PAYING FOR COLLEGE Making Cents Clay Community Center September 12, 2013 Disclaimer  Andreas Rauterkus is not a registered investment advisor or broker/dealer.

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Transcript PAYING FOR COLLEGE Making Cents Clay Community Center September 12, 2013 Disclaimer  Andreas Rauterkus is not a registered investment advisor or broker/dealer.

PAYING FOR COLLEGE
Making Cents
Clay Community Center
September 12, 2013
Disclaimer
 Andreas Rauterkus is not a registered investment
advisor or broker/dealer. Readers are advised that
the material contained herein should be used
solely for informational purposes. Andreas
Rauterkus does not purport to tell or suggest
which investment securities attendants should buy
or sell for themselves. You should always conduct
your own research and due diligence and obtain
professional advice before making any investment
decision.
Why Save for College?
 College is Expensive
Type of
Institution
Projected 4-year tuition and fees
2012
2030
Private College
$124,700
$355,800
Public (in-state)
$36,050
$102,900
Based on average tuition and fees for 2011-2012 as reported by The College Board, assuming to increase 6% annually
Goal: afford the college of choice
 How do you finance the investment in education?
 Pay as you go
 Pay later
 Student loans
 Find someone to help pay
 Scholarships and grants
 Start saving now
Example: Monthly savings goal* through final
month of college
Type of school
Public
Private
Ivy
Current annual
costs**
$16,000
$37,000
$47,000
Newborn
$432
$999
$1,269
Four
$487
$1,126
$1,431
Eight
$578
$1,337
$1,698
Twelve
$756
$1,748
$2,221
Sixteen
$1,224
$2,831
$3,596
Child’s age
*Assumes 6% annual college cost increase and 6% annual investment return
**incl. tuition, fees, room, board and books according to The College Board
Federal tax incentives
 Qualified Tuition programs (529 plans)
 Earnings grow tax deferred
 Distributions are tax-free when used for qualified post-secondary
education costs
 Coverdell Education Savings Accounts
 Same as above
 Max. contribution is $2,000 per year per child
 May also be withdrawn tax-free for primary and secondary school
expenses
 U.S. Savings Bonds
 EE and I bonds can be redeemed tax free to pay for college tuition.
 Income has to be less than $85,100 ($135,100)
 Individual Retirement Accounts
 No withdrawal penalties for qualified post secondary education costs
 Taxes are still due on withdrawals
Qualified Tuition Plans (529 Plans)
 Authorized by Section 529 of the Internal Revenue
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Code
Tax-advantaged savings plan designed to
encourage saving for future college costs
If money is withdrawn and not used for eligible
college expenses, earnings are subject to income
tax and a 10% federal tax penalty
All 50 states and the District of Columbia sponsor
at least one type of 529 plan
Pre-paid tuition plans versus college savings plans
Prepaid Tuition vs. College Savings Plan
Prepaid Tuition Plan
College Savings Plan
Locks in tuition prices
No lock on college costs
All plans cover at least tuition and
mandatory fees
Covers all qualified expenses, incl.
tuition, room & board, mandatory fees,
books, computers
Lump sum and installment payments
prior to purchase based on age of
beneficiary and number of years of
college tuition
Many plans have contribution limits in
excess of $200,000
Many states plans guaranteed or backed No state guarantee. Investment options
by state
are subject to market risk
Age/grade limit for beneficiary
No age limits
Most state plans require either owner or No residency requirement
beneficiary to be a state resident
Limited enrollment period
Enrollment open all year
Alabama 529 plans
 Higher Education 529 Fund (advisor sold)
 http://www.collegecounts529advisor.com
 Contributions to state plan are tax deductible up to $5,000
per year
 Higher Education 529 Fund (direct sold)
 http://www.collegecounts529.com
 Contributions to state plan are tax deductible up to $5,000
per year
 Prepaid Affordable College Tuition (PACT) Program
 Since 2008 contributions to state plan are tax deductible
up to $5,000 per year
 Closed to new enrollments
Putting the Plan Together
 Establish a savings budget
 Minimize taxes
 Children can earn up to $1,900 in investment income without paying
federal income tax
 Consider 529 plans and education savings accounts even for
older children
 Invest tax-free whenever possible
 Create the right mix between taxable and tax-free investments
 Concentrate growth portion in taxable accounts
 Income producing portion in 529 account or education savings account
 Capital losses in a 529 plan or ESA do not produce a capital loss for tax
purposes
Financing Your Education
 Free Application for Federal Student Aid (FAFSA)
 Determine eligibility for federal student financial
aid
 Determine expected family contribution
 Measure of family’s financial strength
 Student Aid Report (SAR)
 Summary of FAFSA responses
 Eligibility
 Nearly every student is eligible for some financial
aid
 Need to meet certain eligibility criteria
Need-Based Options
• Loans
• Long-term, low interest
• Subsidized Federal Direct Stafford Loans
• Maximum amount depends on status
• Low interest rate
• Interest is deferred until 6 months after graduation
Need-Based Options (cont’d)
 Federal Perkins Loans
Based on exceptional need
Interest is subsidized and fixed
Repayments begin 9 months after
graduation (up to 10 years)
Federal Grants
 Grants do not have to be repaid
 Pell grants
 Supplemental Education Opportunity grant
 Academic Competiveness grant
 SMART grant
 Veteran benefits
 G.I. bill
Other Need Based Options
 Work Study
 Federal program
 Earn money to pay for college
 State programs
 Alabama Commission on Higher Education
 http://www.ache.alabama.gov/Students&Parents/PayingforCollege.htm
Non-Need-Based Options
 Unsubsidized Federal Direct Stafford Student Loan
 Similar to subsidized variety, but higher interest rate
 Federal Direct Parent Loan for Undergraduate Students (PLUS)
 Direct PLUS for graduate and professional students
 Borrow directly from a private lender
 Federal consolidation loans
 Combine loans to one lender
 Fixed interest rate
 State programs
 Qualified state tuition programs (529 plans)
 Prepaid tuition plans
Scholarships
 Money that you are not expected to repay
 Colleges award many scholarship
 Based on GPA
 Based on major
 Based on specific talent
 Based on residency
 Outside scholarships
 Companies
 Religious and civic organizations
 Scholarship scams
THANK YOU!