It’s Never Too Early! Start Creating Your Financial Future Now!

Erasing Debt on a ChalkboardI am the ultimate warning to ANY college student or college graduate!

The big news story over the past few years has been about the student loan debt crisis and how so many college students are graduating in the red.

Well, I was not one of those students, because I was fortunate enough to graduate from college DEBT FREE with $10,000 in the bank! Most college students would look at me as the “one who made it!”, but they would have to understand that life doesn’t end at college graduation, but it is actually just starting!

Life started happening to me fast and not long after graduation I married my high school sweetheart. Shortly after we said “I do” I found out that he had $25,000 in student loan debt for just one year of college!

This number took my breath away because the entire time that we were in college I thought he was there on a basketball scholarship, but come to find out that the basketball coach convinced his parents to pay for the first year and that his scholarship would pick up the next three. There was one problem with that plan, the college cost $25K+ a year!

We were already married so I told him that was “his” student loan which meant “his” money needed to pay the bill each month. We had already been married a month so it was time to build us a house! Not just any house, but I built us a house that was bigger than both of our parent’s homes combined.

I had fallen quickly into the microwave generation where I had to have everything my parents had right now! I convinced myself and my new husband that it made sense for us to move out of our $750 a month apartment with all utilities into a $1500 a month home where will pay ALL the utilities and trash pick-up!

We moved into the house and within the first year my husband’s car began to need repairs. Since we are part of the microwave generation, instead of getting it fixed, we traded it in for a brand new $23,000 Chrysler 300!

As we were driving our brand new car off the lot I let my husband know again that it was “his” car which meant “his” money would pay for it! I still had not grasp what the preacher meant when he said “now you are one”, because that also meant “OUR” debt.

So to recap I graduated college debt free with $10,000 in the bank and within a few years I was more than $48K in the hole! I’m not going to lie I would have kept going further into debt because as long as the bills were being paid I thought we were fine.

We were not fine, life changed quickly and I was laid off from my job. Now I was $48K in debt, income cut in half, and we had a one year old at home! That’s when we woke up and took the necessary steps to get out of that debt in 2 1/2 years!

I now show college students all over the country those same steps and principles so that they can avoid the debt nightmare that I found myself in!

This post was provided by Ja’Net Adams, a Professional Speaker at DreamGirl, who was a guest on College Smart Radio “Tackling the Runaway Costs of College,” on May 3rd 2014.  Listen to this broadcast on YouTube here.

Photo Credit: Images Money

Where to Save for College? Part 2

Putting money in a piggy bank529 Plan, Stocks , Mutual Funds, UTMA, UGMA, Coverdell, Roth IRA, Cash Value Life Insurance… How do you decide which savings plan or combination of plans are right for you?

There are many components that should be considered in the decision of where to save your valuable college funds. In “Where to Save For College? Part 1”, we discussed how to calculate how much you’ll need to save and the basic (yet key) factors to keep in mind when taking into account different college savings plans.

Most commonly, I hear parents worried about taxation when deciding on their specific savings strategy. Taxation can be a big deal in a good way and a bad way. As an example, 529 Plans have the tax advantage that earnings are not taxed if the money is withdrawn for a qualified education expense. That’s the good taxation. The bad taxation arises if you need some of that money for a non-qualified education expense or if your student decides that higher education is not for them. In either case, you’d have to pay the tax plus a 10% penalty to get access to the money.

Another frequently discussed feature is whether the college money should be in the parent’s name or the child’s name (UGMA or UTMA). The tax decision will depend on the child versus parent’s tax rate, when the money will be accessed and the kiddie tax rules. The other central feature that parents sometimes forget is access to that money. It is essentially the child’s asset and they gain control of it at age 18.

The Roth IRA’s taxation rules allow money to be taxed when earned, but not taxed during accumulation or withdrawal (subject to some limitations). Roth IRA limits contributions and these limits are dictated by family earned income as well as IRS rules (only $5000 per year for an adult under 50).

One lesser known savings vehicle is to save money is cash value in a permanent life insurance policy.  Savings will accumulate tax deferred and, if the policy is designed correctly, are available to being spent… tax-free!  Contributions can be high and money from the cash value in the policy can be accessed for any need (not only college).

When it comes to college savings and funding, a chief element for many familiesmay be whether the savings are visible or invisible to the financial aid calculation. Every family should assess whether it’s possible that they may qualify for need based financial aid, and if they do, then the financial aid visibility becomes all-important.

To give you a clear visual, the chart below compares different savings plans and the possible benefits of each.

Possible Benefits
Guaranteed Growth Tax Deferred Accumulation Tax Free Use for College High Contribution Limits Investment Choices Transferable (beneficiary) No Income Ceiling for Contribution Access to Money Financial Aid Invisible
529 Plans NO YES YES YES Some Limitations YES YES NO NO
Coverdell NO YES YES NO Some Limitations YES YES NO NO
UTMA / UGMA NO NO NO YES YES NO YES NO NO
Stock / Mutual Funds NO NO NO YES YES YES YES YES NO
ROTH IRA NO YES YES NO YES YES NO Some Limitations YES
Permanent Life Insurance YES YES YES YES Some Limitations YES YES YES YES

When we work with a family to design their college savings plan, it typically will include a combination of these different plans. This allows a family to take advantage of the benefits of each, but lessen the disadvantages. Give us a call to help design your unique college savings plan.

Listen to the April 26th College Smart Radio show to understand the pros and cons of different savings plans, so you can determine which savings plan or combination of savings plans will integrate best with your family’s needs.

This post highlights information discussed during our College Smart Radio “Tackling the Runaway Cost of College” April 26th broadcast where Beatrice Schultz and Mark Guthrie discussed the pros and cons of different college savings plans.  Listen to this broadcast on YouTube here.

Tax advice is not offered by Beatrice Schultz or Westface College Planning. Please consult your tax professional for additional guidance regarding tax related matters.

Photo Credit: Images Money

Where to Save for College? Part 1

Broken Piggy BankWhether you have dreams of sending your newborn child to Harvard, UC Berkeley or San Diego State, you have a lot of savings ahead of you if you plan to foot part of the bill.

You need to come up with a savings plan EARLY – and stick with it for many, many years.

 

Various types of savings plans exist. In fact there are a few specific ones that are commonly adopted by parents to save for college.  Those include:

  • Traditional investment savings accounts.
  • UGMA (uniform guest to a minor’s accounts in their name).
  • UTMA (uniform transfer to a minor’s account in their name).
  • 529 College Savings Plan.
  • Coverdell Education IRAs
  • US Savings Bonds.

But before deciding where to save, the first question most parents ask is “How much do I need to save?”

As an example, let’s calculate how much you need to save for your newborn to afford 4 years at a UC. Today, a UC will run you about $32,000 per year or $130,000 for four years. Tuition cost as well as room and board continually rises about 4-8% per year.  If we assume a 5% inflation, these parents will be faced with a $300,000 to $350,000 college bill when their child reaches 18 years old.

These parents of a newborn would want to stash away $1,000 per month, equaling $12,000 a year (assuming an average 4.5% rate of return over 18 years) to accumulate ~$320,000 to fund that one child’s college education. Wow – that’s a lot of savings and may be overwhelming for many new parents to consider!

So now that we know how much we need to save, the next question is how and where should these funds be saved for the next 18 years?

There are 4 key components that should be considered in the decision of where to save these college funds. Those 4 factors are the savings plan, the investment strategy, having access to your money and the spending plan.

  1. Savings Plan
    1. Should be easy – auto withdrawal.
    2. Flexibility.
    3. Contribution limits.
    4. Outside help – choose a convenient way for family to help.
  2. Investment strategy
    1. Choose your risk and expected return.
    2. How will taxation impact our rate of return (tax now, tax every year, tax later)?
  3. Access to the money
    1. Would you like access to this money during the saving period?
    2. Access if you have an emergency.
    3. Access for a great investment opportunity.
  4. Spending Plan
    1. Spending Plan
      1. Flexibility. Timing.
      2. Do you want to have all your money in a plan that must be used for college funding?

When it comes to college savings and funding, a vital 5th component may be whether the savings are visible or invisible to the financial aid calculation.  Every family should assess whether it is possible that they may qualify for need based financial aid, and if they do, then the 5th component becomes all-important.

Listen to the April 19th College Smart Radio show to start to run the numbers of how much to save and why these 4 or 5 components should be serious considerations for your savings plan.  Listen in to next week’s show to understand the pros and cons of different savings plans, so you can determine which single plan or combination of plans is right for your family.

This post highlights essential information pulled from our College Smart Radio “Tackling the Runaway Cost of College” April 19th broadcast where Beatrice Schultz and Mark Guthrie discussed the factors of where to save for your child’s college fund.  Listen to this broadcast on YouTube here.

Photo Credit: Images of Money

Secrets for Cutting the Cost of College

Bellevue University LogoIf you are thinking about returning to school the issue of finances has likely come up. You’ll hear a lot about affordability and the cost of school interchanged, but affordability is different than cost. Think of it this way: cost is just the baseline; affordability can be considered how you’re going to manage that cost. In order to best figure the true cost, you must get a clear picture of all the expenses, and look for ways to reduce them when possible.

 

Take a look at the following seven factors when conducting your research:

1. Cost per credit hour based on the academic calendar. Don’t just pay attention to the cost per credit hour – this can be different due to variations in academic calendars, leading to extra fees and valuable time spent. There are two factors to consider here. What is the baseline cost per credits and how are credits figured? Make sure you look at all the factors involved when you determine affordability.

2. Length of program. How long will it take you to complete your degree? Are you starting brand new, do you have some credits? What is the pace of the program? When you know how many credits you need, that can help you figure cost based on how many credits are included in tuition, or if you are paying per class.

3. Transfer credits. If you have previously earned credits how will they transfer in? Are you able to save time and money if you get credit towards graduation for previous coursework? When credits don’t transfer, you could be spending more to retake classes.

4. Books and supplies. For first time students the average cost of books and supplies was more than $1000, according to The National Center for Educations Statistics. Books can get expensive, but are required. Take advantage of shopping strategically to try to land used books, renting textbooks or selling back books when possible, and research how other savings opportunities can be found. Does your school offer text book grants or scholarships to alleviate the burden of this expense?

5. Fees. Get a comprehensive list of all fees that you are required to pay as a student. Are there student fees, semester fees, lab fees, parking fees, etc.? Determine how fees are figured in. Are they included in tuition, are they separate, how often do you pay them?

6. Housing and transportation. Once you have figured out the cost of credits and fees to complete your program, explore this sometimes costly expense. Will you be living on campus? How much will you be spending commuting to campus? What is the value in the convenience of being on campus? Is online an option for you?

7. Other ways to earn credits. Can you test out of classes to earn credits? For example if you can take a CLEP or DSST test in place of a class you could save money on the cost per credit hour as well as the cost of books. According to collegeboard.org, CLEP tests are accepted by over 2,900 colleges and Universities, so explore if the school you are considering accepts them, and work with an advisor to see how they would fit your needs. Also ask how corporate and military training can count towards your degree plan.

College can be expensive, but planning and research can ease the burden without sacrificing the integrity of earning a respectable, accredited degree. Utilizing previous credits, and finding a school that works on your timeline to help you make the most of your funds can reduce costs and make college more affordable.

This post was provided by Dr. Mary Hawkins, President of Bellevue University, who was a guest on College Smart Radio “Tackling the Runaway Costs of College,” on April 12th, 2014.  Listen to this broadcast on YouTube here.

 

Go to College in the West for Less!

WUE“I can afford to study out-of-state? You’ve got to be kidding!”

Students — and their parents who are bankrolling their kids’ education — are often amazed to learn that they can afford an undergraduate education outside of their home state, thanks to a program called “WUE” that’s been around for a quarter of a century. Some say it’s like winning the lottery!

More than 25 years ago, the Western Interstate Commission for Higher Education (WICHE), a nonprofit higher education policy organization, forged an agreement with its 15 western member states called the “Western Undergraduate Exchange”, or “WUE”. WUE is a multi-lateral regional tuition reciprocity agreement whereby a resident of one WICHE member state can go to college at a participating public institution in another WICHE state, and pay 1.5 times the resident tuition of the enrolling institution. WICHE member states are: AK, AZ, CA, CO, HI, ID, MT, ND, NM, NV, OR, SD, UT, WA, WY and the Commonwealth of the Northern Mariana Islands.

WUE is the biggest program of its kind the nation; a 154 total of institutions — community colleges and universities – participate in the network. This year alone (2013-14), some 34,000 students saved an estimated $264.7 million by paying the reduced WUE rate, instead of full nonresident tuition. Individual savings ranges from about $900 up to $13,000 per student, but on average, a student this year is saving about $7,800.

The savings numbers are even more staggering when you look at the historical savings the program has provided for families since the first exchanges began in 1988: western residents have saved an estimated $2.2 billion on some 392,000 tuition bills! Depending on where you’re from and where you want to enroll, earning your degree may cost about the same and sometimes less than what you would have paid if you had studied in your home state!

Now you’re wondering: what’s the catch? What motivates institutions participate in WUE? Community colleges and universities like WUE just as much as students and families do. It helps them achieve their enrollment goals on several levels. The savings can entice students to enroll in difficult-to-fill majors. They can also use WUE as a merit scholarship, to attract the brightest students in the region, which also boosts their graduation and retention rates.

WUE also helps them diversify their student body; the more regional and ethically diverse their students are, the richer the learning experience for all. Some institutions also use WUE to attract academically qualified athletes in the region. Furthermore, some graduates will probably remain in the state where they received their degree, and become part of the local workforce. For growing states, this is a plus!

Prospective students must apply for the WUE discounted rate at the same time they apply for admission. The WUE rate is never guaranteed. Students must request it and meet the enrolling institution’s requirements.

Here are a few simple guidelines to follow:
1. Make sure your major is eligible for the WUE discount at the WUE institution where you’re applying. Some high demand majors are excluded. To find out, check your dream institution’s WUE profile. Remember, if you change to a non-eligible major, the institution will charge you full nonresident tuition.

2. Read the participating institution’s WUE eligibility requirements (GPA and ACT or SAT scores). Do you qualify? About 20% of WUE institutions use the program as a merit scholarship.

3. Apply directly to the institution where you want to enroll, and apply as early as possible! Check the institution’s WUE application deadline. An early application will increase your chances if you meet all of the other qualifications where you want to enroll. Remember: some institutions have a limit on the number of WUE discounts that they will offer to new students each fall—you want to fall within that number.

4. If you’re awarded the WUE discounted tuition rate, be ready to study hard and finish your bachelor’s degree within four years. Most institutions limit the number of semesters that they will give you the discounted rate. Community colleges may also set a two-year limit for full-time students. It’s important to note that WUE is for students who want to complete a full degree; it is not designed for a semester or one year study experience.

For specific questions about admissions requirements, contact the enrolling institution directly. If you have general questions about the program after reading the WUE FAQ contact WICHE staff at info-sep@wiche.edu 303.541.0270.

This post was provided by Margo Colalancia, Director of Student Exchanges at WICHE, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on April 5th, 2014.  Listen to this broadcast on YouTube here.

Photo Credit: OutOfStateCollegeFairs.net

Looking For Great College Bargains

Sale Stickers

Excuse me if this sounds ridiculously elementary, but here goes:

One way to cut your college costs is to look for schools with lower sticker prices.

My nephew Matt attends Westminster College in Fulton Mo, a liberal arts college, where the tuition and room/board is $30,490. Ninety eight percent of the students at Westminster don’t pay full price. The average merit scholarship is $11,500 and the average need-based award is nearly $16,000.

Matt, who is a sophomore, is thriving at Westminster where he has made friends, enjoys small classes and benefits from attentive professors.

My son Ben, a senior, is having an equally great experience at Beloit College, where the price tag is higher.

Comparing Prices

The tuition and room/board at Beloit College is $48,506. The average merit award is $17,600 and the average need-based award is $25,000.

The total price for someone, who qualified for a merit scholarships from Westminster, would be $18,990 versus $30,914 for a Beloit student who snagged a scholarship.

Is Beloit worth the extra $11,924?

And what about the schools, particularly on the coasts that cost an additional $10,000 to $15,000 more than Beloit?

In our family, the price was not a deal breaker because my husband and I could afford to pay for Ben’s No. 1 school. But I would suggest that the education students receive at Westminister is going to be quite comparable to Beloit’s.US news books

I’d argue that a big reason for the price differential is the college rankings. Beloit is ranked as the 59th best liberal arts college and Westminster is ranked as No. 146th.

Families looking for bargains are more likely to find them if they search lower in the rankings. And, just as importantly, look outside cities and especially those on the coasts where schools can charge a premium.

Sorting Schools by Price

Today I want to share with you a new helpful tool that The Chronicle of Higher Education has rolled out that will allow you to sort through 3,000 schools by price, as well as by price for schools in each state. Play around with this tool and should find some more affordable hidden gems. (You won’t be able to access the tool without a subscription, but here is a PDF of the latest prices for schools broken down by state.)

To demonstrate what you can find, I checked prices in Ohio which has a large number of private institutions that are competing for students in a state with declining high school students.

I created a list of private schools based on price and here is a screenshot of the most expensive private schools in Ohio:

ohio 1

When I looked more closely at the list, I was surprised to discover that price and rankings were highly correlated!

Liberal Arts Colleges

First, let’s take a look at the Ohio schools on the list that are in the National Liberal Arts College category. Their rank by cost correlates exactly with their U.S. News ranking:

  1. Oberlin College  25 (U.S. News ranking)
  2. Kenyon College 32
  3. Denison University 50
  4. College of Wooster 65
  5. Ohio Wesleyan U. 100
  6. Wittenburg U. 123
  7. Hiram College 156

National Universities

This trend also held for the two Ohio schools on the screenshot that are ranked in U.S. News’ National University category:

  1. Case Western Reserve University 37
  2. University of Dayton 112

Regional Universities – Midwest

The trend doesn’t hold for the schools in the Midwestern regional category, but I suspect that could be because people pay less attention to the rankings in this category. The two premiere categories for U.S. News are the national university and liberal arts categories.

  • John Carroll University 7
  • Xavier University 4
  • Capital University 35
  • Marietta College 4
  • Otterbein University 17

Looking for Good Buys

I’m not going to get into a discussion of rankings here, but I’ve discussed in my book and my college blog why U.S. News’ college rankings are horribly flawed and even destructive. And yet my little exercise would suggest that we are often paying for schools based on these rankings!

There are wonderful education opportunities at many schools regardless of what U.S. News might think of a school. Here are just two examples:

Marietta College has an impressive program for petroleum engineers – the only liberal arts college that offers this – that enjoys an awesome placement rate. Baldwin Wallace University, an Ohio school that didn’t make my screenshot (its tuition is just $27,840 before aid or scholarships) enjoys 100% placement for its highly regarded music therapy programs.

There are many hidden gems out there and if you want to cut the price of college, I’d start looking for them.

(Note: I have discovered that if you don’t have a Chronicle of Higher Education subscription, you can’t access the tool that I discuss in this post. I did receive permission from The Chronicle this afternoon to share this PDF of the prices of individual colleges that are broken down by price.  Lynn O.)

This post was originally featured on the website of Lynn O’Shaughnessy, College Expert, Author & Consultant, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on March 29th, 2014.  Listen to this broadcast on YouTube here.

‘Would You Rather…?’ A Text Messaging Campaign on a Mission to Help Students Manage Their Money

DoSomething.org LogoWe’ve all done some weird things to make money. My weirdest job? Working at an events company where I would dress in an elf costume, work the popcorn machine, and shuffle snot-nosed kids through the line to meet Santa every holiday season. At an Easter event one spring, I saw the inside of the Easter Bunny costume head, and was never the same. Every time I got a paycheck from that job, it seemed like it was gone in the blink of an eye. I had no idea how to manage, invest, or save my money.

I wasn’t alone in my lack of finance savvy, and the implications of being clueless about money extend much further than the holiday season. Seventy percent of college seniors graduate with student loan debt, averaging $29,400 in 2013,[1] and 36% of recent college graduates are mal-employed[2], meaning they work in positions that don’t require a degree, like on a wait staff or in the service industry. There is a monumental gap between the average college graduate’s debt and their financial ability to pay – and much of it can be attributed to an inability to understand and make tough financial decisions.

For the second year, DoSomething.org, the largest not-for-profit for young people and social change, is combating that issue and informing young people on financial education through a text-messaging experience in partnership with H&R Block Dollars and Sense. The experience, called Would You Rather, uses text messaging to challenge young people to make decisions about how they’d manage their money and provides real world financial tips. Last year, 44,238 young people participated in the campaign, delivering 62,435 tips to their friends.

Here’s how it works:

  • Teen receives a text message like this: “What would you rather do to save $$? A) Share your spring break hotel room w/ your entire extended family OR B) Not go on spring break.”
  • Teen responds: “A”
  • They receive: Hope the bathtub’s comfy!
  • After this and throughout the game, they receive actionable financial tips relevant to the question, such as: “Going on spring break? Create a travel budget so you come back from vacation with happiness and a tan, rather than regret.”

Teens have the opportunity to send this game to friends, compare answers, and share valuable financial tips directly relevant to their lives. Focusing financial education on short term decisions and small behavior changes with big impact is an effective and impactful way to get young people thinking about their financial futures, even beyond holiday shopping.

This post was provided by Farah Sheikh, Education Campaign Specialist at DoSomething.org, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on March 8th, 2014.  Listen to this broadcast on YouTube here.

Photo Credit: Fanlala


[1] Institute for College Access & Success’ Project on Student Debt

[2] Center for Labor Market Studies at Northeastern University.