Parents Falling Behind In College Savings

Posted on March 28, 2009 | Filed Under Articles

- By Thomas Hauck

You’ve done everything possible to help your son or daughter get into a top college. You’ve kept them on the right track, made sure they got good grades, and perhaps even hired a tutor for those rough subjects. But have you been as diligent with your college savings plan?

Many families are preparing their kids for college but are neglecting to make the appropriate financial plans. Recent research suggests that of the American families who are saving for college, less than one-third (32 per cent) are confident that they will reach their savings goals.

According to OFI Private Investments, research recently conducted by Cogent Research compared responses from two groups: “Savers” (those saving for college) and “Future Savers” (those who will in the future begin saving for college). The results revealed that only three percent of U.S. households currently have enough money saved to pay for college.

The survey discovered that Savers make saving for college a high investment priority, while Future Savers rank college savings lower, behind retirement savings. Household income and education levels make some difference, but are not the only barriers to saving. Current savers may have more resources, but they also have more awareness and understanding of available financial vehicles for saving.

529 Plans Offer a Solution

The survey was developed to gauge the actual level of college savings versus what families may believe or imagine they are doing. As many families know, saving for anything can be a challenge without the benefit of a structured plan. A 529 Plan can be the answer.

Created in 1998 and named after Section 529 of the Internal Revenue Code, the 529 Plan is an education savings plan operated by a state or educational institution. It is designed to help families set aside funds for future college costs. The survey revealed that public awareness of 529 plans was very low; in fact, fifty-six percent of Future Savers stated that they were unsure of the basics of the plan.

So what is a 529 Plan? They can be used as either prepaid or savings plans.

• A Prepaid Plan allows you to pre-pay the costs of an in-state public college education, or convert it for use at private and out-of-state colleges. A prepaid plan for private colleges is called an Independent 529 Plan. Educational institutions can offer a 529 prepaid plan.

• A Savings Plan resembles a 401K or IRA because your contributions are typically invested in mutual funds or similar vehicles. The plan will offer you several investment options from which to choose. The value of the account goes up or down based on the performance of the particular option.

There are substantial tax and other benefits to creating a 529 Plan. They include:

• Federal tax benefits. Your investment grows tax-deferred, and distributions used to pay for the student’s college costs may come out tax-free.
• State tax benefits. Prior to investing in any 529 plan, check to see if your state offers tax provisions because benefits may vary by state, in addition to the federal treatment. Check your state’s tax provisions; if you don’t get any state tax benefits from your state, you can access every other 529 plan from any other state.
• Donor retains control of funds. You can determine how and when the funds are distributed. The beneficiary student has no control.
• Flexibility. Depending upon the program and your state laws, you may change your 529 Plan to a different option every year, or even rollover your account to a different state’s program.
• Low maintenance. After you complete a simple enrollment form, you can sign up for automatic deposits. Then you can relax and forget about it! Funds are managed either by the state treasurer’s office or by an outside investment company hired as the program manager.
• Simplified tax reporting. Donors don’t receive a Form 1099 to report taxable or nontaxable earnings until the year withdrawals are made.
• Substantial deposits are allowed–over $300,000 per beneficiary in many state plans.

Planning on going back to school as an adult? You could even set up a 529 Plan for yourself. Each 529 plan will have different rules, so compare the features and start saving.

College Applications Rise In 2008

Posted on March 28, 2009 | Filed Under Articles

- By Thomas Hauck

Think getting into a four-year college is increasingly competitive? You’re right. According to the 2008 State of College Admission Report by the National Association for College Admission Counseling (NACAC), the growing number of high school graduates is creating increased competition for spots in the freshman classes of America’s four-year colleges and universities. While college applications rise, the rate of acceptance has remained the same as it was in the 1980s.

NACAC President Kimberly Johnston, Senior Associate Director of Admission at the University of Maine, commented that there is increased uncertainty about whether and where students will get admitted, but nevertheless there is an opening for every student who is qualified to attend a four-year college in the United States. 


The number of applications is steadily increasing. Over the past three years, most colleges and universities have reported an annual increase in the number of applications. It’s not just the number of students applying; the number of applications per student is also increasing. Many high school seniors are now submitting applications to seven or more colleges.

Another growing trend is the increased use of online applications. For the school year beginning in the fall of 2007 colleges received 68 percent of all applications online, up from 58 percent in the fall of 2006.

The New York Times confirmed the boom in applications. In an article published January 17, 2008, the Times reported that Harvard University received 27,278 applicants for the fall 2008 freshman class–a record number, and up 19 percent over last year. Other schools reporting big increases included Amherst College (17 percent), Dartmouth College (10 percent), Northwestern University (14 percent), and the University of Chicago (18 percent).

What’s driving the trend? Aggressive recruiting, demographics, the ease of online applications, and more students applying to more colleges as a safety net.

Overall, in the fall of 2006 the average selectivity rate (the percentage of applicants who are offered admission) at four-year colleges and universities was 68 percent. The average institutional yield rate (the percentage of admitted students who actually enroll) was 46 percent. Clearly, students are selective, too.

What Factors Determine Who Gets Accepted?

Amid the glut of applications, who gets accepted–and why? College admissions officers identify the top four criteria: the student’s grades in college preparatory courses, his or her overall high school grade point average, the strength of the school’s curriculum, and the student’s standardized admission test scores. Other factors include the application essay, class rank, and recommendations.

One factor mentioned by admissions officers was the student’s demonstrated interest in attending the school. This element has been increasing in importance in recent years, perhaps in response to students applying to more colleges—and turning more down once they have been accepted.

Some students get accepted to college, and then the acceptance is revoked. Why? A decline in a student’s final grades is the most common reason, followed by falsification of application information, and then discipline or behavioral issues. However, nearly three-quarters of secondary schools do not have formal policies related to disclosing a student’s disciplinary information to colleges, and disciplinary problems don’t always get reported to the college.

Going to college can be an exciting time in a young person’s life. Parents and students can make the process less stressful by being prepared and being realistic about how the process works.

5 Things You Must Do Right Now to Qualify for Financial Aid

Posted on March 7, 2009 | Filed Under Articles

Ok! Winter has officially arrived and now the holiday season is over. I checked my calendar and can’t believe that there are just 2 weeks left until most financial aid forms are due! And that means there is no time to start financial aid planning.

Instead, here’s a list of what parents of college-bound seniors need to do RIGHT AWAY to position themselves for applying for financial aid in the new year.

So, because the clock is ticking, I’ve put together a list of 5 tips that will help you deal with the financial aid shuffle.

Five Things You Must Do Now to Qualify For The Most Financial Aid

1. Apply for financial aid promptly. The first day to mail your Free Application for Federal Student Aid (FAFSA) form was January 1st. Since need-based aid is awarded on a first come/ first serve basis, the sooner you have your forms in, the better positioned your family will be for any potential need-based aid you qualify for.

2. Complete the forms accurately. Statistically 90% of the forms go in with errors affecting your ability to qualify for financial aid. Read the forms carefully so the forms accurately reflect your situation and if the question does not apply to you, put a “0” rather than leaving the question blank.

3. Make sure your student is one of the top candidates at the school of his choice. Non-need based college aid is often based on merit. If the caliber of your student to falls into the top caliber of potential applicants, your family may receive a financial aid award that reflects the schools interest in having your student attend.

4. Indicate more than one school on FAFSA form. Since colleges can see which other schools you are sending your Student Aid Report to, they can “guesstimate” the amount of money likely to be awarded to your family based on their knowledge of prior year’s award packages from their competitors.

If you only put one college on your FAFSA form, you may be indicating that your student really wants to attend that school, which may keep the college from putting together the best financial aid award for your family.

5. Know if you are in category 1,2 or 3 as a family so you know what type of potential financial aid package you might expect.

Category 1 – will qualify for financial aid at all the schools they are applying to because the family Expected Family Contribution (EFC) is low enough to qualify for Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG) and Perkins loans.

However, being a Category 1 family does not mean you will receive all the aid you want because not all colleges are in a position to meet all of your financial need. So in addition, Category 1 families should research their college choices to ensure the colleges they are applying to can put together awards that cover the majority of their need.

Category 2 – will qualify for some financial aid at the right schools. This family is not low income. They are middle class and their EFC is usually between $10,000 – $17,000 a year. If their student is applying to a state college, their out-of-pocket costs before financial aid kicks in is comparable to the tuition at the local state college. Meaning they may not qualify for much financial aid other than student loans at the wrong college.

It is imperative that a Category 2 family make sure their college choice is a good partner both academically and financially. This family will benefit from carefully matching their student academically to colleges where their child falls into the top caliber of students applying. Every year colleges release their latest freshman class demographics, so the informed family will use this information to see how their student stacks up because colleges often reward top students with better financial aid packages.

In addition to evaluating your student’s academic profile against the latest freshman class, it is equally important to make sure the college’s financial aid policy matches your needs. Because not all colleges can meet all of your financial need above your EFC. This can lead to your family covering both your EFC and the gap between your EFC and the cost of attendance.

Category 3 – family will not qualify for need-based financial aid at any of the colleges they are applying to. Their EFC is high because of family income and/or assets. All is not lost for this family because they may be able to pay for college out of their income or assets. And by filing the aid forms may find themselves pleasantly surprised when a college offers them financial aid they were not expecting.

Now you know what you must do right now, make sure you file by the deadlines, respond to any correspondence from the financial aid office and good luck.

Are Your Children Financially Literate?

Posted on March 6, 2009 | Filed Under Articles

Most Young Adults Aren’t … And They Could Pay A Painful Price.

Provided by Felicia Gopaul

How bad is financial illiteracy today? So bad that your adult children may be at risk of making some serious financial mistakes. Recent surveys have shown that many young adults are not only wayward financially, but also pessimistic about ever becoming wealthy.
Young women at particular risk. A 2006 OppenheimerFunds survey of women aged 26-39 found that 62% of respondents had no investment accounts at all, and that 67% were living paycheck-to-paycheck. In a 2005 Consumer Federation of America/VISA USA survey, 55% of the women polled between ages 25-34 had emergency savings of less than $500.

Surprising cynicism. In 2005, the CFA and the Financial Planning Association undertook joint surveys that illustrated a startling expectations gap. In the FPA survey, most of the financial planners contacted felt that more than 80% of young adults could amass $250,000 in net worth over a 30-year period, and that about 50% could accumulate $1 million of net worth in the same time span. But only 26% of the young consumers the CFA surveyed believed they could amass $200,000 at any point in their lives, and only 9% felt they could someday accumulate $1 million.

A little knowledge can be dangerous. Don Blandin, CEO of the non-profit Investor Protection Trust, commented that “the entry of most Americans to the securities market is by buying a product rather than understanding the process.” Too many young investors elect to fly solo into the stock market through the Internet; too many young homebuyers know just enough (but not enough) about mortgage and lease options. And then there’s the widely publicized case of 24-year-old Casey Serin (iamfacingforeclosure.com), now $2.2 million in debt as a result of what he didn’t know about real estate investment.

Prescriptions in progress. The Ad Council and the American Institute of Certified Public Accountants have started a national campaign, Feed the Pig™, to try and correct this dilemma (learn more by visiting www.feedthepig.org). The National Council on Economic Education has also helped launch www.TheMint.org to provide young adults with vital financial principles.

These are the views of Peter Montoya, Inc. and should not be construed as investment advice. Felicia Gopaul does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Tax Advisor for further information.

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The Road To College

Posted on March 6, 2009 | Filed Under Articles

Why and when should you plan for your child’s higher education?

Provided by Felicia Gopaul

Remember when a college education was reasonably priced? Those days are gone, and that’s why college planning is so important. Between 2001 and 2006, the average tuition and fees at four-year public colleges and universities increased by 35%. The average tuition for private colleges increased 32% between 1996 and 2006 (according to the College Board).

How soon is too soon? It is never too soon to begin saving for your child’s education. Many parents start as soon as a child is born. Some parents begin planning before children arrive. If you’re planning on having a family “someday”, start planning now. If you have a child on the way, start now. If you have an infant, toddler, grade-schooler or teenager, start now. Notice a theme here?

How late is too late? If your child is already in high school, you may feel it’s too late to start saving for college. But think again. ANY pre-planning and saving you can do is better than nothing. If you are in a time crunch to save, start thinking of ways to reduce your monthly expenses and increase your cash flow NOW. Then look at some ways to invest what you’ve saved. There are many options beyond a traditional savings account, such as CDs or money market accounts. Do some research, or better yet, enlist the assistance of a certified college planning specialist.

What about your retirement? While you may feel that putting off your retirement for a few years is an acceptable trade-off, you should not have to sacrifice your retirement savings to put your children through college. Remember … student loans are available. While you may not want your child to assume such a financial burden, you could always help out with repaying the loan later. Also, by having your child be responsible for at least a portion of their college tuition or expenses, they may experience a greater understanding of and appreciation for the value of their education.

You need a break. A tax break, that is. Many higher education savings vehicles can provide one, such as 529 plans, Coverdell Education Savings Accounts, and certain kinds of tax-exempt bonds. However, as the number of tax-advantaged college savings vehicles have increased, so have the details, rules and “fine print” pertaining to them. In fact, some of these tax breaks could conflict with one another. Unless you’re willing to spend a great deal of time doing research, it may be wise to speak with a college planner who can help you sort through these options.

Other alternatives to consider … If money is tight, would your child be willing to complete their first two years at a local community college, then move on to their preferred college or university later? The tuition likely to be much less at a state community college, and you could realize additional savings if your child attends school while living at home. If your child does not wish to start college locally, it may be worthwhile to look into the myriad of scholarships, work study programs and off-campus jobs that may be available. The guidance office at most schools will have job information available if you inquire.

The simple fact is – the sooner you plan, the better. If you haven’t begun planning, start now – there is no better time to get the proverbial ball rolling. You may be surprised how a little planning now can make a big difference in the years to come.

These views are those of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

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Why Financial Aid Ain’t Like Social Security – It’s Not an Entitlement Program

Posted on March 3, 2009 | Filed Under Articles

“What does college funding mean to you?” I asked a parent.

The answer I got back surprised me. This parent told me – scholarships and grants.

I realized that in that answer, there was a serious disconnect between what I mean when I say “college funding” and what parents think of when I say college funding.

College funding means for parents – money that does not need to be paid back like grants and scholarships. And many of them falsely believe that they are entitled to get a majority of their child’s education paid for from these sources.

They falsely believe that they have the right to receive grants and scholarships that cover the majority of children’s education based on their kid’s grades, athletic ability or extra-curricular activities.

And in that answer, I began to understand why so many parents I’ve meet are so woefully financially unprepared to pay for their child’s education no matter what their income.

In order for you to deal with the escalating cost of a college education, parents have to be smart – as smart as your kids.

It’s about getting your own education. An education that starts with learning the financial aid system. Then taking that education and applying it to a comprehensive word problem with no right answer. You will be graded on how well you’ve studied and can integrate the various approaches into your final exam (paying for college).

The financial aid process starts with completing the Free Application for Federal Student Aid (FAFSA) required by more than 95% of the colleges and universities in the United States. It may also include completing the CSS Profile for a select list of colleges. Once the forms are you completed, the government sends parents a Student Aid Report (SAR).

The SAR tells parents how much they will be expected to contribute to their student’s education. It gives the Expected Family Contribution (EFC). So before parents will receive ANYTHING in the form of grants or scholarships, they will be expected to go into their own pockets first.

The Student Aid Report is sent to both the parents and the colleges your student applied to. They use the information to determine how much and what kind of financial aid (if any) they will offer you. Financial aid is based on a formula NOT an entitlement. The formula is:

Cost of Attendance
- Expected Family Contribution
= Family Need

Given that receiving financial aid is formulaic, informed parents do what they did to ensure their child received the highest SAT or ACT score. They hire a professional. Professionals in this arena are called Certified College Planning Specialists (CCPS).

They have met the rigorous requirements of the National Institute of Certified College Planners’ (NICCP) to attain the CCPS certification and have received advanced, specialized training in college planning. They know the ins and outs of managing money specifically for college. But more importantly, a CCPS knows the best ways of obtaining the kinds of college funding that will best fit your income, your goals, and your lifestyle. In order to retain the certification, a CCPS must refresh and expand this expertise regularly by obtaining 24 hours of continuing education credits every year and adhere to a Code of Ethics.

CCPS professionals know the factors that reduce the out-of-pocket cost a college education. In addition, their definition of college funding is much more expansive than most parents’ definition. Of course it includes grants and scholarships, but it also includes work-study, student, parent and private loans, personal savings including 529 plans and Coverdell accounts, savings bonds, UTMA/UGMA accounts, tax credits, Section 127 plans, Tuition Reimbursement programs and more. It also means utilizing academic strategies, cash flow strategies, financial planning strategies and tax planning strategies.

So, if your definition of college funding does not include a combination of some of the other items I’ve listed, you may be able to educate your child but you will not get an “A” in college funding. Parents that get the best grades, often save themselves $5000 – $10,000 a year depending on their situation because they took the time to figure out how to maximize their eligibility and decrease their out-of-pocket costs.

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