College Financial Aid Workshop for Parents (or Grandparents) Session 1

Transcription

1 Cannon Beach Consultants, Inc College Financial Aid Workshop for Parents (or Grandparents) Session 1 January 31, 2012

2 Cannon Beach Consultants, Inc Overview of College Financial Planning Process 2. Financial Aid Logistics FAFSA, CSS Profile

3 Cannon Beach Consultants, Inc Base Year Concept - Important to understand difference between calendar tax year, academic year, and financial aid application year Jan 2010 Dec Jan 2011 Dec Jan 2012 Dec Junior HS Year Senior HS Year Jan 2012 Dec Jan 2013 Dec Jan 2014 Dec College Year 1 College Year 2 For college academic year 1 (Sept 2012 June 2013), financial aid determination is mostly based on tax year 2011; while financial aid application year is during academic year Sept 2011 June 2012 (note red lines). Generally speaking, optimizing financial aid usually starts with optimizing base year (tax year 2011).

4 Cannon Beach Consultants, Inc Why Apply? How Is Financial Aid Eligibility Determined? Calculating Your Financial Need Your Expected Family Contribution (EFC) is used to determine your financial need: Cost of Attendance Expected Family Contribution (EFC) = Financial Need EFC includes both parents and/or student combined annual contributions. Examples: (1) EFC = 13,500 (2) EFC = 33,000 Cost of Attendance = 24,000 Cost of Attendance = 24,000 Minus EFC = 13,500 Minus EFC = 33,000 Eligible (Subsidized) Financial Aid = $10,500 Eligible (Subsidized) Financial Aid = $0 (3) EFC = 33,000 Cost of Attendance = 54,000 Minus EFC = 33,000 Eligible (Subsidized) Financial Aid = $21,000

5 Cannon Beach Consultants, Inc What determines my EFC? Parent(s) Income 22% - 47% used in formula (based on sliding income scale and allowances) Asset 2.6% %* (above asset protection allowance) Student 100% 100% Above student income and asset protection allowance *Home equity in primary home, retirement accounts, annuities and cash-value life insurance are not included

6 Cannon Beach Consultants, Inc Examples of how EFC can vary as financial circumstances change: ( information) Net Assets $100,000 Family Size Income Before Taxes $20,000 $0 $0 $0 $0 $30,000 $1,260 $240 $0 $0 $40,000 $2,870 $1,850 $890 $0 $50,000 $4,770 $3,510 $2,500 $1,430 $60,000 $7,380 $5,640 $4,280 $3,040 $70,000 $10,540 $8,360 $6,510 $4,850 $80,000 $13,510 $11,330 $9,270 $7,090 Net Assets $50,000 Family Size Income Before Taxes $20,000 $0 $0 $0 $0 $30,000 $0 $0 $0 $0 $40,000 $1,550 $530 $0 $0 $50,000 $3,170 $2,140 $1,180 $110 $60,000 $5,180 $3,840 $2,790 $1,720 $70,000 $7,720 $5,930 $4,530 $3,240 $80,000 $10,690 $8,510 $6,640 $4,950

7 Cannon Beach Consultants, Inc Examples of how EFC can vary as financial circumstances change: ( information) Net Assets $50,000 Family Size Income Before Taxes $20,000 $0 $0 $0 $0 $30,000 $0 $0 $0 $0 $40,000 $1,550 $530 $0 $0 $50,000 $3,170 $2,140 $1,180 $110 $60,000 $5,180 $3,840 $2,790 $1,720 $70,000 $7,720 $5,930 $4,530 $3,240 $80,000 $10,690 $8,510 $6,640 $4,950 Net Assets $25,000 Family Size Income Before Taxes $20,000 $0 $0 $0 $0 $30,000 $0 $0 $0 $0 $40,000 $1,520 $490 $0 $0 $50,000 $3,130 $2,110 $1,140 $70 $60,000 $5,120 $3,800 $2,760 $1,680 $70,000 $7,660 $5,870 $4,480 $3,200 $80,000 $10,620 $8,440 $6,580 $4,910

8 Cannon Beach Consultants, Inc Example for how to spend family resources (regardless of financial aid) Assumptions (year one): Cost of attendance = $25,000 Student asset = $20,000 EFC = $13,000 Financial aid received = $2,000 grants, and $7,000 loans, $3,000 student income first year (1) Spend student and parent assets according to the need analysis expected contributions. Year Student Assets Parent Assets 1 $20,000 - $7,000 = $13,000 $50,000 - $6,000 = $44,000 2 $13,000 - $4,550 = $8,450 $44,000 - $5,280 = $38,720 3 $8,450 - $2,958 = $5,493 $38,720 - $4,646 = $34,074 4 $5,493 - $1,923 = $3,570 $34,074 - $4,089 = $29,985 Remainder $3,570 $29,985 This yields a total of $33,555 in family assets left over when the student graduates.

9 Cannon Beach Consultants, Inc Example for how to spend family resources (regardless of financial aid) (1) Spend the parent assets before touching the student assets. Year Student Assets Parent Assets 1 $20,000 - $0 = $20,000 $50,000 - $6,000 - $7,000 = $37,000 2 $20,000 - $0 = $20,000 $37,000 - $4,440 - $7,000 = $25,560 3 $20,000 - $0 = $20,000 $25,560 - $3,067 - $7,000 = $15,493 4 $20,000 - $0 = $20,000 $15,493 - $1,859 - $7,000 = $6,634 Remainder $20,000 $6,634 This yields a total of $26,634 in family assets left over when the student graduates. (2) Spend the student assets before touching the parent assets. Year Student Assets Parent Assets 1 $20,000 - $7,000 - $6,000 = $7,000 $50,000 - $0 = $50,000 2 $7,000 - $2,450 - $4,550 = $0 $50,000 - $1,450 = $48,550 3 $0 $48,550 - $5,826 = $42,724 4 $0 $42,724 - $5,127 = $37,597 Remainder $0 $37,597 This yields a total of $37,597 in family assets left over when the student graduates.

10 Cannon Beach Consultants, Inc Tax Benefits For Education (Future CBC College Financial Planning Module) 1. The American Opportunity Credit 2. The Hope Credit 3. The Lifetime Learning Credit 4. Enhanced benefits for 529 college savings plans - expanded definition of tax qualified expenses 5. Tuition and fees deduction (Reference IRS Forms 8863 and 8917 and additional details at

11 Cannon Beach Consultants, Inc Common Errors on FAFSA - You = Student (not parent or person completing FAFSA) - Leaving an answer blank instead of entering 0 - Taxable income is different than AGI (Adjusted Gross Income) - Reporting taxes withheld versus total taxes paid - Failure to sign form authorizing college(s) to receive copy of tax return from IRS - Failure to file tax return (parents) even if not required - Social Security name and number do not match with IRS and SS Dept. (PIN validation) - Both parent(s) and student need to have their PIN - Not verifying SAR - Failure to update FAFSA - Incorrect reporting of ownership of assets (529, ESA, UTMA, etc..) - Failure to file. Financial situation could change throughout the year. Easier to modify existing FAFSA to reflect new circumstances rather than filing initial one at time of financial change. Later initial filing can delay opportunities (e.g., income drop/loss, significant drop is assets, marital status change, increase in household members, etc.)

12 Cannon Beach Consultants, Inc Important website links: ( not (or

13 Cannon Beach Consultants, Inc Thank You Important Disclosure Information Cannon Beach Consultants Inc.. is a Registered Investment Advisor. This material is only intended for clients and interested investors residing in states in which the Advisor is qualified to provide investment advisory services. Please contact Cannon Beach Consultants Inc. to find out if the investment advisor is qualified to provide investment advisory services in the state where you reside. TheAdvisor does not attempt to furnish personalized investment advice or services through this presentation. Past performance is no guarantee of future results. At certain sections, we offer direct access or links to other internet websites. These sites contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of Cannon Beach Consultants Inc.. Cannon Beach Consultants Inc.. does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there. Visitors to these websites should not use or rely on the information contained therein until consulting with an independent finance professional. Cannon Beach Consultants Inc.. does not necessarily endorse or recommend any commercial product or service described at these websites.

14 Cannon Beach Consultants, Inc College Financial Aid Workshop for Parents (or Grandparents) Session 2 February 7, 2012

15 Cannon Beach Consultants, Inc Student Aid Report (SAR): - EFC (Federal Methodology) - Review details for corrections - New updates/changes on FAFSA main login page revised SAR - Add colleges to distribution list - Sample SAR - Colleges and universities will use EFC as starting point for assessing financial aid eligibility; may generate different EFC using Institutional Methodology *** Applying for FAFSA is free; illegal for any individual(s) or firm(s) for charging to apply ***

16 Cannon Beach Consultants, Inc Scholarship Searches: (via CollegeBoard.org My Organizer ) CSS/Financial Aid Profile: * CSS = College Scholarship Service * Main purpose is to help colleges, universities, and scholarship organizations determine private student aid, grants and scholarships * Online application via * Cost = $9 one-time application fee + $16 per college/university * Submission = paper (mail) or online (via IDOC system) * More time consuming

17 Cannon Beach Consultants, Inc Tax Benefits For Education: 1. The American Opportunity Credit 2. The Hope Credit 3. The Lifetime Learning Credit 4. Enhanced benefits for 529 college savings plans - expanded definition of tax qualified expenses 5. Tuition and fees deduction (Reference IRS Forms 8863 and 8917 and additional details at

18 Cannon Beach Consultants, Inc Thank You Important Disclosure Information Cannon Beach Consultants Inc.. is a Registered Investment Advisor. This material is only intended for clients and interested investors residing in states in which the Advisor is qualified to provide investment advisory services. Please contact Cannon Beach Consultants Inc. to find out if the investment advisor is qualified to provide investment advisory services in the state where you reside. TheAdvisor does not attempt to furnish personalized investment advice or services through this presentation. Past performance is no guarantee of future results. At certain sections, we offer direct access or links to other internet websites. These sites contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of Cannon Beach Consultants Inc.. Cannon Beach Consultants Inc.. does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there. Visitors to these websites should not use or rely on the information contained therein until consulting with an independent finance professional. Cannon Beach Consultants Inc.. does not necessarily endorse or recommend any commercial product or service described at these websites.