Coordination of College Savings Programs and Financial Aid

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Coordination of College Savings Programs and
Financial Aid
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Where It All Started

• College Scholarship Service (CSS) established by
  the College Board (1954)
• Support awarding of need-based aid
• Higher Education Act of 1965 (HEA)
• Federal legislative umbrella
• Title IV Programs

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College Financing Myths

• No One Can Pay Total Cost of College

• No One Can Save the Total Cost

• No One Receives Enough Financial Aid

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College Financing Myths

• No One Can Pay Total Cost of College

• No one does pay the total cost
• State subsidies and private endowments
• Few families pay the sticker price

• No One Can Save the Total Cost
• Few should target total cost
• Target should be share of college cost (EFC)

• No One Receives Enough Financial Aid
• Millions of students share billions of dollars

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So, How Does It All Work . . . What is
Financial Need?

• Total College Costs
• EFC
• Need/Aid Eligibility

Expected Family Contribution
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What is an Expected Family Contribution (EFC)?

• Federal EFC
• An eligibility index for federal programs
• Determined by data from the Free
  Application for Federal Student Aid
• Institutional EFC
• A familys ability to pay
• Determines eligibility for non-federal aid
• Based on CSS/Financial Aid PROFILE data

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Principles of Financial Aid

• Families are expected to pay
• Parent and student contributions
• Most Financial aid is need-based
• Other criteria often considered (merit awards,
  athletic aid etc.)
• Aid to meet total budget

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So, wheres the money . . .
. . . who gets it and how much do they get?
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Financial Aid Sources
TOTAL AID AWARDED (74.4 billion)
2000-2001 Academic Year
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How many students get what?

• More than ½ receive assistance
• 9.2 million students in 1999-2000
• Award range zero to infinity
• Average 99-00 package 6,265
• Higher cost more eligibility
• 15,000 private college grant typical
• Family incomes 0 to 200,000
• 1999-2000 report shows Federal aid to 70 of 20,000 and 25 of 100,000

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It All Begins with the FAFSA and Federal
Financial Aid
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Federal Student Aid College Savings Plans

• Jeff Andrade
• Deputy Assistant Secretary,
• Postsecondary Education Policy
• U.S. Department of Education

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Overview of Federal Student Aid

• Over 69 billion in Federal grants, new loans,
  work-study, and loan consolidations in 2002-03.
• Over 8 million students will receive federal
  financial aid more than half of all students
  enrolled in U.S..
• 570,000 parents will borrow federally-guaranteed
  loans.

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Federal Student Aid Programs

• Pell Grants Portable vouchers targeted at
  low-income students
• Stafford Loans Subsidized and
  Unsubsidized/Portable FFEL and Direct
• Work-Study Campus-based employment assistance
• Perkins Campus-based low-interest fixed rate
  loans
• Supplemental Grants Campus-based need-based
  grants

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How Do Students Apply for Aid?

• Free Application for Federal Student Aid (FAFSA)
• Paper or Electronic Application
• Expected Family Contribution (EFC) determined by
  need analysis formula in the Higher Education Act
• Need Cost of Attendance - EFC

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Federal Need Methodology

• Income
• AGI
• -Taxes Paid
• Untaxed Income
• Certain Benefits
• Living Allowance
• VA (non-ed)

• Assets
• Cash/Savings
• Investments
• Farm/Business

Expected Family Contribution
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Federal Formula Asset Protection
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How 529 Plans Interact with Federal Formula

• Section 480(j) of HEA requires tuition
  prepayment plans to reduce cost of attendance.
  Does not affect EFC, but lowers need.
• Law is silent on section 529 savings plans,
  Coverdell savings accounts. Treated as savings.
  Can affect EFC if amount exceeds asset allowances.

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Saving Toward College Costs
Why bother?
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Grant/Loan Imbalance
Loans
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Grants
Grants
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Loans
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Saving and planning never more important or
possible!

• Saving tools never as expansive
• Good News/Bad News?
• Education IRA/Coverdell ESA
• Section 529 Plans
• State-sponsored saving programs
• Prepaid tuition plans
• Custodial accounts

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Section 529
State-sponsored Plans

• Best option for most people
• No income-eligibility limit
• Total control over the money
• Complete portability
• Tax-free interest growth
• Tax-free distribution

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So, what does it mean?

• 5,000 invested each year for 18 years
• 287,704 in a Section 529 plan
• 250,157 in a Custodial Account
• 224,527 in a taxable account (10 interest)
• Timing is everything!
• The earlier the better to ensure growth

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CSS/Financial Aid PROFILE ?
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PROFILE information supports Institutional
Methodology (IM)

• IM is based on annual review current economic
  indicators and ongoing review by student aid
  administrators

IM sensitive to disparity between parent and
student asset treatment
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How are assets treated?

• Parent and student assets taken into account
• Parental asset 5.6 assessment
• Student asset 35 assessment
• 529 Plans are parents assets
• Savings or pre-paid the same in IM
• Family assets to become the norm

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Aid Eligibility and Availability

• Income is the major influence
• Assets are considered but protected
• Saving and planning never more important
• Eligibility isnt a guarantee
• Few colleges can meet full need
• No college should be ruled out without pursuing
  financial aid

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collegeboard.com
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Calculate your eligibility

• collegeboard.com tools
• EFC Calculators
• Federal Methodology and Institutional Methodology
  
• Twenty Things You Need To Know About College
  Financing
• Compare Your Aid Awards
• And much, much more!

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