Thursday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: The Ashley Madison hack has exposed the information of over 30 million people. Also in the news: Why young people need estate planning, how being lazy costs you money, and how that generous gift from your grandparents could affect your financial aid.

Life After Ashley Madison: How to Operate in a World Without Secrets
If you’ve ever used the site, your identity is now at risk.

Young People Need Estate Planning Too
You know what they say about death and taxes.

How being lazy costs you money
Snap out of it!

Know How College Savings Gifts Can Affect Your Financial Aid Eligibility
It’s all about the FAFSA.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: What happens if you get caught lying on your FAFSA? Also in the news: Why your financial life is a mess, which interest rate you should choose, and the credit score every small business owner should understand.

What Happens If You Lie on Your FAFSA?
Resist the temptation.

Fixed or Variable: Which Interest Rate Should You Choose?
Which interest rate is best for you?

The Credit Score Every Small Business Owner Needs to Understand
Introducing the FICO SBSS.

Top Seven Reasons Why Your Financial Life Is A Mess
Getting your financial house in order.

If You Won’t Remember Something in a Week, Don’t Buy It
Smart advice.

Why “Get scholarships!” is bad advice

Student-LoansWe had a great Twitter chat today about preparing financially for college, hosted by Experian. (You’ll find the tweets using #creditchat.)

I was distressed, though, that many believe people should look for scholarships as a way to reduce college costs. That’s not how it usually works.

If you have financial need, colleges typically deduct the amount of so-called “outside” scholarships from the free aid such as grants and their own scholarships that they otherwise would give you. Schools don’t have to reduce the loan portion of your package unless your outside scholarships exceed the grants and other free aid they were planning to bestow.

They’re not just being mean. It’s what federal financial aid rules require, according to FinAid. If you don’t have financial need, outside scholarships could reduce the merit aid a school would otherwise give you.

Does that mean you shouldn’t search and compete for outside scholarships? No. But it’s certainly not a reliable solution to the college affordability problem.

A better approach for students and families is to look for generous schools. Colleges themselves are the greatest source of scholarships, but most don’t meet 100 percent of their students’ financial need. Some meet 70 percent or less. If you want a better deal, look for schools that consistently meet 90 percent or more of their students’ need. College Board and College Data are among the sites that can help you find this information.

 

What you need to know about paying for college

My recent Reuters columns have focused on some of the most common issues families face in trying to pay for college, from getting the most financial aid to how to cope when you haven’t saved enough. Read on, and please share these columns with people you know who might benefit.

Increase economic mobility by busting college myths

One way to improve economic mobility in the United States may be to fix the misconceptions that high-achieving, low-income teenagers often have about college.

Avoid easy-to-make mistakes on your financial aid application

One of the worst mistakes you can make with college financial aid is simply failing to file the all-important Free Application for Federal Student Aid. But there are plenty of other ways to mess up this application.

Last-minute moves to boost financial aid

Financial aid filing season starts Jan. 1. It may be too late to rearrange your finances this year, but here are some ideas for maximizing what you can get in future years. First, though, make sure your hopes are realistic.

What to do if you have not saved enough for college

Soaring college costs and stagnant incomes mean many families will not be able to save enough to pay for a typical undergraduate education. But there are still ways to find a college degree you can afford. The good news is that most people will pay significantly less than the sticker prices.

Busting the myths of haggling for college aid

My daughter learned this little ditty in preschool: “You get what you get, and you don’t get upset.” Parents who are convinced they can haggle their way to a better financial aid package might want to learn it, too.

No need for irrational fears of student loans

The next generation of college students has heard the message loud and clear about the perils of taking on too much student loan debt – so much so that many are unwilling to go into debt at all in order to attend college. The drawback to this wariness is that most of those who do not borrow are unlikely to get four-year degrees.

What will you pay for college? Probably more than you think

Zemanta Related Posts ThumbnailI recently used the College Board’s “estimated family contribution” calculator to see how much we’ll be expected to pay when our (currently pre-teen) daughter heads off to college.

The answer? Roughly half our annual incomes. Each year.

No colleges actually charge the amount we’d theoretically be expected to pay. So our out-of-pocket costs would be somewhat less. But the exercise drives home how important it is to run these numbers, early and often, if you want a college education for your kids that doesn’t bankrupt you, and them.

Because I know how the formulas work, I was able to tweak some numbers to lower our EFC. Moving more money into retirement accounts and using savings to pay down the mortgage helped a lot with the federal formula, and helped some with the institutional formula (which, unlike the federal, counts home equity). We still wouldn’t get any need-based help from most colleges but could get some breaks if our daughter gets into one of the most-expensive elite schools. (The total cost of the average public college is $20,000 to $25,000; $40,000 for privates and $60,000 for elites.)

If we didn’t have a fat college savings account, we likely would steer our daughter toward public schools or privates willing to offer merit scholarships to reduce the total cost. It’s much better to start a college search knowing what you can afford than to have to tell your kid, dream school acceptance letter in her hand, that you can’t send her there. Or worse, that you will–and then never be able to retire.

For more about how financial aid formulas work, read my Reuters column this week: “A guide to figuring out the real cost of college.”

 

Money rules of thumb: College savings edition

Zemanta Related Posts ThumbnailA college degree today is what a high school diploma was 60 years ago, a college consultant told me. Meaning: the bare minimum for staying in the middle class.

There will be exceptions, of course, but your kid is unlikely to be one of them. So here, in my ongoing “rules of thumb” series (previous editions include retirement and cars), are a few guidelines about saving for college:

So here, in my continuing “Rules of thumb” series, are three guidelines regarding cars: – See more at: http://asklizweston.com/page/3/#sthash.BwXsoYOC.dpuf

Save yourself first. No one’s going to lend you money for retirement, so that has to remain your top priority–hard as that is for parents to hear. Think of it this way: by saving for yourself first, you’re reducing the odds that you’ll have to move in with your kid in old age. Trust me, she’ll appreciate that someday.

But save something. Even if it’s just $25 or $50 a month to start, putting something away for college helps solidify it as a goal–and anything you can save will reduce your child’s future debt load (since most financial aid is actually loans, not grants or scholarships).

Use a good 529 plan. Money saved in 529s is tax free when used for college education costs, and most of these state-run plans are pretty good these days, thanks to better investment options and lower fees. Morningstar runs an annual list of the best and worst plans.

The more you make, the more you’re expected to save. Federal financial aid formulas aren’t adjusted for regional differences in cost of living. There’s no exception made for families that have experienced hard financial times in the past. The higher your income, the more the formula expects you will have saved…to the point where someone with an income over $100,000 could be expected to fork over a third of it for college costs. There are ways to reduce college costs, but knowing the reality of financial aid formulas will help you to understand the maxim that “if you CAN save for college, you probably SHOULD.”

 

Beware college financial aid letters

If you want to see what’s wrong with many financial aid letters today, check out the one that Georgia Institute of Technology has so helpfully posted on its Web site under the rather ironic headline “Understanding the Letter.

Screenshot 2014-04-08 09.24.21The school does a few things right. Not all colleges include the total cost of attendance on their financial aid letters, and many don’t include the “expected family contribution”–what the family is expected to pay according to the Free Application for Federal Student Aid or FAFSA. Subtracting the expected family contribution from the total cost results in the family’s need. In this case, the need is $31,787.

The total award figure of $41,690 seems dazzlingly generous compared to the family’s need. It’s not.

Like many schools, GIT lumps together gift aid (scholarships and grants) with loans and work study.

In this case, the gift aid is just $8,242, which includes a $2,000 scholarship the student won on his own.

The vast majority of the “aid”–$27,548–are parent PLUS loans. PLUS loans are designed to help the family pay its expected contribution, which in this case is $11,903. PLUS loans don’t reduce the family’s $31,787 need.

This award that seems so generous actually meets a quarter of the family’s actual need with gift aid. When work study and the student’s loans are included, the percentage of need met is only about half.

Too many financial aid letters are even more obscure, as I write in this week’s Reuters column, “Don’t get fooled by financial aid letters.” Some don’t include any cost information, while others list partial information. Some don’t spell out what’s a loan and what’s not. Fewer than half of schools use the federal “Shopping Sheet,” which was designed to help stop misleading financial aid letters and allow families to compare aid offers. You can find the sheet here, and using it to parse letters like this can really help you understand how generous–or not–a college is actually being.

A free guide to filling out the FAFSA–get it now!

Zemanta Related Posts ThumbnailExciting news: One of the most-respected experts in financial aid has written a book about filling out the Free Application for Federal Student Aid (FAFSA)–and right now you can get it as a free PDF download.

Mark Kantrowitz, who helmed FinAid.org for years and is now publisher of Edvisors, has this to say about the book he co-authored with David Levy, who has 30 years’ experience as a university financial aid director:

The book is packed with 250 pages of insights and advice about filing the Free Application for Federal Student Aid (FAFSA), along with a step-by-step guide to completing the application form. There are tips about increasing eligibility for need-based aid, avoiding the most common errors and appealing for more student aid. I have attached a tip sheet about Filing the FAFSA that is based on the book.

If you have a kid heading off to college, this book is a must read. To get the book, register (also for free) at the Edvisors site. The book is also available to buy on Amazon in paperback for $24.95. The Kindle version is $8.95.

Tuesday’s need-to-know money news

Today’s top story: Saving money while expecting a baby. Also in the news: How to finance your closing costs, teaching your kids about money, and financial tips for adults going back to school.

9 Ways to Save Money When You’re Expecting a Baby
One for every month!

How to Finance Your Mortgage Closing Costs
Little known ways to absorb your closing costs.

5 ways to teach kids about money that work
Letting them make mistakes can be a valuable lesson.

Financial tips for adults returning to college
FAFSA’s aren’t just for kids.

Financial Frenemies: Who Makes You Overspend?
When friends can be bad influences on your wallet.

High incomes limit financial aid

Dear Liz: As an avid reader for years I have never felt as compelled to write as I did after reading your column regarding college financing. I disagree that college financial aid is based primarily on income or that “typically [parents are required to] contribute less than 6% of eligible assets.”

We filed a Free Application for Federal Student Aid for our daughter, and our expected family contribution was calculated at $43,000. The school offered my daughter just $2,000 in work study, at a university with a $38,917 annual tuition. Our combined income is $175,000 and our liquid savings (not including retirement accounts) is $145,000.

We could pay 6% of our income (about $12,000) or 6% of income plus savings ($19,000) per year without taking loans, but not $38,000. I have attended several “paying for college” seminars and found their estimated contributions quite sugar-coated compared with the reality.

Rather than paying 6%, is the reality 25% of our income? Please let me know if we have done something wrong, and how to rectify it.

Answer: The 6% limit on eligible assets is not a cap on how much you’ll have to pay for college. As the original column said, income weighs more heavily in financial aid calculations than assets, and your income is high.

The federal financial aid formula assumes families with high earnings have more disposable income to pay for college than lower-earning families. The formula also assumes high-income families have had ample opportunities to save for college, whether or not they actually have.

You could use the net price calculator on the college’s website to see whether your liquid savings are having an effect on your expected family contribution. At some schools, using savings to pay down a mortgage or other debt could result in a lower expected contribution.

But you still might not get aid, even if you could move the needle on your expected contribution. Many colleges “gap” their students by not supplying enough aid to meet all their needs. And while some private colleges offer merit (rather than need-based) scholarships to attract the children of wealthier parents, top-tier schools tend not to, because they know they can attract excellent candidates without such help, said Lynn O’Shaughnessy, author of “The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.”

Even if your family doesn’t have financial need according to the formula, your daughter is still eligible for federal student loans of as much as $5,500 in her freshman year. Federal student loans are flexible debt with fixed interest rates and many repayment options, so they shouldn’t be feared, especially in reasonable amounts. If, however, you would have to borrow much more, and that borrowing would interfere with your plans for retirement or other financial goals, you probably can’t afford this school and need to start looking for colleges you can afford.