is available to undergraduate students and is administered at the federal level. The maximum ell Grant award is $5,550. Note: The maximum award amount is given to ell-ineligible students whose parent or guardian died as a result of military service in Iraq or Afghanistan after Sept. 11, You must be under 24 years old or enrolled at least part-time in college at the time of your parent s or guardian s death. Teacher Education Assistance for College and Higher Education (TEACH) Grant rogram provides grants of up to $4,000 per year to students who intend to teach in a public or private elementary or secondary school that serves students from low-income families. If a student receives a TEACH Grant but does not complete the required teaching service indicated in the agreement, they will be required to repay the grants as a Federal Direct Unsubsidized Stafford Loan, with interest charged from the date of each TEACH Grant disbursement. The Federal Supplemental Educational Opportunity Grant (FSEOG) program is for undergraduates with exceptional financial need. ell Grant recipients with the lowest expected family contributions will be considered first for a FSEOG. Note: Not all schools participate in this program. Even if a student is not eligible for federal aid, they may be eligible for private grants and scholarships from non-profit organizations, and financial assistance from their state. To contact the higher education agency of your state, visit 1. Source: U.S. Department of Education. Federal Student Aid on the Web. August 2011.

16 GRANTS, LOANS & SAVINGS 15 Common grant programs Cont. 1 Other programs include colleges that provide institutional grants to help make up the difference between college costs and what a family can be expected to contribute through income, savings, loans, and student earnings. Institutional grants, known as merit awards or merit scholarships, are awarded on the basis of academic achievement. Some merit awards are offered only to students whose families demonstrate financial need; while others are awarded without regard to a family s finances. Some grants come with special privileges or obligations. You ll want to find out about the types of grants awarded by each college you are considering. State-sponsored grants may be an option even if you are not eligible for federal aid. Contact your state s higher education agency for more information. 1. Source: U.S. Department of Education. Federal Student Aid on the Web. August 2011.

17 GRANTS, LOANS & SAVINGS 16 Loans and Borrowing In addition to grants and scholarships, loans and borrowing are a key source of funds for paying for college. In fact, loans have become the financial aid tool of choice. 1 Unlike grants, loans must be repaid with interest. There are three types of loans 1.Student 2.arent 3.rivate As more aid shifts from grants to loans, more debt is being assumed by students and families. In fact, the average undergraduate debt accumulated by borrowers in was $24,200. Students who went on to graduate school borrowed even more heavily an average of $35,750 after adjusting for inflation. 1 How do you think this debt affects new graduates who are starting their careers? For many, it could lead to a different career path, or cause them to delay buying a house or starting a family.

18 GRANTS, LOANS & SAVINGS 17 Federal Loans 1 Stafford Loan erkins Loan Maximum Loan Maximum total debt at graduation (aggregate loan limits) is $57,500, with no more than $23,000 in subsidized loans $5,500/year Undergraduate $8,000/year Graduate Need Based Subsidized: Yes Unsubsidized: No ayback Responsibility Student Rate Grace eriod Subsidized: 3.4% Fixed 6 Months Unsubsidized: 6.58% fixed Yes Student 5.0% Fixed 9 Months LUS Loan Cost of education minus any financial assistance received No arent Student 7.9% Fixed Within first 60 Days 1. Source: U.S. Department of Education. Federal Student Aid on the Web. August 2011.

19 GRANTS, LOANS & SAVINGS 18 Federal Loans 1 Financial aid options. The three main types of loans available for college are: 1 Stafford Loans: All Stafford Loans are either subsidized (the federal government pays the interest while the student is in school) or unsubsidized (student pays all interest, although the payments can be deferred until after graduation). To receive a subsidized Stafford Loan, the student must be able to demonstrate financial need. erkins Loan: A federal erkins Loan is a low-interest loan for both undergraduate and graduate students with exceptional financial need. The school is the lender. Loans are made with government funds with a share contributed by the school. The students must repay this loan to their school. LUS Loan: The LUS loan allows parents of dependent students and graduate students to take out loans to supplement the financial aid package by borrowing money to cover any costs not already covered by the student s financial aid package, up to the full cost of attendance. To be eligible, a parent must pass a credit check. Note: A six-month grace period before repayment begins after graduation, the student leaves school, or drops below half-time enrollment. For more information on these loans, visit studentaid.ed.gov. With the rising cost of college, Stafford and erkins loans might not be enough to cover the full amount. Also, note that changes to federal financial aid programs (eligibility, interest rates, maximum amounts available to borrow) are dependent on the political climate in Washington D.C. 1. Source: U.S. Department of Education. Federal Student Aid on the Web. August 2011.

20 Starting the Financial Aid rocess

21 STARTING THE FINANCIAL AID ROCESS 20 Getting Started: Complete the FAFSA 1 Free Application for Federal Student Aid (FAFSA) Used by virtually all two- and four-year colleges, universities and career schools for the awarding of federal student aid and most state and college aid Submit prior to your school s deadline No charge for submitting Apply every year 1. Source: Free Application for Federal Student Aid (FAFSA). August 2011.

22 STARTING THE FINANCIAL AID ROCESS 21 Three Ways to Access FAFSA 1 1] FAFSA on the Web (Recommended) Visit: FAFSA.ed.gov 2] aper FAFSA Call: FED-AID 3] Download a DF FAFSA in English or Spanish Visit: FAFSA.ed.gov 1. Source: Free Application for Federal Student Aid (FAFSA). August 2011.

23 STARTING THE FINANCIAL AID ROCESS 22 What s Next? Student Aid Report (SAR) 1 Student Aid Report (SAR) is sent once your FAFSA is processed The SAR summarizes all the information you provided on your FAFSA Usually contains your Expected Family Contribution (EFC) After applying for federal student aid, expect to receive a Student Aid Report (SAR). 1 If an address was provided, the SAR is ed within 3 5 days after the FAFSA has been processed. This will contain a secure link to access the SAR online. Check the junk or spam folder for the SAR , which may be delivered there instead of the inbox. If an address was NOT provided, expect to receive a paper SAR by mail within 7 10 days after the FAFSA has been processed. Whether the FAFSA was applied for online or by paper, all data will be automatically sent electronically to the schools listed on the FAFSA application. 1. Source: Free Application for Federal Student Aid (FAFSA). August 2011.

24 STARTING THE FINANCIAL AID ROCESS 23 Awards Letter How do I find out if I m eligible for federal student aid and how much I ll receive? If you re eligible for federal student financial aid, the schools listed on your FAFSA (who also have offered you admission) will send you an award letter. The award letter will indicate: Student information including the ID (if applicable) The estimated cost of attendance The expected family contribution The financial need; and Details about the financial aid package Review each award letter very carefully and compare how much aid you can receive at each school. Once you accept a school s award letter, sign it and return it to the school for processing by the date indicated.

25 STARTING THE FINANCIAL AID ROCESS 24 What s Next? Awards Letter Includes Student ID April 15, 2013 Mr. John J. College Student ID: University Way Brooklyn, New York Dear John, SAMLE Estimated Cost of Attendance (COA) Do not forget to sign, complete & return on time. Congratulations on your admission to Top Notch College. We have reviewed your financial aid application for the academic year and awarded the following financial assistance, based on the information provided on your Free Application for Federal Student Aid (FAFSA). Cost of Attendance Expected Family Contribution Tuition and Fees $30,000 Room and Meals $ 7,000 Books and ersonal $ 2,500 Travel $ 300 Total Family Total Cost of Attendance: $39,800 Contribution: $5,500 Total Financial Need: $34,300 To meet your financial need, Top Notch College offers the following assistance: Fall 2013 Spring 2014 Top Notch College Scholarship $1,000 $1,000 Federal erkins Loan $ 500 $ 500 Federal Sub. Stafford Loan $1,000 $1,000 Federal Unsub. Stafford Loan $1,500 $1,500 arent LUS Loan Eligibility $2,500 $2,500 Total: $6,500 $6,500 This award must be accepted by June 1, 2013 or funds will be cancelled. Signature: Date: Expected Family Contribution (EFC) COA EFC = Financial Need Financial Aid Award ackage

26 STARTING THE FINANCIAL AID ROCESS 25 FREE Financial Aid Resource 1 Additional financial aid resources. The U.S. Department of Education provides a website as a dedicated resource for grants, loans, and the financial aid process. Visit Student Aid on the Web 1 at studentaid.ed.gov for all current information. 1. Source: U.S. Department of Education. Federal Student Aid on the Web. aid.ed.gov, August 2011.

27 STARTING THE FINANCIAL AID ROCESS 26 A Word of Caution Scholarship Scams 1 Every year, many fall prey to the allure of compelling schemes to help pay for college. According to the Federal Trade Commission's Scholarship Scams, 1 if you hear these lines from a scholarship service, proceed with caution If It Sounds Too Good to Be True, Then It Might Be The Scholarship Is Guaranteed or Your Money Back. You Can t Get this Information Anywhere Else. May I Have Your Credit Card or Bank Account Number to Hold this Scholarship? We ll Do All the Work. The Scholarship Will Cost Some Money. You ve Been Selected by a National Foundation to Scholarship, or You re a Finalist in a contest you never entered. Receive a 1. Source: U.S. Department of Education. Federal Student Aid on the Web. aid.ed.gov, August 2011.

28 Saving for College

29 28 Saving for College While grants and scholarships are great, loans, although helpful, still need to be repaid with interest. Why does it makes sense to start saving for college today?... On the following slide you will see the Federal Reserve Bank of New York captures quarterly data which shows student loan debt growing at a faster rate than credit card debt since 2008.

30 SAVING FOR COLLEGE 29 Student Loan Debt Growing at a Rapid ace Student Loan Debt vs. Credit Card Debt Cumulative ercent Change Quarterly 9/30/08 9/30/12 Student Loan Credit Card Source: Federal Reserve Bank of New York.

31 SAVING FOR COLLEGE 30 Investing vs. Borrowing 1 In 18 years, it could cost approximately $245,000 1 to send a newborn to a public college for four years. The parents could wait until their child is 18 years old and borrow the money, paying interest on it for 15 years. That would ultimately cost them over $336,000, assuming a 4.5% interest rate on their loan. Alternatively, when the child is born, the parents could begin investing $579 monthly in a tax-advantaged investment plan earning a hypothetical 7% (before taxes). Over the course of 18 years, their cumulative investment would grow to cover the amount needed. In this example, the parents save over $210,000 by investing now, rather than borrowing later! 1. Source: The College Board, Trends in College ricing, rojected cost of $16,140 is based upon child s entrance to college for four years at a public college. Figure is based upon the 6.7% 10-year average annual increase in public college costs, as reported by The College Board for the school year. Cost includes tuition, fees and room and board. The borrowing example assumes a fixed interest rate of 4.50% based on a subsidized Stafford loan issued between 7/01/2010 6/30/2011. Examples are for illustrative purposes only, are not representative of any particular investment, and do not take taxes into account. Investments do not guarantee any specific rate of return, and you may have a gain or a loss on the amounts invested. eriodic investing plans do not assure a profit and do not protect against loss in a declining market.

32 SAVING FOR COLLEGE 31 Investing vs. Borrowing 1 rojected Cost of a Newborn s ublic College Education = $245,000 Cost by investing $579 monthly for 18 years a $211,083 difference Cost by borrowing the money for 15 years at 4.5% 1. Source: The College Board, Trends in College ricing, rojected cost of $16,140 is based upon child s entrance to college for four years at a public college. Figure is based upon the 6.7% 10-year average annual increase in public college costs, as reported by The College Board for the school year. Cost includes tuition, fees and room and board. The borrowing example assumes a fixed interest rate of 4.50% based on a subsidized Stafford loan issued between 7/01/2010 6/30/2011. Examples are for illustrative purposes only, are not representative of any particular investment, and do not take taxes into account. Investments do not guarantee any specific rate of return, and you may have a gain or a loss on the amounts invested. eriodic investing plans do not assure a profit and do not protect against loss in a declining market.

33 SAVING FOR COLLEGE 32 Options Savings Accounts Taxable Investment Accounts Uniform Gift/Transfer Accounts (UGMAs/UTMAs) Coverdell Education Savings Accounts (Education IRAs) 529 College Savings lans

34 SAVING FOR COLLEGE 33 Comparing College Investing Vehicles Federal Income Tax-Free Savings Federal Income Tax-Free Qualified Withdrawals ossible State Tax-Free Benefits High or No Contribution Limit No Income Restriction lan Owner Retains Control of Account Ability to Change Beneficiary Early or Nonqualified Withdrawals with enalties 529 College Savings lan 1 Coverdell Education Savings Account 1 UGMA/ UTMA Taxable Investments Savings Account Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information. 1. Additional information regarding the Coverdell Education Savings Account is available in IRS ublication 970, Tax Benefits for Education, available from any District Office of the Internal Revenue Service; or by calling the Internal Revenue Service Tax Forms Distribution Center toll-free, (800) ; or by visiting the IRS website at

35 SAVING FOR COLLEGE 34 What Is a 529 College Savings lan? A state-sponsored tuition program designed to provide tax incentives to encourage families to save for the high cost of a college education. Our daughter is only in preschool now but with the rising cost of a college education, it s important for our family to invest in her future now. Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain an Investor Handbook, which contains this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (800) You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary's home state offers any state tax or other benefits that are only available for investments in its qualified tuition program. For more information refer to the 529 Investor Handbook:

36 SAVING FOR COLLEGE 35 Tax Advantages Earnings grow federal income tax free Qualified withdrawals are free from federal income tax Contributions receive favorable gifting and estate tax treatment Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information.

37 SAVING FOR COLLEGE 36 Additional Benefits No income restrictions Control over assets Wide range of colleges and technical programs Low contribution requirements High contribution limits rofessional Investment Management 1 Each plan account is subject to a $25 annual maintenance fee, an annual program management fee of 0.40% of assets, underlying fund expenses, currently up to 0.88% of assets, which may vary, and sales charges, which vary by class of shares. See the Investor Handbook for more complete information. 1. The plan is managed by Franklin Advisers, Inc., an affiliate of Franklin Templeton Distributors, Inc. lan portfolios generally invest in mutual funds managed by affiliates of Franklin Advisers, Inc.

38 529 Influence on Financial Aid

39 529 INFLUENCE ON FINANCIAL AID 38 College Savings Effect on Financial Aid Cost of Attendance Tuition & fees Room & board Books & supplies ersonal expenses Transportation Expected Family Contribution (EFC) arent 22% to 47% of income Up to 5.6% of assets Example: 529 lan assets Student 50% of income 20% of assets Example: UGMA/UTMA assets Financial Need

40 39 Let s Review Higher Education Leads to Opportunities Many Options to Help ay for College Start with FAFSA Start Saving for College Today 529 lans Offer a Wider Range of College Saving Benefits

41 Franklin Templeton Distributors, Inc. One Franklin arkway San Mateo, California (800) franklintempleton.com Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain an Investor Handbook, which contains this and other information, talk to your financial advisor or call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (800) You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary's home state offers any state tax or other benefits that are only available for investments in its qualified tuition program. Logos are trademarks of their respective owners. Logos are used to identify their respective companies and should not be construed as an endorsement of, or affiliation with, Franklin Templeton Investments Franklin Templeton Investments. All rights reserved. 529 FAID 01/12