SAVING FOR COLLEGE

Presented by Jonathan Hughes

MASSACHUSETTS EDUCATIONAL FINANCING AUTHORITY

About MEFA

  • Not-for-profit state authority created in 1982

  • Helping families plan, save, and pay for college

  • Keeping you on track with college planning:
    • mefa.org: information, tools, & resources
    • Emails: sign up tonight!
    • Facebook, Twitter, & LinkedIn
    • Webinars: Register online
    • YourPlanForTheFuture.org

Agenda

  • Cost of College
  • Understanding Financial Aid
  • Myths about Saving
  • Two Massachusetts Saving Options: U.Fund and U.Plan
  • MEFA as a Resource for You
  • Questions and Discussion

Cost of College 2014-2015

Average Estimated Full-Time Undergraduate Budgets by Sector, 2014-15

Financial Aid Breakdown

Undergraduate Student Aid 2013-14 ($184.5 Billion)

Source: The College Board, Trends in Student Aid 2014

Federal

Student Loans

34%

Federal Work-Study <1%

Federal Grants

25%

Institutional Grants & Scholarships

21%

Private Grants

6%

Federal Tax

Credits

8%

State Grants

5%

Two Different Ways to Award Aid

Need-Based Financial Aid

  • Based on family’s financial eligibility (“need”)
  • Eligibility determined by a standardized formula
  • Includes grants, loans, and work-study
  • Most financial aid is need-based
  • Must meet certain GPA for renewal

Merit-Based Financial Aid

  • Awarded in recognition of student achievements

(academic, artistic, athletic, etc.)

  • Applicants often compared against one another
  • May or may not be renewable
  • Not offered at every school
  • 6

FAFSA

  • Free Application for Federal Student Aid (FAFSA)

    • Required by all colleges for federal and MA state aid
    • Open January 1, 2016: FAFSA.gov
    • Log in with an FSA ID: FSAID.ed.gov
    • IRS Data Retrieval Tool – available February 1st

Must be completed every year!

Other Financial Aid Applications

  • CSS/Financial Aid PROFILE®
    • Required by some colleges
    • $25 for 1st school, $16 for each additional
    • Online application: student.collegeboard.org/profile
    • Noncustodial Parent PROFILE often required
    • MEFA PROFILE webinar recording on mefa.org

  • College Financial Aid Application
    • Required by some colleges

Financial Aid deadlines are so important!

Financial Aid Formula

Cost of Attendance (COA)

– Expected Family Contribution (EFC)

= Financial Aid Eligibility

Colleges fill in Financial Aid Eligibility with financial aid from all sources

How the Formula Works

f

Cost of Attendance

EFC = $5,000

True or False

“Saving for college

means no financial aid.”

False

Expected Family Contribution

12

Source: finaid.org The EFC formula above is used for the Federal Methodology.

$

$

$

$

+

+

+

=

$

EFC

Parental assets

Parental income

0% to 47% of
adjusted gross
income minus
all taxes and
allowances

Student income

50% over $6,310

Student assets

20% of all assets

3% to 5.6% of
nonretirement
assets

  • 529 College Savings Plans
  • Brokerage and/or
    mutual funds
  • Coverdell
    Education
    Savings
    Accounts
  • Prepaid Tuition Programs

  • UGMA/UTMA
    accounts
  • Other savings

Asset Impact on EFC

Based on 2016-17 Federal Methodology

Family A

Family B

Family C

Combined Parent Income

$75,000

$75,000

$75,000

Combined Parent Assets

$0

$75,000

$150,000

EFC

$7,819

$10,208

$14,438

Difference

$2,389

$6,619

An example: 4 in the family, 1 child in college:

Income Impact on EFC

Family A

Family B

Family C

Combined Parent Income

$75,000

$100,000

$150,000

Combined Parent Assets

$50,000

$50,000

$50,000

EFC

$8,798

$17,245

$32,803

Difference

$8,447

$24,005

Based on 2016-17 Federal Methodology

An example: 4 in the family, 1 child in college:

True or False

“It’s not worth saving for college if I can’t save the entire cost.”

False

Saving vs. Borrowing

Past Income

    • Savings
    • Other Assets

Present Income

    • Salary
    • Payment Plans

Future Income

    • Parent Loans
    • Student Loans

*Based on 10 years at an interest rate of 7%.
This example is an estimate only and market conditions may change.

Family Savings Options

  • Assets Specific to College
    • Section 529 Savings Plans (MEFA U.Fund)
    • Prepaid Tuition Plans (MEFA U.Plan)
    • Coverdell ESAs (formerly known as “Education IRAs”)

  • Assets Not Specific to College
    • Direct Asset Ownership by Parent (CDs, money market accounts, etc.)
    • UTMA/UGMA Accounts
    • United States Savings Bonds
    • Retirement Accounts (Roth IRAs and Traditional IRAs)

Tax-Deferred Savings

This example is an estimate only and market conditions may change. The example is not intended to predict or project the investment performance of any security. Please see page 12 of MEFA’s Early College Planning Guide for Parents for example assumptions and additional information.

In this hypothetical example, the Initial Investment is $26,000

MEFA U.Fund College Investing Plan

How it works:

  • Save for qualified higher education expenses such as tuition, fees, room, board, books, supplies, and equipment
  • Savings can be used at any accredited college or university nation wide
  • Minimum Initial Investment - $50 lump sum or $15/ monthly automatic investments
  • Combined Account Maximum - $375,000
  • Annual Account Maintenance Fee - No Fee
  • Multiple investment options (active management; indexed portfolio; individual allocation portfolios), FDIC insured option

Enroll online at fidelity.com/ufund or by calling 1.800.544.2776 to get started.

Established in 1999

The U.Plan Prepaid Tuition Program

How it works:

    • Allows you to prepay up to 100% of tuition & fees at
      80 MA public and private colleges & universities
    • By purchasing Tuition Certificates now, you lock in today’s
      tuition and mandatory fee rates
    • U.Plan Tuition Certificates:
        • Represent interest in Commonwealth General Obligation Bonds
        • Are backed by the full faith and credit of the Commonwealth of Massachusetts
        • Are not subject to market fluctuation
      • $300 minimum to get started
    • Annual enrollment period: May 1st to June 30th each year

To learn more about the U.Plan visit mefa.org/uplan

Established in 1995

The U.Plan Benefits

    • Money saved in the U.Plan grows federal and state tax free for MA residents

    • Any unused U.Plan money is returned to the owner without penalty and including interest accrued at Consumer Price Index (CPI)

    • Account owner has full control of account and beneficiary assignment

    • Beneficiary can be changed at any time

The U.Plan Advantage: Locking In a Percentage

    • As tuition costs vary, your lock-in percentages vary

    • Contributions year after year add up to a greater percentage of lock- in

    • U.Plan locks in only tuition and mandatory fee expenses

Institution

Tuition & Fees

Initial Investment

Percentage of Tuition & Fees

College A

$5,000

$1,000

20%

College B

$10,000

$1,000

10%

College C

$25,000

$1,000

4%

Participating U.Plan Colleges & Universities

American International College

Amherst College

Anna Maria College

Art Institute of Boston at Lesley University

Assumption College

Babson College

Bay Path College

Benjamin Franklin Institute of Technology

Bentley College

Berklee College of Music

Berkshire Community College

Boston College

Boston University

Bridgewater State University

Bristol Community College

Bunker Hill Community College

Cape Cod Community College

Clark University

College of Our Lady of the Elms

College of the Holy Cross

Curry College

Dean College

Eastern Nazarene College

Emerson College

Emmanuel College

Endicott College

Fisher College

Fitchburg State University

Framingham State University

Gordon College

Greenfield Community College

Hampshire College

Hebrew College

Hellenic College

Holyoke Community College

Laboure College

Lasell College

Lesley University

Marian Court College

Massachusetts Bay Community College

Massachusetts College of Art and Design

Massachusetts College of Liberal Arts

Massachusetts Maritime Academy

Massasoit Community College

Merrimack College

Middlesex Community College

Montserrat College of Art

Mount Holyoke College

Mount Ida College

Mount Wachusett Community College

New England Conservatory of Music

Newbury College

Nichols College

North Shore Community College

Northeastern University

Northern Essex Community College

Pine Manor College

Quinsigamond Community College

Regis College

Roxbury Community College

Salem State University

School of the Museum of Fine Arts

Simmons College

Smith College

Springfield College

Springfield Technical Community College

Stonehill College

Suffolk University

University of Massachusetts Amherst

University of Massachusetts Boston

University of Massachusetts Dartmouth

University of Massachusetts Lowell

Wellesley College

Wentworth Institute of Technology

Western New England University

Westfield State University

Wheaton College

Wheelock College

Worcester Polytechnic Institute

Worcester State University

What happens if…

    • I withdraw funds for another purpose?
    • My child doesn’t go to college?
    • My child graduates without using all the funds?
    • My child receives a scholarship?

Strategies for Saving

  • Start saving as early as possible. Use time to your advantage.

  • Use automatic transfers.

  • Get the word out and let your family and friends know that they may contribute or open a plan up on behalf of your child.

  • Involve your child in the process. There are great savings tools for
    kids online.

The new mefa.org

YourPlanForTheFuture.org

  • Complete college & career planning resource for students, parents, & high school counselors

  • Offers comprehensive tools in one easily accessible website

  • Provides access to information about higher education and career opportunities

  • Compiles comprehensive data on student academic readiness, persistence, and success for educators

  • Offered to all schools in MA free of cost by the Massachusetts Educational Financing Authority

The Commonwealth’s Career & College Planning Online Portal

YourPlanForTheFuture.org

Helpful Websites: College Savings & Financial Aid

  • MEFA:

MEFA.org

  • YourPlanForTheFuture:

YourPlanForTheFuture.org

  • Fidelity Investments:

fidelity.com

  • Info on college savings:

SavingForCollege.com

CollegeSavings.org

  • College Board: CollegeBoard.com

  • Financial aid info:

finaid.org

  • Federal Student Aid:

StudentAid.ed.gov

  • FAFSA4caster:

FAFSA.gov

  • Net Price Calculators:

All College Websites

What You Can Do Now

  • Support your student academically, socially, and emotionally
  • Talk about options and choices

  • Partner with MEFA:
    • Sign up for MEFA emails
    • Download e-books
    • Bookmark mefa.org
    • Check out YourPlanfortheFuture.org

Questions

Jonathan Hughes

jhughes@mefa.org

617-224-4818

mefa.org

info@mefa.org

(800) 449-MEFA (6332)

Saving for College December 2016.ppt - Google Slides