education planning

Question 1

information on the FAFSA is used to calculate what?

Answer 1

the expected family contribution (EFC)

Question 2

what is the EFC?

Answer 2

it is a formula created by Congress that is used to determine how much a family should contribute towards their child’s education

Question 3

what is the formula to determine financial aid?

Answer 3

tuition/cost of attendance - expected family contribution = financial need

Question 4

students are considered independent when:

Answer 4

• they’re over age 23
• married
• working on masters or doctorate
• have legal dependents other than a spouse
• veteran of the US armed forces

Question 5

what 5 financial aid programs are offered by the Department of Education?

Answer 5

federal pell grant
stafford loan
parent loans for undergraduate students
grad PLUS loans for graduate students
federal perkins loan program

Question 6

federal pell grant

Answer 6

strictly need based and dependent on the EFC amount

only students that have not earned a bachelors or professional degree qualify

Question 7

stafford loan (aks Federal Direct Loans)

Answer 7

primary type of financial aid provided by the US department of education

Student loans

repayment begins after a 6 month grace period of leaving school or falling below part time

there are two types of stafford loans - subsidized and unsubsidized

these are not appropriate if parents are going to repay the loans

Question 8

what is the different between subsidized and unsubsidized stafford loans?

Answer 8

subsidized - NEED BASED

unsubsidized - NOT NEED BASED

Question 9

parent loans for undergraduate students (PLUS)

Answer 9

loan for parents to pay for their children’s undergrad studies

NOT NEED BASED (depends on parents credit score)

not subsidized

they are appropriate for parents who can afford to make a loan payment but may not have saved anything for education

Question 10

Grad PLUS loan for graduate students (PLUS Direct)

Answer 10

for grad or professional students enrolled at least half time

dependent on STUDENTS credit score

begin making payments after you graduate, leave school or drop below half time enrollment

interest accrues as you go

Question 11

Federal Perkins Loan Program

Answer 11

this program expired on September 30th 2017

for students with exceptionally low EFC amounts

is NEED BASED

Question 12

Federal Supplemental Education Opportunity Grant

Answer 12

awarded to students with low EFC

NEED BASED

Question 13

Federal Work Study

Answer 13

on or off campus employment to help pay education expenses

Question 14

what are the tax advantaged plans for education savings?

Answer 14

qualified state tuition plans (prepaid tuition, 529 plans)
coverdell education savings accounts
roth ira
series ee savings bonds
uniform gift of minors act

Question 15

prepaid tuition

Answer 15

considered an ASSET OF THE PARENT for financial aid purposes

can be used to pay for in state college credit at today’s cost

advantage: lock in tuition cost in today’s dollars

disadvantages: only earn a return equal to tuition inflation, the child may receive a scholarship and not use the tuition credits, parents can get the credits back but only get the principal and not the interest, state schools may not be where the child wants to go, does not include room and board

Question 16

529 plans

Answer 16

considered an ASSET OF THE PARENT for financial aid purposes

any appreciation in the asset value is tax free if used for qualified education expenses

advantages: possible state income tax deduction for contributions, no AGI phase out, account owner controls the assets, can change the bene at any time, contributor can remove the assets from their gross estate

disadvantages: 10% penalty on the earnings and the earnings are included in gross income if not used for qualified education expenses (exceptions to the 10% penalty include distributions on accounts of death, disability and scholarship for the bene)

Question 17

what are qualified education expenses for a 529 account?

Answer 17

tuition and fees
books
supplies
equipment
room and board of students enrolled at least half time

(10k annually can be taken for elementary or secondary public, private or religious schools)

10k can also be taken to pay student loans
and qualified distributions can be taken for apprenticeships

Question 18

529A Able Accounts

Answer 18

assists persons with disabilities similar to a 529 accounts

only one account can be established for each eligible beneficiary

contributions can be made by anyone- not to exceed 16k in total per year

balances are not counted in determining eligibility for an federal means tested programs as long as the balance remains under 100k

Question 19

Coverdell Education Savings Accounts

Answer 19

considered an ASSET OF THE PARENT for financial aid purposes

contributions are limited to 2k/year per bene
there is an income phase-out for those that make too much

earnings grow tax-deferred unless used for qualified education expenses
if used for education, then it is tax free

can be used for private elementary and secondary education

can change the bene anytime

must be used by age 30 of the bene

there is a 10% penalty on the earnings and earnings are included in gross income if not used for qualified expenses

cannot contribute beyond the benes 18th birthday

Question 20

Roth IRA education benefit

Answer 20

10% penalty is waived on nonqualified distributions used for education expenses however the earnings will still be included in gross income

qualified expenses include tuiton and fees, books, supplies, equipment, along with room and board of students enrolled at least half time

Question 21

Series EE/Series E Savings Bond

Answer 21

sold at face value, $25 min purchase (10k annual max)

available only through treasury direct

nonmarketable and nontrasferable

do not pay interest periodically, bond slowly increases in value over 30 years based on fixed rate at time of purchase

redeemable after 1 year with 3 month interest penalty if redeemed in less than 5 years

interest is not subject to federal income taxes until bond is redeemed. if used for education expenses, may be tax free

interest is not taxed at the state or local level

Question 22

UGMA/UTMA

Answer 22

assets are considered ASSETS OF THE CHILD when determining financial aid

taxation may be subject to kiddie tax

if child is less than 19 then the unearned income may be taxed using the parental tax brackets

if child is 19 or older then unearned income is taxed at child’s rate

child can use assets for something other than education

UTMA can have real estate, UGMA does not

Question 23

Lifetime Learning Credit

Answer 23

available for tuition and fees related to undergraduate, graduate, or professional programs if PAID DIRECTLY TO AN ELIGIBLE EDUCATION INSTITUTION

tax credit amount is 20% of up to 10k in qualified expenses per year

max lifetime learning credit per family is 2k/year

can be claimed for an unlimited number of years

Question 24

American Opportunity Tax Credit

Answer 24

applies to tuition and fees for 4 years of post-secondary education

100% of first 2k and then 25% of second 2k aka max per student is 2.5k/year

tuition and fees must be paid directly to the university but other expenses do not have to be

Question 25

can an individual claim both an AOTC and a LLC for the same child in the same year?

Answer 25

NO

Question 26

can an individual use an AOTC or LLC for the same expense paid by a qualified tuition program?

Answer 26

NO

Question 27

can an individual use the AOTC or LLC in the same year as a distribution from a qualified tuition plan but not for the same expenses?

Answer 27

YES