College Savings Plans

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College Savings Plans

• A Guide for Parents

Carolyn E. Karno, Manager Early Awareness and
College Planning
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Agenda

• College Costs
• How Financial Aid Works
• Current Trends
• College Savings Plans
• Advice from Experts

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Trends in College Pricing
Based on 2008 data from College Boards Trends
in College Pricing and assuming a 6 annual
increase
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Sources of Financial Aid
97.1 Billion was distributed in 2007
State
Federal Loans
Institutional Aid
Pell Grants
Source Trends in Student Aid 2008 The College
Board
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How Financial Aid Works

• Student and Parents complete forms
• Free Application for Federal Student Aid
• Used by all public and private institutions to
  determine eligibility for federal and state aid
• Some Private colleges have an additional form
• Used to determine eligibility for institutional
  funds

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How Financial Aid Works

• Forms are reviewed and an Expected Family
  Contribution is calculated
• Financial aid awards are based on financial need

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Financial Aid Award
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Trends in Student Aid

• Most schools do not meet the full financial need
  of their students

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Impact on Families

• Most families are not saving enough
• Education debt is skyrocketing

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Getting All Your Ducks in a Row

• Start your college financial planning as early as
  possible
• Understand how your income and assets will be
  assessed forfinancial aid purposes

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Asset and Income Assessments

• Parent Contribution
• Parent Income22-44 after taxes and protection
  allowances
• Parent Assets3-5.6 after asset protection
  allowances
• Retirement accounts and equity in your primary
  residence are excluded

• Dependent Student Contribution
• Student Income 50 after taxes and income
  protection allowance of 3,500
• Student Assets20

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Find out Your EFC

• www.finaid.org
• www.Mappingyourfuture.org
• www.fafsa4caster.ed.gov

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Education Savings Plans

• Are not assessed at the higher student rate
• Have special tax benefits
• Are controlled by the account owner

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529 Plans The Basics

• Can be used for qualified educational expenses
  including tuition and fees, room and board, and
  books and supplies
• New for 2009 you now can purchase
  computertechnology
• Most plans are established and maintained by a
  State

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529 Basics

• The Account Donor owns and controls the account
• Unlike trusts or custodial accounts, a 529
  remains in control of the donor regardless of the
  age of the beneficiary

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529 Tax Benefits

• Assets grow free of federal/state income taxes
• Most states exempt earnings for qualified
  withdrawals
• Some state plans allow account donors to deduct
  some or all of their contributions from state tax
• Connecticuts Plan allows for up to 10,000 per
  year (for joint filers) in state tax deductions

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Estate and Gift Tax Provisions

• In addition to the annual 13,000 gift tax
  exemption, an individual can give a tax-free lump
  sum up to 65,000 into a 529 account
• The contributor can not make another gift to the
  beneficiary during the next 5 years
• If the contributor is also the account owner, the
  gifted funds will still remain in his/her control

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Anyone Can Set Up Account

• No income limits for purchaser or beneficiary
• The Owner of the account can also be the
  beneficiary
• Generous savings limits (300,000 for CHET)

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529 Benefits- Portability

• Amount in one 529 plan can be transferred to
  another 529 plan once every 12 months
• Funds from one 529 plan can be transferred to the
  plan of another beneficiary who is a member of
  the same extended family

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529 Asset Allocations

• Each plan has a variety of growth options
• Account owner can make changes to allocations at
  least once per year

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Withdrawals for Nonqualified Expenses

• Account owner has the option to cash out or make
  non-qualified withdrawals
• Will receive a 10 penalty and tax on the
  earnings
• The value of the withdrawal will again be
  included in your taxable estate

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Weighing the Disadvantages

• Due to the volatility in the market, the value of
  college-savings plans dropped 21 last year
• Some investment options have no guaranteed rate
  of return
• Management fees vary by plan
• Comparing plans can be confusing

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For More Information

• Joseph Hurleys, The Best Way to Save for
  College A Complete Guide to 529 Plans
• Useful websites include
• College Savings Plan Network
• www.collegesavings.org
• Joseph Hurleys website
• www.savingforcollege.com
• Connecticut Higher Education Trust
• www.aboutchet.com
• Morningstar Financial Reports
• www.morningstar.com

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Coverdell Education Savings Accounts

• It is a trust or custodial account created for
  educational savings
• Includes expenses incurred at elementary,
  secondary, and postsecondary institutions

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Establishing a Coverdell ESA

• Any bank or other financial institution that
  handles traditional IRAs can serve as a
  custodian for a Coverdell account
• Contributions can be invested in stocks, bonds,
  mutual funds, and certificates of deposits

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Coverdell ESA - Benefits

• Has the same benefits as the 529 Plans plus
• A wider array of investment options
• Can make contributions until April 15 of the
  following year
• Provisions for rollover into a 529 account

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Coverdell ESA - Disadvantages

• Annual contribution capped at 2,000
• Income limits for Contributors
• less than 110,000 for single filers or 220,000
  for joint filers
• Contributions cease when beneficiary turns 18
• All contributions will eventually go to the
  beneficiary (by age 30)
• Sunset provision scheduled for Dec. 31, 2010

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U.S. Savings Bonds

• Qualified savings bonds include Series EE bonds
  issued after 1989 and all Series I bonds
• Contributions can be used to cover tuition and
  fees for the bond owner, owners spouse, or
  owners dependents
• Considered the asset of the owner

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Other Savings Options

• Zero Coupon or College Savings Bonds
• Bonds that do not pay interest but are issued at
  a discount to face value
• Zero Coupon Municipal Bonds are usually
  tax-exempt for federal and state purposes

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Determining a Savings Strategy

• Factors to consider
• Your tax bracket
• The age of your child
• The amount of control you want over your
  investments
• The amount of financial aid you expect your child
  to receive

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What Can Families Afford to Pay?

• One Third Rule

• Families should have saved at least one third of
  the anticipated cost of a childs education
• One third will come from current cash flow and
  gift aid
• One third will come from parent and student
  borrowing

Loans
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Advice from the Experts

• Begin saving early
• Before setting up a college savings plan, get the
  facts
• Involve your children
• Increase savings in your own name
• Continue to save for retirement

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Words to Live By
The best predictor of future success is not where
you go to school but what you do at the school
you attend.
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Planning for college while in high school

• A Guide for Parents

Cori Nevers Associate Dean of Undergraduate
Admission Sacred Heart University Fairfield,
CT www.sacredheart.edu
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Undergraduate Admissions

• Role share information
• Visit high schools
• Attend college fairs
• Interview prospective students
• Arrange visits to campus
• Present to families and students
• Encourage college planning
• Promote college experience
• Review college applications

CONNECTICUT STUDENT LOAN FOUNDATION
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The Bad News/Good News?

• There are a lot of colleges in the United States!

CONNECTICUT STUDENT LOAN FOUNDATION
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There are over 3,400 two four year colleges in
the United States
CONNECTICUT STUDENT LOAN FOUNDATION
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Theres a college for every type of student

• Outstanding 4 years including honors and AP, high
  board scores
• Struggled for 4 years
• Woke-up and matured junior year
• Traditional college prep, b average, National
  average SAT/ACT

CONNECTICUT STUDENT LOAN FOUNDATION
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Make friends w/ guidance

• Suffield High School has a knowledgeable, caring
  counseling team
• Attend SHS workshops all 4 years
• 8th 9th transition orientation
• Advance Placement (AP) planning
• College Planning Workshop
• Parent/Student/Counselor 11 sessions
• evening hours!
• Utilize them as a resource throughout high school
• Understand how SHSs college application process
  works

CONNECTICUT STUDENT LOAN FOUNDATION
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Start investigating colleges

• Search college web sites (parent alma mater)
• Visit, visit, visit!
• Request to be on mailing lists
• Attend a college fair
• Hartford National
• Connecticut Expo Center Hartford, CT
• http//www.nacacnet.org
• Thursday, April 2
• 900 a.m.1130 a.m.
• 630 p.m.830 p.m.
• Friday, April 3
• 900 a.m.1130 a.m.

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How parents can help

• Encourage participation (school clubs, athletics,
  theater, dance, volunteerism, band)
• Encourage career shadowing
• Incorporate career and college search into school
  projects
• Promote Time Management
• Enhance study skills
• Help students understand learning style
• Visual Learners
• Auditory Learners
• Kinesthetic Learners

CONNECTICUT STUDENT LOAN FOUNDATION
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How parents can help (cont.)

• Listen to Guidance Office
• Select college-level courses
• Select interest courses such as Accounting but
  still take Calculus
• Pray
• Save
• Pray
• Save
• Pray

CONNECTICUT STUDENT LOAN FOUNDATION
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SeniorYear

• Meet with your guidance counselor to discuss
  office procedures and generate a list of schools
  to consider visiting
• Take the SAT1 2x (May, October, December) and
  consider taking the ACT 1x. (Juniors take PSAT
  in October and SAT March, May or June)
• Continue visiting campuses
• Finish researching colleges before mid-November
• Complete applications before mid-December
• File required financial aid forms before
  mid-January
• Review financial aid awards mid-March
• Investigate alternative loan options mid-April
• Monitor grades
• Revisit the colleges who accepted you January -
  April
• Deposit to the college of your choice by May 1

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Heres what colleges consider
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Recommended websites

• www.collegeboard.com (search software)
• www.petersons.com
• www.fastweb.com (scholarships)
• www.ncaa.org (athletics)