If you find value in these articles, please share them with your inner circle and encourage them to Sign Up for my Rich Habits Daily Tips/Articles. No one succeeds on their own. Thank You!
[email protected]
Some of the Personal Finance content I will be writing about in this series of articles may be obvious or rudimentary to many of my readers but it also may be of great value to young people you may know. Please share this information with those you believe will best benefit from it.
How do you pay for college?
Scholarships
There are thousands upon thousands of Scholarships available to college students. Some of these Scholarships come directly from the College, which may be needs-based, academic-based, or sports-based. Smaller Scholarships, ones not offered by the College, are available on an Application Basis.
Every College Student should do their homework to find out what types of Scholarships are available to them. This is not easy work, since many of these Scholarships are not advertised. I highly recommend students/parents reading this book to gain a better understanding on the treasure trove of Private College Scholarships that are available: Confessions of a Scholarship Winner.
Financial Aid
If a student believes they may qualify for Student Aid, the student and their parents will need to complete separate FAFSA (Free Application for Federal Student Aid) applications every year, while a student is attending college.
Types of Aid:
- Pell Grants for low-income students
- Subsidized Stafford Loans
- Unsubsidized Stafford Loans
- State Grants
- College-Based Aid Scholarships
In determining how much, if any, the student and parents must contribute to their college education, the FAFSA college aid formula looks at Income and Assets of the student and their parents. The Expected Family Contribution amount is determined using four variables:
- Parents Net Income X 22% to 47% PLUS
- Parents Assets X 5% to 5.64% PLUS
- Student Net Income X 50% PLUS
- Student Assets X 20%
Parents Assets exclude:
- Retirement Accounts
- Home Equity
- Non-Qualified Annuities
- Cash Surrender Value in Permanent Life Insurance Policies
- Cars, Clothing and Household Items
Student Assets exclude 529 Plans owned by Grandparents.
Financial Aid is often provided on a first come, first serve basis.
After completing the FAFSA Application, Students and their Parents will receive a notification in a few weeks establishing the Expected Family Contribution amount.
529 Plans
529 Plans can be established for a specific Student (the Beneficiary) by anyone. For most, Parents and Grandparents are the “Owners” of the 529 Plan. 529 Plans are typically invested in Plan Approved Investments, such as Mutual Funds, and all Income/Gains in the 529 Plan are Tax-Free if used for that specific Student’s Tuition, Fees, Room and Board.
Roth IRAs
Parents and Students can use a part of their Roth IRAs to help pay for College Costs. The portion that may be used, without triggering any tax implications, equals the cumulative amount of Roth IRA Contributions made over the years.
Home Equity Loans
Many parents take out Home Equity Loans to help fund a Student’s College Costs. The Interest on Home Equity Loans is no longer Deductible for Federal Income Tax Purposes.
Student Loans
For parents who do not have enough saved to fund college for their Student/Child, Student Loans are often the only option. Student Loans come with a very high interest rate and will require at least one parent to co-sign the loan. A student will often be granted six months after graduation to begin paying the Student Loan. If the student is unable to make their monthly student loan payment, the parent who co-signed the Student Loan will be required to make the payment. If the student and parent do not make the required payments, their Credit Scores will be impaired and a lien on wages or assets will be sought by the Lender.
If a student decides to fund their college education using Student Loans, they need to understand that making Student Loan payments will be very challenging, due to the high costs of a college education. Serious consideration needs to be made, BY THE STUDENT AND NOT JUST THE PARENTS, on taking on Student Loans. This is a conversation that parents ARE OBLIGATED to have with their Student/Child.
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, Effort-Less Wealth, Change Your Habits Change Your Life, Rich Habits Poor Habits and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”
