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

‘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.

Tax Advantaged College Strategies

Luxury tax space on Monopoly boardOften times, college planning entails helping a family increase their opportunity to qualify for financial aid.  But what can be done for families who will likely NOT qualify for financial aid, given their income level and/or countable assets?

Parents who are small business owners have additional college funding tools available to them that other families don’t have.  Implementing a tax-advantaged college plan can help these families fund college education for their children in a way that reduces their overall income taxes.

The purpose of tax-advantaged planning is to increase family funds available for future college costs by reducing taxation.  In other words, every dollar saved on taxes is a dollar in your pocket that can then be put towards future college costs.  In tax-advantaged college planning, income and assets are better off in the student’s name.  This is different from aid-advantaged planning, where income and assets are better off in the parents’ name.  It is critical to know whether or not you will qualify for financial aid, so you know which strategy (tax-advantaged or aid-advantaged) to implement.

In the United States, we are subject to a progressive tax system, meaning the tax rate increases as taxable income increases.  This type of tax system is designed to reduce taxes for those with a lower ability to pay them and conversely, to increase taxes for those with a higher ability to pay.  However, the progressive nature of this system leaves the door open for “income shifting” – a strategy of moving a person’s income from a higher income tax bracket to a lower one.

Unfortunately, a taxpayer does not have unlimited ability to shift income and/or assets because the IRS has implemented Gift Tax limits and Kiddie Tax rules in order to limit such shifts.

A Tax Advantage College Strategies (TACS) analysis shows you how to shift income from the parents to the student within these constraints and within the student’s Tax Capacity.

Jodi Eramo, CPA, CCPRS with College Planning Relief® has partnered with Westface College Planning to develop “Tax-Advantaged College Strategies” (TACS): an analysis aimed specifically toward families who will likely not qualify for “need-based” financial aid.  Even for these families, a TACS analysis will typically add $5k – $8k to their children’s college funding.

Contact Westface College Planning for your TACS analysis and to learn more about college financial planning.

Jodi Eramo was a guest on College Smart Radio “Tackling the Runaway Costs of College” on February 22nd, 2014 where we discussed Tax Advantaged College Strategies.  Listen to this broadcast on YouTube here.

Photo Credit: Philip Taylor

How Does Financial Aid Really Work?

11943267226_18cbe8371d_bThe staggering costs associated with attending college is enough to discourage any high school graduate or anyone who began a 4 year program, but never completed it. Tuition has increased across the country. But for the student who is willing to put a little time into finding free money to pay tuition and related costs, the effort is well worth it.

I speak from personal experience about my search for financial aid to pay for three degrees. Today, I am a Financial Aid Advisor at Albany State University, but 14 years ago, I was a Dougherty High School graduate from Albany, Georgia wondering how my dream to complete college would be funded. My mother and father constantly reinforced the importance of getting a degree for financial independence, but had little or no resources to help me after working to make ends meet for our family home. I got serious about planning my future. With their encouragement during times I needed it most coupled with determination, I secured funds to complete four degrees.

So far, I have secured an Associate’s Degree in Business Administration from Darton College, a Bachelor’s Degree in Human Resources at Georgia SouthWestern State University, and a Master’s in Public Administration with a concentration in Human Resources at Albany State University. I am currently working on a second Master’s in Business Administration at Albany State University and I am set to graduate this year on December 14th.

I am also a member of Zeta Phi Beta Sorority Incorporated and other campus organizations. I completed the Free Application for Federal Student Aid (better known as FAFSA) and was qualified by the Department of Education to receive financial aid such as Pell and SEOG grants, and work study to pay for the 2 year and 4 year degree. I was also awarded institutional scholarships and aid based on information I provided on the FAFSA. Tuition assistance offered through a program at my job helped pay for the completion of two master’s degrees.

I am now helping students navigate the maze of financial aid. Most times, problems arise when they file the FAFSA at the last minute. The FAFSA is available every year after January 1st. I encourage students to begin applying for aid at the beginning of the year and then load their parent’s tax information on the application filing. I always recommend that students look for scholarships in their junior year of high school to jumpstart their research.

I am truly thankful for the opportunities afforded me to further my education. I am now able to speak to students because I’ve walked in their shoes. A sense of fulfillment fills me as I watch them stroll the  stage at graduation knowing I had a hand in opening the doors to a new chapter in their life.

Information:

Denata Williams

Financial Aid Advisor  MBA, MPA

Albany State University Office of Financial Aid

Phone: (229) 430-4648

Fax: (229) 430-3936

This post was provided by Denata Williams, a financial aid advisor at Albany State University, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on January 18th, 2014.  Listen to this broadcast on YouTube here.

Photo Credit: Simon Cunningham

Loan Forgiveness and Income Based Repayment Programs – How Do They Work?

8231671430_e83d55aa51_bFederal Student Loan Options
Currently the federal student loan debt has surpassed the $1.2 trillion dollar mark, and the average student loan borrower is graduating with over $26,000 in student loan debt.  This debt is now accounting for an average monthly payment of $320/month, which is higher than ever.  At the same time, defaulted student loans are also at an all time high of 11%, up from 5.4% in 2001.

Recently a study found that 33 million Americans qualify for student loan forgiveness but are not aware of the various programs that exist and are available to them. The Teacher Loan Forgiveness, Public Service Loan Forgiveness, and Income Based Repayment program are the most popular and beneficial programs.

Public Service Loan Forgiveness
This program began in 2007 and was used as a way to benefit those who choose to work in the public sector.  The U.S Government wanted to award those who take up public sector jobs, and created the Public Service Loan Forgiveness(PSLF) program. The program allows anyone working for a local, state or federal organization to qualify for forgiveness on their loan after 120 qualifying payments.  The balance at the end of those 120 months would be completely absolved by the U.S Government.

o Must work in one of the following:

  • Public sector
  • Non profit 501(c)(3)
  • Private non-profit working in certain fields

o Must have DIRECT loans

  • Loans can be consolidated into the Direct Loan program to then qualify for PSLF

o Must be in an Income Based or Income Contingent repayment plan

o Must be a full time employee (30+ hours weekly)

Teacher Loan Forgiveness
Similar to the Public Service Loan Forgiveness program, the Teacher Loan Forgiveness program was created in an attempt to drive college students into the education profession.  A Teacher may now qualify for principle reduction on their loan between $5,000 and $17,500 dollars.

  • Must have Direct or FFEL loans
  • Must not be in default
  • Must not have had student loans prior to Oct 1st, 1998
  • Must have taught for 5 consecutive full time years at a title 1 school.

Income Based Repayment
The Income Based Repayment (IBR) program probably benefits the greatest number of federal student loan borrowers.  In this repayment, the lender will calculate your federal student loan payment based on your income and family size.  Your loan balance and interest rates are not used to calculate your repayment.  In the IBR you may qualify for a monthly payment of $0.00 which counts as an actual payment on your student loans.  Every year the lender would request updated income documents and recalculate the payment based on your current income levels.  If your income does not rise, your payment will not rise.  At the end of 25 years, any balance remaining on the loan would be erased in the Direct Consolidation program.

  • Any interest that is not paid in the IBR is not capitalized for the first three years
  • Payments as low as zero
  • Payments that take into account your family size and cost of living expenses.

If you think any of the above programs can help you, give your lender a call to request information and get into the programs you qualify for and deserve!

Bio:

Spiros Mitsis graduated with a Bachelors in Finance & Economics from the University of Connecticut.  He is one of the founders of Student Debt Relief whos primary objective is to educate and assist student loan borrowers on the many federal programs available to them, including loan forgiveness.

—————————————————

This post was provided by Spiros Mitsis of Student Debt Relief, who was a guest on College Smart Radio “Tackling the Runaway Costs of College” on December 28th, 2013.  Listen to this broadcast on YouTube here.

Photo Credit: Chris Potter