2023 survey revealed a notable shift in public opinion over the past decade about the value of a college degree: 56% of Americans think a four-year college degree isn’t worth the cost due to students graduating with significant debt and a lack of specific job skills vs. 42% who believe college is worth it. The … Read more
Federal Student Loan Repayment Postponed for Sixth Time On April 6, the U.S. Department of Education announced a record sixth extension for federal student loan repayment, interest, and collections, through August 31, 2022.1 The fifth payment pause was set to end on April 30, 2022. The six extensions have postponed federal student loan payments for almost … Read more
For the first time in three years, interest rates on federal student loans will decrease for the 2019-2020 academic year. The lower rates apply to new federal student loans made on or after July 1, 2019, through June 30, 2020. The interest rate is fixed for the life of the loan.
Subsidized vs. unsubsidized
What’s the difference? With
subsidized loans, the federal
government pays the interest
that accrues while the student
is in school, during the
six-month grace period after
graduation, and during any
loan deferment periods. With
unsubsidized loans, the
borrower is responsible for
paying the interest during these
periods. Only undergraduate
students are eligible for
subsidized loans, and eligibility
is based on demonstrated
financial need.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019
IMPORTANT DISCLOSURES
Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training.More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Q & A with parent and Twin-Cities-based financial advisor Steven Schmidt on planning for college
Curious how a financial planner plans for his or her own children’s future? Learn a few tips from someone who understands this process both as a professional financial planner and as a parent with three kids in college.
Saving for college is a huge goal that many families work toward when it comes to personal financial planning. A parent may start the process of saving for college for a baby. Higher education can be a huge expense, but with the right planning of saving, investing and money saving tips can help parents toward their goals.
Steve Schmidt
We asked financial advisor Steven Schmidt to share his perspective and tips, not only from his experience helping families in the Twin Cities plan for college, but also as a father of four kids — ages 21, 20,18 and 17. With three of his children in college, and the youngest in the planning stages, Steve understands the process of planning and saving for college. Steve has lived in the Twin Cities for 25 years, and resides with his wife and children in Arden Hills. As a Founding Partner at Ballast Advisors, He is a seasoned investment manager who has been advising families since 1993.
Q. As a parent, how do you feel about having children in college?
A. Excited and trepidation all in the same thought. It is exciting to see your children grow up, especially during their first year away. They come back home a different person after the first year of college. But, also, you hope they find their way with their field of study, a new friend group, etc. I know how fast college felt for me. The first year you are getting for feet wet (it’s the hardest year), years 2 & 3 you are hitting your stride with school and friends, but in year 4 you and your peers are already planning for post-college lives.
Q. As a parent, what do you wish you’d known about planning for college before?
A. Start planning early, because the time flies by and your kids grow up fast. Keep in mind, colleges look for well-rounded kids. Keep their activities diversified; not only sports. Band, clubs, volunteering, jobs are all good things to have on your application. Encourage your children to work hard for exceptional grades. Many kids earn more in scholarships for “A” grades than working a job during high school.
Q. As a financial planner, what insights can you offer other parents preparing to send their children to college?
A. Start saving early! Starting early allows you to leverage compounding interest. Said differently, saving $10k when your child is 1 looks much different than saving $10k when your child is 17 and about to go to college. Here’s an example of how compounding interest can help you reach your education goals:
$10k invested for 18 years at 6% equals $28,543 when you child attends college
$10k invested for 1 year at 6% equals $10,600 when your child attends college
You have almost $18,000 more by saving the same $10,000 when your child is young.
When it comes to education planning, every family has different goals. Some families want to keep the cost from altering their other financial goals, while other families are more concerned about matching their child with the best fit school. We help the families find the best plan for their educational goals.
Q. Any tips for financial aid?
A. If you are not likely to qualify for federal financial aid, because your household income is high, there may be other options. I suggest looking for “generous” colleges; those that offer merit-based scholarships. A merit scholarship is a financial award based on academic success, but good grades isn’t the only factor. Colleges will look for ACT scores, leadership roles, and extracurricular activities like school or community involvement. It is important to know that not all colleges offer merit scholarships, but those that do will often compete for your child if they have a well-rounded high school experience. Another tip for reducing the cost of college on your family is to narrow your search to colleges that accept credits from Postsecondary Enrollment Options (PSEO), a program that allows Minnesota high school juniors and seniors to enroll in college courses on campus or online. Students earn both high school and college credit by passing these classes.
Q. How do you recommend involving children in the financial process of their college education?
A. When you travel as a family, take an hour or two to stop by a nearby college as your kids grow. This is something we did as a family, and we found planting the seed of what college campuses are like early can help them decide if they want big or small, near or far, public or private, etc.
We also set up checking accounts for our four children with small attainable savings goals. We felt like our kids would appreciate their education more if they contributed to its cost.
Also, when it came to our kids leaving for college, my wife and I had a very specific conversation with them about the expenses we are willing to pay for and those we are not – like a surprise road trip or Thursday night pizza. It helped set the expectations.
Q. 529 Plans are a popular option for college savings. What do you do if you save for college and your child takes a different path…. what options are there?
A. Most college savings plans allow you to change the benefactor if a child chooses not to attend post-secondary school. Also, 529 plans in particular, can be used for K-12 tuitions as well. Room and board, textbooks, computers and related equipment are considered qualifying expenses for 529 plans, so saving “too much” is hard to do.
Here’s are a few additional resources on the web for helping plan for college.
If you’re interested in receiving additional financial advice on saving for college or an analysis of your financial plan, contact Ballast Advisors for a complimentary consultation at a location near you:
Ballast Advisors – Woodbury Area
683 Bielenberg Dr., Suite 208
Woodbury, MN 55125-1705
Tel: 651.478.4644
Ballast Advisors – Arden Hills Area
3820 Cleveland Ave. N, Ste. 500
Arden Hills, MN 55112-3298
Tel: 651.200.3100
Ballast Advisors – Punta Gorda & Port Charlotte County Area
223 Taylor St., Suite 1214
Punta Gorda, FL 33950-3901
Tel: 941.621.4015
The U.S. Department of Education has named February Financial Aid Awareness Month. For many families, saving for college is a primary financial goal.
This calculator projects the future cost of college and illustrates how your savings, if any, match up for each year of college. If there is a funding shortfall, the calculator shows that amount each year, and calculates both the monthly savings amount and the lump-sum amount needed to eliminate the shortfall.
This tool can help you take a step toward understanding your goals as you consider the best investment plan for your child’s future. Including financial aid, there are many options in saving for college. College savings plans, like 529 plans are popular.
If you’re interested in receiving additional financial advice on saving for college or an analysis of your financial goals, contact Ballast Advisors for a complimentary consultation at a location near you:
Ballast Advisors – Woodbury Area
683 Bielenberg Dr., Suite 208
Woodbury, MN 55125-1705 Tel: 651.478.4644
Ballast Advisors – Arden Hills Area
3820 Cleveland Ave. N, Ste. 500
Arden Hills, MN 55112-3298 Tel: 651.200.3100
Ballast Advisors – Punta Gorda & Port Charlotte County Area
6210 Scott St., Suite 117
Punta Gorda, FL 33950-3901 Tel: 941.621.4015
529 plans were created by Congress in 1996 and have been modified through the years by various pieces of legislation. Known officially as “qualified tuition programs” or QTPs, 529 plans are so named because they are governed by section 529 of the Internal Revenue Code.
Put your savings effort on autopilot
Consider linking your 529 savings plan to your bank account so you can easily make automatic monthly contributions.
529 College Savings Plans
529 savings plans are tax-advantaged education savings vehicles and one of the most popular ways to save for college today. They can also be used to save for K-12 tuition. Much like the way 401(k) plans changed the world of retirement savings a few decades ago, 529 savings plans have changed the world of education savings.
Tax advantages and more
529 savings plans offer a unique combination of features that no other education savings vehicle can match:
Federal tax advantages: Contributions to a 529 account accumulate tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for qualified education expenses is taxed at the recipient’s rate and subject to a 10% penalty.)
State tax advantages: States are free to offer their own tax benefits to state residents, such as a tax deduction for contributions.
High contribution limits: Most plans have lifetime contribution limits of $350,000 and up (limits vary by state).
Unlimited participation: Anyone can open a 529 savings plan account, regardless of income level.
Wide use of funds: Money in a 529 savings plan can be used to pay the full cost (tuition, fees, room and board, books) at any college or graduate school in the United States or abroad that is accredited by the Department of Education, and for K-12 tuition expenses up to $10,000 per year.
Professional money management: 529 savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time as well as roll over (transfer) the money in your account to a different 529 plan once per calendar year without income tax or penalty implications.
Accelerated gifting: 529 savings plans offer an estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education while paring down their own estate, or a way for parents to contribute a large lump sum. Under special rules unique to 529 plans, a lump-sum gift of up to five times the annual gift tax exclusion amount ($15,000 in 2019) is allowed in a single year, which means that individuals can make a lump-sum gift of up to $75,000 and married couples can gift up to $150,000. No gift tax will be owed, provided the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years.
Transfer to ABLE account: 529 account owners can roll over (transfer) funds from a 529 account to an ABLE account without federal tax consequences. An ABLE account is a tax-advantaged account that can be used to save for disability-related expenses for individuals who become blind or disabled before age 26.
Choosing a 529 savings plan
Although 529 savings plans are a creature of federal law, their implementation is left to the states. Currently, there are over 50 different savings plans available because many states offer more than one plan.
You can join any state’s 529 savings plan, but this variety may create confusion when it comes time to select a plan. Each plan has its own rules and restrictions, which can change at any time. To make the process easier, it helps to consider a few key features:
Your state’s tax benefits: A majority of states offer some type of income tax break for 529 savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to the in-state 529 plan only. So make sure to understand your state’s rules.
Investment options: 529 savings plans vary in the investment options they offer. Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as your child approaches college age. (Remember, though, that any investment involves risk, and past performance is no guarantee of how an investment will perform in the future. The investments you choose may lose money or not perform well enough to cover college costs as anticipated.)
Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses.
Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.
User experience: Is the plan’s website easy to use? Can you easily take care of routine tasks online, such as set up automatic monthly contributions, change your contribution amount, research plan investments, find your rate of return, or request a withdrawal?
With so many plans available, it may be helpful to consult an experienced financial professional who can help you select a plan and pick your plan investments. In fact, some 529 savings plans are advisor-sold only, meaning that you’re required to go through a designated financial advisor to open an account.
Account mechanics
Once you’ve selected a plan, opening an account is easy. You’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash alternative.
Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions by setting up automatic monthly transfers from your bank account.
As for investment changes, beware that under federal law you are allowed to exchange your existing plan investments for new investments only twice per year. In other words, if your existing plan funds are currently invested in plan portfolios A & B but you want to change them to plan portfolios C & D, you can do this only twice per calendar year. However, you generally have unlimited say in how your future contributions will be invested.
You will also be able to change the beneficiary of your 529 savings account to a qualified family member with no income tax or penalty implications.
529 prepaid tuition plans — a distant cousin
There are actually two types of 529 plans — savings plans and prepaid tuition plans. The tax advantages of each are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges, typically in-state public colleges, at today’s prices for use by the beneficiary in the future. 529 prepaid tuition plans are generally limited to state residents, whereas 529 savings plans are open to residents of any state. Prepaid tuition plans are much less common than savings plans.
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing; specific plan information is available in each issuer’s official statement. There is the risk that investments may not perform well enough to cover college costs as anticipated. Also, before investing, consider whether your state offers any favorable state tax benefits for 529 plan participation, and whether these benefits are contingent on joining the in-state 529 plan. Other state benefits may include financial aid, scholarship funds, and protection from creditors.
Ballast Advisors – Woodbury Area
683 Bielenberg Dr., Suite 208
Woodbury, MN 55125-1705 Tel: 651.478.4644
Ballast Advisors – Arden Hills Area
3820 Cleveland Ave. N, Ste. 500
Arden Hills, MN 55112-3298 Tel: 651.200.3100
Ballast Advisors – Punta Gorda & Port Charlotte County Area
6210 Scott St., Suite 117
Punta Gorda, FL 33950-3901 Tel: 941.621.4015
If you’re interested in receiving additional financial advice on saving for college or an analysis of your financial plan, contact Ballast Advisors for a complimentary consultation at a location near you:
IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of AZ, CA, CO, FL, GA, ID, IL, IN, IA, LA, MN, ND, OH, PA, TX, VA, WA and WI. No offers may be made or accepted from any resident outside the specific states referenced.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.
Many parents pay for college with a combination of current income, savings, and financial aid. By learning the basics of financial aid, you’ll be able to understand how the aid process works and compare the aid awards your child receives.
What counts the most?
Your current income is the most important factor in determining need, but other factors play a role, such as your total assets, how many family members are in college at the same time, and how close you are to retirement age.
How much should you rely on financial aid?
Although financial aid can certainly help cover your child’s college costs, beware of too many student loans, which can financially cripple students for years after college.
What is financial aid?
Financial aid is money distributed primarily by the federal government and colleges in the form of student loans, grants, scholarships, and work-study jobs. Loans and work-study must be repaid (through monetary or work obligations), while grants and scholarships do not. A student can receive both federal and college aid.
Financial aid can be further broken down into two types: need-based, which is based on your child’s financial need, and merit-based, which is based on your child’s academic, athletic, or artistic merit.
How is financial need determined?
Financial need is generally determined by looking at a family’s income, assets, and household information. The government’s aid application, the FAFSA, uses a formula known as the federal methodology.
A detailed analysis of the formula is beyond the scope of this article, but generally here’s how it works: (1) parent income is counted up to 47% (income equals adjusted gross income or AGI plus untaxed income/benefits minus certain deductions); (2) student income is counted at 50% over a certain amount ($6,570 for the 2018/19 school year); (3) parent assets are counted at 5.6% (home equity, retirement assets, cash value life insurance, and annuities are excluded); and (4) student assets are counted at 20%.
The result is a figure known as your expected family contribution, or EFC. This is the amount of money you must contribute to college costs to be eligible for aid. Your EFC remains constant, no matter which college your child applies to.
Your EFC is not the same as your child’s financial need. To calculate financial need, subtract your EFC from the cost at a given college. Because tuition, fees, and room-and-board expenses are different at each college, your child’s financial need will vary depending on the cost of a particular college.
You fill out the FAFSA and your EFC is calculated at $35,000. College A costs $60,000 per year and College B costs $50,000 per year. Your child’s financial need at College A is $25,000 and $15,000 at College B.
Colleges use their own formula for determining financial need. Basically, the process works the same way except that the institutional methodology in the standard college PROFILE application typically takes a more in-depth look at your income and assets. For example, some colleges may consider your home equity in assessing your ability to pay college costs.
Just because your child has financial need doesn’t necessarily mean that colleges will meet 100% of that need. In fact, it’s not uncommon for colleges to meet only a portion of it. If this happens to you, you’ll have to make up the gap, in addition to paying your EFC.
How do I apply and when?
The best way to file the FAFSA is online at fafsa.ed.gov. To do so, you and your child will each need to obtain an FSA ID, which you can also do online.
The FAFSA relies on income tax information from two years prior (for example, the 2018/19 FAFSA relies on your 2016 tax return) and current asset information. The FAFSA has the ability to directly import your tax information using the IRS Retrieval Tool, which is built into the form, though you will also need to answer additional questions. The FAFSA can be filed as early as October 1st in the year prior to the year your child will be attending school.
Private colleges typically require both the FAFSA and the standard PROFILE form or their own aid form, which you’ll need to submit by each individual college deadline. The PROFILE form is generally submitted in late fall or winter, but is often required earlier if your child is applying early decision or early action.
After your FAFSA is processed, you will receive a Student Aid Report that highlights your EFC. Colleges that you list on the FAFSA will also get a copy of the report. Then the financial aid administrator at each school that accepts your child will try to craft an aid package to meet your child’s financial need. Colleges aren’t obligated to meet all of it.
Comparing aid awards
Sometime in late winter or early spring, your child will receive financial aid award letters that detail the specific amount and type of financial aid that each college is offering. To compare offers, first determine your out-of-pocket cost, or net price, for each school by subtracting any grant or scholarship aid (which doesn’t need to be repaid) from the total cost of attendance. Next, look at the loan component of each award to see how much, if any, you or your child will need to borrow. Then compare the net price and loan amounts across all colleges.
If you’d like to lobby a particular school for more aid, tread carefully. A polite letter to the financial aid administrator followed up by a telephone call is appropriate. Your chances for getting more aid are best if you can document a change in circumstances that affects your ability to pay, such as a recent job loss, unusually high medical bills, or some other unforeseen event.
Common federal aid programs
Here are some names you’ll be hearing as you navigate the world of financial aid:
Direct Stafford Loan – The most common student loan for college and graduate students. For undergraduate students, the interest rate is currently fixed at 5.045% for loans disbursed July 1, 2018 through June 30, 2019, and 6.595% for graduate students.
Perkins Loan – A student loan for college and graduate students with the greatest financial need. The interest rate is currently fixed at 5%.
Direct PLUS Loan – An education loan for parents of college students and independent graduate students. A separate application is required, though filing the FAFSA first is a prerequisite. Parents can borrow the full cost of their child’s education, minus any financial aid received; the only criteria is a good credit history. The interest rate is currently fixed at 7.595% for loans disbursed July 1, 2018 through June 30, 2019.
Pell Grant – A Pell Grant is available only to undergraduates with exceptional financial need.
A word about merit aid
Colleges often use favorable merit aid packages to attract certain students to their campuses, regardless of their financial need. The availability of college-sponsored merit aid tends to fluctuate from year to year and from college to college as schools decide how much of their endowments to spend, as well as the specific academic and extracurricular programs they want to target. As a family researching college options, exploring college merit aid is probably the single biggest thing you can do to optimize your bottom line.
If you want to get an estimate ahead of time of how much financial aid (need-based or merit) your child might qualify for at a particular college, visit the college’s website and fill out its net price calculator, which all colleges are required to have on their websites. Net price calculators ask for parent and student income and asset information, and they take anywhere from 5 to 15 minutes to complete.
Besides colleges, a wide variety of groups offer merit scholarships to students meeting certain criteria. There are websites where your child can input his or her background, abilities, and interests and receive (free of charge) a matching list of potential scholarships.
How much should I rely on aid?
With all this talk of financial aid, it’s easy to assume that it will do most of the heavy lifting when it comes time to paying the college bills. But the reality is you shouldn’t rely too heavily on financial aid. Although aid can certainly help cover your child’s college costs, student loans often make up the largest percentage of the typical aid package, not grants and scholarships. Remember, parents and students who rely mainly on loans to finance college can end up with a considerable debt burden that can have negative implications for years after graduation.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019
If you’re interested in receiving additional financial advice on saving for college or an analysis of your financial plan, contact Ballast Advisors for a complimentary consultation at a location near you:
Ballast Advisors – Woodbury Area
683 Bielenberg Dr., Suite 208
Woodbury, MN 55125-1705 Tel: 651.478.4644
Ballast Advisors – Arden Hills Area
3820 Cleveland Ave. N, Ste. 500
Arden Hills, MN 55112-3298 Tel: 651.200.3100
Ballast Advisors – Punta Gorda & Port Charlotte County Area
6210 Scott St., Suite 117
Punta Gorda, FL 33950-3901 Tel: 941.621.4015
IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Paying the college Tuition payments made directly to a college aren’t considered taxable gifts, no matter how large the payment. But this is true only for tuition, not room and board, books, or fees. Did you know … 529 plan for grandchildren If your grandchild doesn’t go to college or gets a scholarship, you can … Read more
