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ChFC HS 300: Financial Planning: Process and Environment > Ch.7 - Education Planning Applications & Ch.8 - Debt Management Applications > Flashcards

Ch.7 - Education Planning Applications & Ch.8 - Debt Management Applications Flashcards

Previously Module 8

1
Q

College cost have historically risen by a rate higher than the…

A

customer price index.

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2
Q

What are the 5 inputs needed to calculate College Funding Requirements

A 
– Rate of return on investments
– Education inflation rate (hard to determine)
– Current cost of one year of school
– Duration of college education
– Number of years until matriculation
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3
Q

This type of investment vehicle it’s considered free from default risk.

A

US Savings bond (Series EE and Series I)

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4
Q

Bonds are tax-free if you redeem them for…

A

Education purposes and you have income below certain threshold.

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5
Q

What type of bond has a fixed interest rate which makes them not as useful when considering inflation?

A

Series EE

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6
Q

What is a Section 529 plan?

A

Education savings funding vehicle that is handled by the state.

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7
Q

Section 529 plans are tax-free if used for…

A

education expenses.

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8
Q

This investment vehicle is the most attractive too conservative investors since the investment guarantees to pay for tuition.

A

Section 529

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9
Q

A Section 529 plan, contributions are allowed regardless of…

A

income.

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10
Q

Are the contributions to a Section 529 plan deducted for federal income tax purposes?

A

No

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11
Q

The rate of return for a Section 529 plan is based on the investments selected by…

A

the account owner.

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12
Q

This investment vehicle for education allows a limit of $2000 per year and for contributions.

A

Coverdell Education Savings Account

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13
Q

Is there any restrictions as to who can contribute to the Coverdell account?

A

No

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14
Q

Who controls the investments and withdrawls with a Coverdell Education Savings Account?

A

The owner of the account

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15
Q

This educational credit, up to $2,500 is allowed for expenses that you incur for the first four years of post-secondary education.

A

American Opportunity Tax Credit

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16
Q

What educational contributions phase-out after your AGI exceeds a certain level?

A

– Coverdell
– American Opportunity Tax Credit
– Lifetime Learning Credit

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17
Q

The American Opportunity tax credit is only available for students that are enrolled…

A

at least half-time for one academic period.

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18
Q

This text credit is for expenses incurred for education, for an unlimited number of years, available to any student, with a maximum credit of $2,000.

A

Lifetime Learning Credit

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19
Q

Government provides funds for education through the…

A

Department of Education.

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20
Q

Your ability to receive federal aid depends on 3 things what are they?

A

– Expected Family Contribution (how much your family makes)
– Student aid report
– Cost of attendance (tuition)

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21
Q

Do your grades affect the amount of money you’ll get for financial aid?

A

No

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22
Q

What are the four needs-based bonds offered by the government?

A
  1. Federal Pell Grants
  2. Supplemental Educational Opportunity Grants
  3. Federal Perkins Loan
  4. Subsidize Stanford Student Loans
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23
Q

This is the primary grant program for undergraduate full-time and part-time students, amount dependent on need.

A

Federal Pell Grants

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24
Q

This grant program is administered by the aid office at each school for undergraduate students only with an extreme financial need.
(FSEOG)

A

Federal Supplemental Education Opportunity Grants

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25
Q

This type of federal loan program is when the school lends money to a student and the interest accrues after the student leaves the school.

A

Federal Perkins Loans

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26
Q

This type of government loan program must be paid within 10 years and is the major source of education borrowing.

A

Subsidize Stafford Student Loans

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27
Q

What are the 2 types of loans given to students based on a non-needs-basis?

A
  1. Unsubsidized Stafford Student Loans (must be paid within 10 years)
  2. Parent Loans for Undergraduate Students (interest starts the day you get the loan)
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28
Q

This loan allows you to borrow the entire cost of your education.

A

PLUS Loan

FKA: Parent Loans for Undergraduate Students

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29
Q

This type of loan program allows graduate students to borrow money.

A

PLUS Loan

FKA: Parent Loans for Undergraduate Students

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30
Q

What are some emergencies that can result in a significant reduction any clients net worth?

A

– Loss of a job

– Expensive repairs to their car, house, etc.

31
Q

What is the best approach for handling emergencies posing a serious loss?

A

Insurance.

32
Q

How much of a persons take-home pay or total expenses should the emergency fund be worth?

A

3 to 6 months of your salary

33
Q

What are some things that can influence the size of your emergency fund?

A

Age
Health
Financial situation
Being self-employed

34
Q

It may be more appropriate to have a smaller emergency fund if…

A
  1. Home equity line of credit or other sources of low-cost funding is available
  2. You have multiple sources of income
  3. Stable employment or a skill is in constant demand
35
Q

What are some factors that might make a client increase their emergency fund?

A 
– Lack of job security
– Downsizing at work
– Self-employment
– Commission-based job
– Economic uncertainty
36
Q

An emergency fund should consist of investments that are…

A

liquid (cash, cash equivalents, treasury bills, short-term CDs, money market mutual funds) assets.

37
Q

If you’re considering using an investment as an emergency fund, what are some inappropriate investment ideas?

A

Real estate
Equity mutual funds
Collectibles

38
Q

What are the sources for an emergency fund?

A

Savings accounts
Home equity line of credit
Laddered CDs that are set to mature more periodically

39
Q

The creation of an emergency fund should take precedence over…

A

Investing

Retirement

40
Q

Including home equity loans, this is the largest component of your debt.

A

Mortgage debt

41
Q

Two types of consumer debt.

A
  1. non-revolving credit (car, & education loans, vacation cost)
  2. revolving credit (credit cards and store credit line)
42
Q

The most common credit score used in over 75% of credit decisions.

A

FICO score

43
Q

What are the five factors that are included in your credit score?

A
  1. Payment history
  2. The amount owed
  3. Years of credit history
  4. New credit inquiries
  5. Type of credit
44
Q

Auto leases are appropriate for people who…

A

– Don’t like negotiating purchase price
– Want to reduce monthly payment and down payments
– Plan to retain the car for three years or less

45
Q

What is the money factor formula used to determine the lessor’s required monthly return?

A

Interest Rate / 24

46
Q

Leases can either be _____________ or ______________.

A

closed-end (the dealer absorbs the loss in value)

open-end (consumer absorb the loss in value)

47
Q

A home equity loan is similar to a…

A

second mortgage.

48
Q

The interest rate on a home equity loan is typically _____________ than the rate charged on other types of loans.

49
Q

Can the interest on a home equity loan and a home equity line of credit be deducted when you do your taxes?

50
Q

This type of loan offers more flexibility than a home equity loan.

A

Home Equity Line of Credit

51
Q

Does a home equity line of credit (HELOC) have a fixed interest rate or a variable interest rate?

52
Q

The downside of having a home equity line of credit?

A

The borrower may owe more on their house than its value.

A HELOC usually is issued with a card which makes it easier to spend on non-essential items.

53
Q

Chapter 7 bankruptcy

A

Chapter 7 – liquidation (straight bankruptcy)

54
Q

What type of course is required for someone applying for bankruptcy?

A

A credit management course

55
Q

How long does a Chapter 7 remain on your credit report?

56
Q

Who can initiate Chapter 7 bankruptcy?

A

The person that owes the money or the creditor.

57
Q

Is a bankruptcy estate formed with a Chapter 7 or Chapter 13?

58
Q

If you file Chapter 7 what type of assets are liquidated?

A

Non-exempt assets

59
Q

When you file a Chapter 7 bankruptcy, what are some debts that you cannot eliminate?

A

Taxes
Student loans
Alimony
Debts from fraud/illegal activity

60
Q

Does someone have to have income in order to qualify for Chapter 13 bankruptcy?

61
Q

Zero Coupon Bond

A

Poor inflation hedge. Sold at a discount that pays face.

62
Q

A plan that typically allows parents to purchase tuition credits at current price. These do not guarantee admission, but can usually be transferrable.

A

Prepaid tuition plan

63
Q

What 2 parts make up the Expected Family Contribution for the FAFSA

A

Expected Parent Contribution

Expected Student Contribution

64
Q

((12% Uninvested Assets + Net Income) *

47% (max) and 12% (min)) / Number of Kid

A

Expected Parent Contribution

65
Q

(20% Uninvested Assets + 50% Net Income)

A

Expected Student Contribution

66
Q

PAYE (Pay As You Earn)

A

10% Discretionary income, family size considered, balance forgiven after 20 years, spousal income not included if filing separately, limited availability

67
Q

REPAYE (Revised Pay As You Earn)

A

10% Discretionary income, family size considered, balance forgiven after 20 or 25 years, spousal debt/income included, broad availability

68
Q

What are types of household debt

A

Mortgage, auto loan, credit cards, student loans

69
Q

5 C’s of Credit

A

Capacity, Capital, Collateral, Conditions, Character

70
Q

What is the formula for a HELOC loan amount

A

(Appraisal * 80%) - Balance

71
Q

When is Home Equity Loan interest not deductible?

A

When the sum of interest and mortgage balance exceeds home value or $100K

72
Q

Chapter 13 bankruptcy

A

Chapter 13 – repayment plan (3 to 5 years), debt limit

73
Q

Chapter 11 bankruptcy

A

Chapter 11 - reorganization of debts, no debt limit

ChFC HS 300: Financial Planning: Process and Environment (12 decks)

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