Saving a nd Paying for College

1. Saving and Paying for College

2. 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

3. Influence of Saving

4. Influence of Saving • Increase college aspirations • Encourage personal responsibility • Good first step in college-planning process

5. 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

6. 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.

7. Undergraduate payment resources Federal loans – 43% Other federal grants – 8% Source: http://trends.collegeboard.org/student_aid/report_findings/indicator/304#f84

8. Savings Options for Parents

9. 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

10. 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

11. 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

12. 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

13. 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.

14. 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.

15. 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.

16. Benefits of college education Reducing expenses Working through college Reducing loan debt Impact on financial aid eligibility Savings options for students

17. 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.

18. 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.

19. 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

20. Typical budget Average Expenses Source: Consumer Expenditure Survey, Bureau of Labor Statistics

21. 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

22. 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.

23. 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.

24. 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

25. Pay yourself first Today’s habits pay off tomorrow • Include savings in your budget • Save for emergencies • Save for major purchases

26. 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

27. 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.

28. 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.

29. 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.

30. 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.

31. 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

32. 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.

33. Getting started Resources Next steps

34. 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

35. 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

36. Questions?