Building Your Future: Succeeding A Student and Teacher Resource for Financial Literacy Education

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1 Building Your Future: Succeeding A Student and Teacher Resource for Financial Literacy Education Copyright 2013, 2014 The Actuarial Foundation

2 About This Book Personal finance is part knowledge and part skill and the Building Your Future book series gives students a foundation in both. It addresses knowledge by covering the essential principles of banking in Book One, financing in Book Two, investing in Book Three, and succeeding in Book Four. The series also addresses the mathematical skills that students need to live a financially healthy life. Students will be able to see the real-world consequences of mastering their finances, which helps them understand the relevance of good mathematical skills. We hope you enjoy this Building Your Future book series. The catalyst for this book series was based on an original book authored and donated to The Actuarial Foundation by an actuary, James A. Tilley, FSA, who was interested in financial literacy education in schools. We thank Mr. Tilley for his original works that inspired this Building Your Future series. About The Actuarial Foundation The Actuarial Foundation is a 501(c)(3) nonprofit organization. The mission of The Actuarial Foundation is to enhance math education and financial literacy through the talents and resources of actuaries. Through Advancing Student Achievement, a program that seeks to improve and enhance student math education in classrooms across the country, we are proud to add Building Your Future, a financial literacy education curriculum for teachers and students, to our library of math resources. Please visit the Foundation s Web site at: for additional educational materials. What is an Actuary? Actuaries are the leading professionals in finding ways to manage risk. It takes a combination of strong math and analytical skills, business knowledge and understanding of human behavior to design and manage programs that control risk. Actuary was included as one of the Best Careers of 2007 in US News and World Report. To learn more about the profession, go to:

3 Building Your Future Table of Contents Chapter 1: Path to Employment Career Planning Basics...2 Investing in Career Education...4 Understanding Earning Potential...5 Chapter 2: Paying for Post-secondary Education Saving for College Scholarships Financial Aid Basics Grants and Work-Study Loans Chapter 3: Making a Living Compensation Basics Understanding Your Paycheck Costs of Changing Careers Chapter 4: Making a Life Wants vs. Needs Budget Basics Keeping It Balanced Maintaining Good Credit Building Your Credit History Identity Theft Chapter 5: Retirement Retirement Basics Compounding Interest Challenges of Saving for Retirement Government Programs Investing for Retirement Some of the activities in this book reference specific Web pages. While active at the time of publication, it is possible that some of these Online Resource links may be renamed or removed by their hosts at some point in the future. Note that these links were provided simply as a convenience; a quick search should reveal some of the many other online resources that can be used to complete these activities. Facts and opinions contained are the sole responsibility of the organizations expressing them and should not be attributed to The Actuarial Foundation and/or its sponsor(s).

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5 Building Your Future Chapter 1: Path to Employment? Did You Know. Unemployment and earnings are directly linked to educational attainment. In 2011 the average high school graduate earned $638 per week and had an unemployment rate of 9.4%, workers with associate degrees earned $768 per week and were unemployed at a rate of 6.8% and people with a 4-year degree earned $1053 weekly with an unemployment rate of only 4.9% according to the Bureau of Labor Statistics. Key Terms: Career path Earning potential Lifetime earnings Career aptitude Skills Employability Career clusters Job shadowing Return on investment On-the-job training Apprenticeship Internship Associate degree Bachelor s degree Master s degree Doctorate Diploma Tuition Wages Hourly wage Salary Tips Commission Bonus Benefits What You ll Learn Knowing your interests, strengths, skills and aptitudes can help you identify a number of different career options that you can consider as you move toward adulthood. In choosing a career, you should also be aware of the various types of education needed for different occupations and the cost of completing an educational program. Finally, when selecting the right profession and the path for achieving it, you should consider your return on investment how much you will gain from a certain career path if you invest in the required training. Career Link There is a bright employment outlook for those who want to work as Educational, Guidance, School and Vocational Counselors. The main focus of these occupations is to assist others with selecting a career through analyzing skills, interests and abilities and then finding the educational resources needed to prepare for the selected career. This line of work typically requires a Master s degree and has a median salary of over $54,000 annually. Building Your Future, Book 4: Path to Employment 1

6 career path from a group of careers that share common features one can select a path toward a specific job, knowing that with more education and experience comes the ability to move up within the path earning potential the amount of money a person should be able to earn in his/her profession lifetime earnings the total amount of money one can expect to be paid for work done in a specific career field over the course of their working years career aptitude an individual s innate ability, suitability, readiness, disposition, capacity or potential for being competent in a specific type of work skills the ability to do something with competence employability a set of achievements, skills, knowledge and personal attributes that make a person likely to gain employment and be successful in their chosen occupations career clusters groupings of occupations in the same field of work that require similar skills job shadowing accompanying an experienced worker on the job to learn the specific skills and responsibilities associated with the successful performance of a specific career Career Planning Basics Choosing a career path is one of the most important decisions people make. The occupation one chooses to pursue often determines earning potential and lifetime earnings, which affect everything from the type of housing and transportation a person can afford to the kinds of hobbies and interests they can pursue throughout their lives. Because one s career choice influences so many lifestyle factors, the path to employment is one that requires careful consideration and planning. Ultimately, you want to select an occupation that you will enjoy and that will provide you with the income necessary to support you throughout adulthood. One of the first things to consider is career aptitude and skills. Identifying subject areas you enjoy in school, and in which you do well, is a good place to begin your career exploration. For example, if you are good at math and problem solving, then perhaps a career focused on numbers, such as actuarial science or accounting, would be worth considering. In addition, you must consider employability. Suppose you enjoy activities such as sports or acting. Building your career aspirations around these fields can be risky because jobs in these areas can be difficult to obtain and short-lived, and they require a high degree of skill in certain areas in order to succeed. Through studying career clusters, you can identify a number of potential occupations that utilize your career aptitudes and require varying levels of additional training and education. First-hand experience is also a critical part of choosing your vocation. Arrange for job shadowing experiences that allow you to see in person what someone in a specific career field does on a daily basis. Use this activity as a means for interviewing people already working in the career field to tell you specifically about the pros and cons of the job and share their suggestions for the best path to follow if you are truly interested in working in that occupation. 2 Building Your Future, Book 4: Path to Employment

7 Try It! Examples and Practice Visit O*Net Online at There you will find a list of 16 different Career Clusters. Browse a cluster that sounds interesting to you. Select the cluster and click on Go. View the list of occupations. Pay special attention to those marked with a Bright Outlook symbol as they represent jobs where there will be rapid growth, large numbers of openings or new and emerging fields. Select one of the occupations from the list. Scroll through the entire entry and note the vast amount of information available about the occupation in terms of knowledge, skills, abilities and aptitudes. In the Wages and Employment Trends section, select your state under State and National and click on Go. Observe the median salary, percentage of change and number of job openings in the nation compared with your state. Create a spreadsheet that contains the columns shown at the bottom of this page, then populate with data. As you construct the spreadsheet, think about the following: Median Wage Difference = Median Wage U.S. Median Wage in My State Percentage of Job Growth (Decline) Difference = Percentage of Job Growth (Decline) U.S. Percentage of Job Growth (Decline) My State How would you express each of the statements above as a formula for the spreadsheet? Using the formulas, construct the spreadsheet and fill in the data for three different occupations that are of interest to you. They can be from any of the 16 career clusters. Based on what you learned about wages in your state, would you still be interested in any or all of these careers? Why? Why do you think there is a difference between the national medians and those of your state? Based on what you learned about the percentage of job growth/decline for these careers both in your state and nationally, would you still be interested in any of them? Why? 1 A B C D E F G H Occupation Education Required Median Wage, US Median Wage, My State Median Wage Difference % Job Growth/ Decline, US % Job Growth/ Decline, My State % Job Growth/ Decline, Difference Building Your Future, Book 4: Path to Employment 3

8 return on investment measures what is gained from an investment after subtracting the cost(s), usually in money and/or time, of the investment on-the-job training hands-on training by an experienced employee or trainer in the workplace to teach an employee the specific skills needed for the position apprenticeship a combination of on-the-job training and related instruction where workers learn the practical and theoretical aspects of a highly skilled occupation internship working, usually for free or a small wage, in your expected career field with supervision from more experienced professionals as a means of gaining the experience needed for an entry-level position vocational education training for a specific industry or trade associate degree a two-year academic degree awarded by community colleges, junior colleges, technical colleges and four year colleges and universities after the completion of a course of study that typically includes at least 60 credit hours bachelor s degree a four-year academic degree awarded by a college or university after the completion of a course of study that typically includes at least 120 credit hours master s degree an advanced university degree offered in a range of studies, beyond a bachelor s but not to the doctorate level Investing in Career Education As you saw in the Did You Know fact, there is a direct connection between lifetime earnings and the amount of education you receive. However, since additional education after high school can be expensive, examining the return on investment for obtaining higher education or additional schooling is an important step to take in the career planning process. Seeing the possible earning potential you can gain from investing in education is an important step in navigating the path to employment. Different jobs require different types of training. Sometimes this is on-the-job training or an apprenticeship or internship, where you work side-by-side with an industry expert to learn and practice what you need to know to master the required job skills and complete the work successfully. Some jobs that offer this type of training are found in fields like construction, auto service and manufacturing. The classroom and hands-on instruction that leads to these types of careers is often referred to as vocational education. Other jobs require more specialized training, where one earns an associate, bachelor s, masters or doctorate degree through completing a specific program of study at a college or university. When thinking about this type of training, keep in mind that completing high school and earning a diploma will be a requirement prior to starting one of these programs of study. Associate degree programs usually take two years and can be earned in a wide range of fields; they are typically awarded by community, junior or technical colleges. The completion of a certain number of credit hours in course work, passing necessary licensing exams and obtaining required licenses and permits will allow you to work once you have earned your degree. Remember, this training is paid for by the student in the form of tuition; it is an investment on your part. The educational process is similar for bachelor s, masters and doctorate degrees, although the number of credit hours and years of commitment vary. Bachelor s degrees are designed to take four to five years or an additional two to three years after attaining an associate s degree--to complete. Masters degrees usually take two to four years to complete and generally require a bachelor s degree. A doctorate requires seven or more years of training beyond a bachelor s degree, depending on the career that has been selected. The tuition for these types of programs is usually more because these degrees are awarded from colleges or universities, and these are often expensive. When considering career training options, it is important to view education as an investment in your future. Consider that every type of employment has certain expenses associated with it. Sometimes it is the cost of a uniform or required equipment. Other times it is licensing or exam fees. Many times it is the cost of acquiring specific skills through getting education beyond what you receive in high school. 4 Building Your Future, Book 4: Path to Employment

9 A B C D E F G H 1 Field Required Education (Investment) Cost of Education Investment Annual Salary Tips/Bonus/ Commission Total Salary Lifetime Earnings (over 40 years) Total Return on Investment 2 Cashier None $0 $18,820 $0 3 Construction/ Carpenter 1 year as apprentice $0 $40,010 $0 4 Licensed Practical Nurse Associates degree $6,000 $41,150 $0 5 Actuary MBA $60,000 $91,060 $3,300 6 Lawyer Doctorate $195,000 $112,760 $4,500 Try It! Examples and Practice Create a spreadsheet like the one above that will help you evaluate the return on investment for five different career choices. Note that not all career choices will have data that applies in all categories. Include the following information on your spreadsheet. As you construct the spreadsheet, think about the following: Total Salary = Annual Salary + Annual Tips, Bonuses or Commission Lifetime Earnings = Total Salary x 40 years Total Raw Return on Investment = Lifetime Earnings Cost of Education How would you express each of the statements above as a formula for the spreadsheet? Using the formulas, construct the spreadsheet to calculate the data for the five career fields provided. Looking at the careers, which do you think has the greatest potential return on investment? Explain why. The spreadsheet does not account for the time investment necessary to complete the training needed for some of the jobs. Taking into consideration the amount of education, potential lifetime earnings and the time investment needed for each job, which career would you select if you were making a decision today? Explain why. Understanding Earning Potential As you look at occupational training options, there are several factors that come into play. First, you must consider your earnings. Many people focus only on the wages they receive. Depending on the type of job you have, you may earn an hourly wage or you may earn a salary. In addition, you could also have a job where some of your earnings come from tips, commissions or bonuses. doctorate the highest level of a university degree offered in a range of studies diploma a document issued by an educational institution testifying that the recipient has successfully completed a particular course of study tuition the amount one must pay for instruction fair market price the price that a reasonable investor would expect to pay for the bond wages money paid or received for work or services completed, usually by the hour, day, or week hourly wage the amount and employee is paid by an employer for completing an hour of work salary wages an employee receives from the employer on a regular basis, usually weekly, bi-weekly or monthly. Building Your Future, Book 4: Path to Employment 5

10 tips a sum of money one receives from a customer in recognition of quality service commission money, in addition to regular wages, that is paid for work done or products sold Try It! bonus a sum of money given to an employee in addition to the employee s usual wages benefits compensation beyond a salary or hourly wage such as insurance, paid vacation time, retirement plan (such as 401K) or free parkingyield to maturity the market rate of interest on the bond In addition to actual money paid to employees, there are many other benefits that employers often offer. These benefits can be everything from insurance and medical coverage to retirement plans, profit sharing and gym memberships; some may see job stability as a benefit as well. For many employees, these benefits are sometimes just as important as the salary being offered. Since medical and dental care is so expensive, employers who offer these options are often quite desirable. Examples and Practice Create a spreadsheet that will help you evaluate the earning potential of various types of hourly wage careers. Include the columns shown at the bottom of this page. For the spreadsheet, assume that you have a 40 hour work week. Use the career data below to construct your spreadsheet. Career 1: Cashier earning $7.25 per hour. You do not earn tips, a bonus or a commission. Career 2: Retail salesperson earning $10.10 per hour. You earn a commission of 5% of your hourly weekly wages if you meet your sales quota, which you do on a regular basis. Career 3: Barista earning $8.90 per hour. You earn an average of an additional $2.00 per hour in tips each week. Career 4: Telemarketer earning $10.83 per hour. You earn a $25 bonus for each week that you sell 10 or more of your product. In an average week, you make 12 sales. As you construct the spreadsheet, think about the following: Total Earnings = Hourly Wage x Hours Worked + Weekly Tips, Bonus or Commission How would you express the statement above as a formula for the spreadsheet? Using the formulas, construct the spreadsheet to calculate the data for the five career fields provided. Looking at the careers, which do you think has the greatest earning potential? How do you think variables such as tips, bonuses and commissions are affected by a weak economy? A strong economy? 1 Career Field A B C D E F G Hourly Wage Hours Worked Weekly Tips Weekly Bonus Weekly Commission Total Earnings 6 Building Your Future, Book 4: Path to Employment

11 Independent Practice You are preparing to graduate from high school and need to determine your pathway to a successful career. Use what you have learned about career planning, earning potential, investing in continuing education and return on investment to explore three possible career paths. Use the Pathway to Success Worksheet to complete your analysis of career path options. Building Your Future, Book 4: Path to Employment 7

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13 Building Your Future Chapter 2: Paying for Postsecondary Education? Did You Know. In the cost of undergraduate tuition, room, and board were estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private for-profit institutions? Between and , prices for undergraduate tuition, room, and board at public institutions rose 42 percent, and prices at private not-for-profit institutions rose 31 percent. Key Terms: Total cost of attendance Education IRA 529 account (ESA) Tuition pre-payment Scholarship ACT SAT Supplemental Educational Opportunity Grant Work-study Student loan Subsidized loan Unsubsidized loan Interest rate Grace period Reserve Officers Training Corps Deferred payment Financial aid FAFSA Perkins loan Stafford loan Estimated Family Contribution Parent Loan for Undergraduate Students Grant Pell Grant Default What You ll Learn Many careers require additional instruction or training after high school. Some training takes weeks or months, other preparation takes years. Regardless of the duration of the training, it must be paid for. Knowing how to determine approximate post-secondary expenses, how to save for these expenses, and how to combine savings with financial aid, student loans, scholarships and work to finance your ongoing education can make post-secondary education more attainable. Career Link Information on the role actuaries play in the financial aid process as student loan and aid applications are analyzed for approval and for the awarding of funds. Building Your Future, Book 4: Paying for Postsecondary Education 9

14 Post-secondary education can be a major expense and, like any major expense, there are different options for covering the cost. Some families may begin saving years in advance, building up a sizable account to meet their anticipated expenses. Some may look for additional sources of funding, such as scholarships, grants and work-study programs to reduce their out-of pocket costs. Some may borrow the money, assuming they will be able to pay the loan back out of their increased earnings. Most will ultimately pursue a mix of these options. total cost of attendance the price you d pay to attend college for a year including tuition, room and board, books and fees education IRA an education savings plan that offers tax advantages 529 account (ESA) a higher education savings plan where the funds can be withdrawn tax-free when they are needed for educational purposes tuition pre-payment state loan in which families can purchase tuition credits at their present price and use the credits in the future, when tuition costs will have most likely increased scholarship an award of financial aid for a student to further their education, often based on merit such as academic achievement or athletic skill ACT a standardized achievement examination for college admissions SAT a standardized test for college admissions in the United States This chapter will offer information on each option available to you so you can begin planning now to cover the post-secondary expenses you expect to incur after high school. Remember to also look at other ways of increasing income such as working while attending college or reducing your expenses by living at home or buying used textbooks instead of new ones. Anything you can do to reduce your total cost and increase the funds you have available to pay those costs will help make college a more affordable proposition. Saving for College As you learned in Chapter 1, the cost of obtaining education after high school can be quite high. When considering the total cost of attendance and the continued rising price of tuition and fees, covering the entire cost in advance through savings for education can seem impossible. There are, however, many ways that students and their families can finance future education. Preparing now to cover those future expenses is a smart move, and there are programs available that can help you leverage your education savings. One option to consider is an education IRA or a 529 account. These types of savings plans can be started when a child is born, with the funds available for withdrawal when the child is ready for college. These accounts build wealth over time, much like retirement savings accounts, and rely on compounded interest to grow the principle investment. There are also significant tax benefits associated with these plans. While contributions are not deductible, distributions used to pay for college can be withdrawn without any federal taxes. There may be tax benefits at the state level as well, depending on your location. Another avenue to consider is tuition pre-payment programs. By purchasing tuition credits, parents can pay for college tuition while a child is still in preschool. The advantage to this type of purchase is that one can avoid the annual 6-7% increase in tuition costs. Scholarships Students should also consider applying for scholarships. There are a wide range of scholarships awarded each year from all types of public and private groups. Some are based on academic performance in school along with scores on tests such as the ACT or SAT. Other scholarships are awarded based on involvement in certain activities, majoring in specific types of studies, financial 10 Building Your Future, Book 4: Paying for Postsecondary Education

15 need and a range of other criteria. Many require that recipients maintain a certain level of academic performance while in college. There are a number of websites dedicated to helping students locate and secure scholarships as well as assisting with completing scholarship applications including and ed.gov/types/grants-scholarships/finding-scholarships. Since scholarships are awards that generally do not have to be repaid, applying for this free money is usually time well spent. Students who may be interested in the military and also in obtaining a college education may consider exploring the Reserve Officers Training Corps (ROTC) program. This program provides a career path into the military while paying a student s college tuition. The training provided by this program does obligate students to serve as reservists for up to 8 years and can include deployment to active duty. To learn more about ROTC, visit todaysmilitary.com/before-serving-in-the-military/rotc-programs?campaign_ id=sem2012:on:google:rotc-r_o_t_c:exact. Reserve Officers Training Corps (ROTC) a college-based program for training commissioned officers of the U.S. armed forces by providing competitive, merit-based scholarships for tuition in return for an obligation of active military service after graduation Another route to consider is enlistment in the armed forces. Completing successful military service offers the opportunity to obtain job training in many different areas while serving one s country. In addition, individuals who have served in the armed forces and completed their enlistment can access, additional educational program and opportunities through the Department of Veterans Affairs. These programs assist veterans with paying for many types of post-secondary education in return for their active military. To learn more about specific programs, visit Building Your Future, Book 4: Paying for Postsecondary Education 11

16 A B C D E F Monthly Rent and Utilities Monthly Food and Other Living Expenses Tuition Books Fees Total Cost of Attendance Try It! Examples and Practice Create a spreadsheet that contains the columns shown above so you can calculate the total cost of attendance. As you construct the spreadsheet, think about the following: The school year is two semesters, or approximately 9 months long Tuition is generally calculated as a rate per credit hour. As a full-time student, you will be expected to take 15 hours of weekly classes per semester (which is usually 5 courses per semester) You need books for every class Student fees are assessed each semester Base your calculations on the data below. Monthly rent and utilities = $300 Monthly food and other living expenses = $150 Tuition is $275 per credit hour Books average $125 per course Student fees are $375 per semester financial aid grant or scholarship, loan or paid employment offered to help a student meet his/her college expenses FAFSA Free Application for Federal Student Aid, a form that must be completed in order to qualify for any type of governmental financial aid for higher education Estimated Family Contribution (EFC) The amount of money that a student s family is expected to contribute to college costs for one year How would you express each of the statements above as a formula for the spreadsheet? How does your total cost for attendance compare to the national averages in the Did You Know factoid? Do these expenses seem reasonable to you? Why or why not? How could you lower the cost of attending college without sacrificing the number of classes you take or the quality of the education? Financial Aid Basics Even with savings and scholarships, most students will still need additional resources to complete their post-secondary education. This is typically referred to as financial aid. Understanding how to navigate the world of college financial aid can give students additional resources for financing their education. Once you are on the road to saving and are exploring scholarship opportunities, the next step will be to complete the FAFSA. FAFSA is the Free Application for Federal Student Aid, and completing this application is the only way to apply for federal student aid. This aid is awarded based on financial need, and financial information related to both the student and parents is considered when determining the level of need. This level of need is reported in a letter called a Student Aid Report. The report provides your Estimated 12 Building Your Future, Book 4: Paying for Postsecondary Education

17 Family Contribution (EFC), and this data is used by schools to determine what aid the student qualifies to receive. Submitting the FAFSA by the required guidelines is critical to receiving financial aid, and all required data and due dates must be followed in order to receive aid. Try It! Examples and Practice Visit the FAFSA website and review the student and parent information required on the form (http://www.fafsa.ed.gov/fotw1213/pdf/ PdfFafsa12-13.pdf). As you reviewed the FAFSA application, what questions did you have about the information you were asked to provide? Grants and Work-Study After completing all of the required financial aid applications, you will receive an award letter. In it, you will learn what kinds of financial support can be offered to you by each school. If you are considering more than one institution, it is important to compare the offers before deciding which school to attend. Aid is awarded in three main categories: grants, loans and work-study. Understanding the financial responsibilities of each of these is important when selecting which awards are most appropriate. Some students will receive a grant as part of the aid package. Since this money does not have to be repaid, it is an excellent way to pay for college expenses. A Pell Grant can be awarded for up to $5,550* (* limit), but awards vary depending on need, the cost of the school attended and whether or not a student attends full or part-time. A student can receive a Pell Grant for up to 12 semesters (6 years) worth of undergraduate study. This money is typically applied first to the cost of tuition and fees and then to room and board for students who live on campus. In the event that a student does not live on campus, any remaining funds can be issued to the student. Completing the FAFSA and submitting it early can be especially beneficial for students with a high need for financial assistance. Each year, schools receive a set amount of funds to distribute as Supplemental Educational Opportunity Grants. These grants of $100 to $4,000 per year are awarded on a first-come, first-serve basis to the students with demonstrated need. Work-study is another part of many students financial aid packages. Part-time jobs are provided for students at the school, at a public agency, or at a not-forprofit organization. Students are paid the federal minimum wage for the hours worked, and this money is paid directly to the student. These funds can be used to pay for college tuition or living expenses. grant monetary award given by the federal, state or local government to an eligible student for educational expenses and without the expectation of repayment Pell Grant money for post-secondary education that does not have to be repaid and is awarded to eligible students based on financial need Supplemental Educational Opportunity Grant (SEOG) need-based grants awarded to low-income undergraduate students to finance the costs of postsecondary education work-study program that provides students with part-time jobs while in school in order to subsidize the cost of education Building Your Future, Book 4: Paying for Postsecondary Education 13

18 Try It! default failure to meet a financial obligation such as repaying a loan student loan loan offered to students which is used to pay educationrelated expenses including college tuition, room and board or textbooks interest rate the percentage you pay on the money you have borrowed grace period time in which a debt may be paid without accruing further interest or penalty deferred payment loan arrangement in which the borrower is allowed to start making payments at some specified time in the future Perkins loan A need-based, low-interest loan available to students with exceptional financial need Stafford loan loan that is provided by a lending institution but backed by the federal government to assure repayment Parent Loan for Undergraduate Students (PLUS) federal loans for parents of undergraduate students to use to help pay for college or career school Examples and Practice On the opposite page, there is an example of a standardized award letter that students may receive regarding the types of financial aid that is available. This can also be found online at ed.gov/shopping_sheet.pdf. Review the following sections of the letter to see the types of data that will be presented to you when the award offer arrives. Section 1: The total cost of attendance at the particular institution Section 2: Grants and scholarships that are being offered to you Section 3: The cost you will have to pay out of pocket to attend the institution Section 4: Work options available to you (i.e. work-study) Section 5: Loan options you can consider including the type of loan and recommended amount based on the total cost of attendance Section 6: Other Options include the Family Contribution as calculated by the FAFSA along with various institutional payment plans, military and service benefits offered by the institution, private education loan options and Parent PLUS loan options The far right column contains a graphic that notes data related to the institution including graduation and loan default rates, median borrowing and loan repayment information Loans Even with grants and work study, there is often additional funding needed to cover college expenses. This is where student loans become part of the equation. Within an award letter, there are a number of different loan options that can be provided. Most student loans offer low interest rates, a grace period and deferred payment options for repaying the amount borrowed. This allows students to borrow money for education without worrying about paying it back while they are still in school. The most popular loans for students are the Perkins Loan and the Stafford Loan. Perkins loans are awarded based on need with a limit of $5,500* (in ) annually. The interest rate on these loans is 5%, and borrowers have 10 years to pay back is the amount borrowed. Stafford loans have a higher interest rate of 6.8% and require you to begin repayment 6 months after graduating or dropping below a half-time student. Borrowers generally have 10 years to repay this loan. If financial need still remains after grants, work-study and loans have been awarded, a Parent Loan for Undergraduate Students (PLUS) can be considered. At a rate of 7.9% interest, this is a more expensive college loan and it is taken by the student s parents, making them liable for repayment of the funds. The maximum amount of this loan is equal to the total estimated cost of attendance minus all other financial aid that has been offered. Repayment of the loan is expected to begin when the funds are disbursed, but loan recipients can make deferred payments if requested and approved. 14 Building Your Future, Book 4: Paying for Postsecondary Education

19 IV N U U E N I RS I T E D TY O F T S T A T H S E EUniversity of the United States (UUS) Student Name, Identifier MM / DD / YYYY Costs in the year Estimated Cost of Attendance Tuition and fees... $ X,XXX Housing and meals... X,XXX Books and supplies... X,XXX Transportation... X,XXX Other educational costs... X,XXX $ X,XXX / yr Graduation Rate Percentage of full-time students who graduate within 6 years 71% LOW MEDIUM HIGH Grants and scholarships to pay for college Total Grants and Scholarships ( Gift Aid; no repayment needed) Grants from your school... $ X,XXX Federal Pell Grant... X,XXX Grants from your state... X,XXX Other scholarships you can use... X,XXX $ X,XXX / yr 8% Loan Default Rate Percentage of borrowers entering repayment and defaulting on their loan 9.8% What will you pay for college This institution National Net Costs (Cost of attendance minus total grants and scholarships) Options to pay net costs Work options Work-Study (Federal, state, or institutional)... $ X,XXX $ X,XXX / yr Median Borrowing Students at UUS typically borrow $X,XXX in Federal loans for their undergraduate study. The Federal loan payment over 10 years for this amount is approximately $X.XXX per month. Your borrowing may be different. Loan options* Repaying your loans Federal Perkins Loans... $ X,XXX Federal Direct Subsidized Loan... X,XXX Federal Direct Unsubsidized Loan... X,XXX *Recommended amounts shown here. You may be eligible for a different amount. Contact your financial aid office. To learn about loan repayment choices and work out your Federal Loan monthly payment, go to: repay-loans/understand/plans Other options Family Contribution $ X,XXX / yr (As calculated by the institution using information reported on the FAFSA or to your institution.) Payment plan offered by the institution Military and/or National Service benefits Parent PLUS Loan Non-Federal private education loan For more information and next steps: University of the United States (UUS) Financial Aid Office 123 Main Street Anytown, ST Telephone: (123) Customized information from UUS Building Your Future, Book 4: Paying for Postsecondary Education 15

20 Try It! subsidized loan a loan on which the government pays the interest while the student is enrolled is a qualified college/university, essentially erasing the interest that would have been added to the loan during the time of study. unsubsidized loan a college loan usually taken by students who do not meet financial need standards and still need to fund their postsecondary education. These loans accrue interest while the student is in school and can result in significantly higher debt because of the interest added to the loan over time. Examples and Practice Using the data below, evaluate various student loan scenarios. A B C D 1 Item Loan A Loan B Loan C 2 Loan balance $5, $5, $5, Adjusted loan balance $5, $5, $5, Loan interest rate 5.00% 6.80% 7.90% 5 Loan fees 0.00% 0.00% 4.00% 6 Loan term 10 years 10 years 10 years 7 Minimum payment $40.00 $50.00 $ Total years in college 4 years 4 years 4 years 9 Average debt per year $1, $1, $1, Monthly loan payment $58.34 $63.29 $ Number of payments Cumulative payments $7, $7, $8, Total interest paid $1, $2, $2, Loan A: $5500 at 5% interest for 10 years. How much interest did you pay? Loan B: $5500 at 6.8% interest for 10 years. How much interest did you pay? Loan C: $5500 at 7.9% interest for 10 years. How much interest did you pay? How does the interest rate effect the minimum monthly payment? The total amount paid for the loan? 1 School A B C D E F G H I Total Cost of Attendance Pell Grant Work Study 2 A $15,000 $2,200 $4,800 3 B $12,500 $2,800 $3,200 4 C $17,750 $2,500 $5,000 Scholarships Perkins Loan Amount EFC Money from 529 Account Remaining Expenses to be Paid 16 Building Your Future, Book 4: Paying for Postsecondary Education

21 Independent Practice Using some of the data from this lesson, you will analyze three different financial aid options for attending three different schools. Each school offers a comparable program of study. Based on your calculations and what you have learned about financial aid, you will need to select the option you believe would be best in terms of financing your education. Non-variable data: You plan to attend college for 4 years. You have $10,000 saved for you in a 529 account Your family s total EFC is $2700, and your parents do not intend to take a PLUS. Award Offer Data: (in addition to the data provided earlier) School A: in your home town, a $500 scholarship School B: 200 miles away, and offers no additional aid School C: across the country, a $1000 academic scholarship, and a $2200 Perkins loan As you construct the spreadsheet (use the format shown at the bottom of the previous page), think about the following: What can you do to reduce expenses? What can you do to increase your income? Would you consider taking a loan for the remaining expenses? If so, what kind? Why? If not, why not? How do you plan to cover those expenses? After calculating the total debt for the year, answer each of these questions. 1. Considering only the total debt and the type of debt you would incur, which school provided you with the best financial aid package? Explain why. 2. When you consider the amount of time you will need to spend working and your own academic skills and study habits, which financial aid package would provide you with the proper amount of study time. Explain why. 3. Does any school offer you an option that would require no additional out of pocket expenses if you consider price, location and work-study options? If so, explain. 4. If your family was unable to provide the EFC, would that change the financial aid package you would select? Explain why. Building Your Future, Book 4: Paying for Postsecondary Education 17

22 18 Building Your Future, Book 4: Paying for Postsecondary Education

23 Building Your Future Chapter 3: Making a Living? Did You Know. Employees do not take home every dollar they earn. A percentage of what you earn is taxed to pay for programs such as Social Security and Medicare. It amounts to approximately 7.65% of what you earn. In addition, income taxes are also automatically deducted from your wages as well, and can range from an additional 10-35% deduction. Key Terms: Compensation package Profit sharing Exempt Income taxes Non-exempt Gross pay Base pay Withholding Bonus Net pay Commission FICA Variable pay Dependent Benefits W-4 Insurance W-2 Paid time off (PTO) Career change Sick leave What You ll Learn When searching for the right job, it is important to consider the entire compensation package offered by potential employers. By learning to understand various types of compensation and how to calculate the total value of that compensation, you can ensure you are getting the most from the job you choose. Career Link Pension actuaries use mathematical and critical thinking skill to analyze financial and mortality risks to help pension providers set rates and develop retirement policies that will ensure that the employer can continue to offer retired employees benefits and paychecks as long as they live. The average pension actuary earns $87,650 per year and must have a Bachelor s degree and pass some exams to be credentialed in this profession. Building Your Future, Book 4: Making a Living 19

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