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Fundamentals and Insurance > Education Planning (Lesson 6) > Flashcards

Education Planning (Lesson 6) Flashcards

1
Q

What does FAFSA stand for and what does it do?

A
  • Free Application for Federal Student Aid
  • Starts the financial aid process
  • Used to Calculate the Expected Family Contribution amount
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2
Q

What is the EFC and what does it do?

A
  • Formula developed by congress used to determine how much a family should contribute towards their Childs education
  • Formula determines what type of financial aid the student qualifies for
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3
Q

What does the formula consider?

A
  • Size of the family
  • number of family members in college at the same time
  • income
  • assets
  • unusual financial burdens such as medical bills
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4
Q

What is the formula for Financial need

A

Cost of attendance - Expected family contribution = Financial need

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5
Q

When is a student considered independent

A
  • Over age 23
  • Married
  • Working on Masters or Doctorate
  • if they have legal dependents other than spouse
  • veteran of the US armed forces
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6
Q

What is a Federal Pell Grant

A
  • on a strictly need based and dependent on the EFC amount
  • EFC determines a students eligibility and how much is awarded
  • only students that have not earned bachelors or professional degree qualify
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7
Q

What is a Stafford loan

A
  • are student loans
  • Repayment begins after a 6 month grace period of leaving school or falling below part time status (6 semester hours) - Subsidized vs Unsubsidized
  • Stafford loans are not appropriate if the parents intend to repay the loan
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8
Q

Who pays the interest on Subsidized Stafford loans while the undergrad is in school

A

Federal government

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9
Q

When does the interest begin on Unsubsidized Stafford loans

A

when the funds are disbursed

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10
Q

Which Stafford loan is need based

A

Subsidized

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11
Q

Who are Unsubsidized Stafford loans available to

A

Undergrad and graduate students

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12
Q

What are Parent Loans for Undergraduate Students (PLUS)

A
  • Loans for parents to pay for their children’s undergrad studies
  • Not need based but depends on parents credit score
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13
Q

Are PLUS loans subsidized

A

No

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14
Q

When are PLUS loans appropriate

A
  • for parents who can afford to make a loan payment buy may not have saved anything for education
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15
Q

Who is eligible for Grad Plus loan for Graduate Students? (PLUS Direct)

A

A graduate or professional student enrolled at least half time at an eligible school in a program leading to a graduate or professional degree or certificate

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16
Q

What are PLUS Direct plans dependent on?

A
  • Students credit score
  • Maximum amount you can borrow is the cost of attendance minus any financial assistance you receive
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17
Q

When do payments begin on PLUS direct loans

A

6 months after graduation, leave school, or drop below half time enrollment but interest accrues as you go

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18
Q

What is the Federal Perkins Loan Program

A
  • for students with exceptionally low EFC amounts

- Need based

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19
Q

What are two types of Campus based financial aid

A
  • Federal supplemental Education Opportunity Grant (Needs based/low EFC)
  • Federal Work study
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20
Q

What is a Income based repayment

A
  • monthly payment is 10 - 15% of discretionary income with remaining debt forgiveness after 25 years
  • forgiveness amount is taxable in year forgiven
  • recalculated each year
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21
Q

What loans are eligible for IBR and which are not

A
  • Stafford loans and most other Federal loans are eligible
  • PLUS loans other than PLUS direct loans are not eligible for IBR
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22
Q

What is a Pay as you earn repayment plan (PAYE)

A
  • Available if the borrower has a high debt to income ratio
  • Monthly student loan repayment of 10% of discretionary income with remaining debt forgiven after 20 years
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23
Q

Which loans are eligible for PAYE

A
  • Direct federal loans (not Stafford)
  • Plus loans to graduate students (Not regular plus loans)
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24
Q

What is a graduated repayment plan

A
  • loan paid over 10 years
  • starts off lower than the standard repayment plan and increases every 2 years
  • results in more interest being paid
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25
Q

What is a extended repayment plan

A
  • available when the loan balance is over $30,000
  • payments can be fixed or graduated
  • payable over 25 years
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26
Q

What is a income contingent repayment plan

A
  • similar to pay as you earn
  • 20% of discretionary income of payment amount on a fixed payment over 12 years - balance forgiven after 25 years
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27
Q

What is a prepaid tuition plan?

A
  • Considered an asset of the parent for financial aid purposes
  • can be used to pay for in state college credit at todays cost
28
Q

What are the advantages of a prepaid tuition plan

A

lock in tuition cost in todays dollars

29
Q

what are disadvantages of a prepaid tuition plan

A
  • Only earn a return equal to tuition inflation
  • child may receive a scholarship and not use the tuition credits
  • Parents can return the tuition credits but only receive principal back typically without interest
  • state schools may have less than desirable curriculum in the students area of interest
  • Only designed to include tuition not room and board
30
Q

What is a Savings plan or 529 plan

A
  • considered an asset of the parent for financial aid purposes
  • any one can contribute to a savings plan
  • any appreciation is tax free if used for qualified education expenses
  • Couple that uses gift splitting can contribute $150,000 in one year using the 5 year rule
  • Removed from contributors gross estate
31
Q

What are the advantages of Savings Plans or 529 plans?

A
  • possible state income tax deduction
  • No AGI phaseout
  • Account owner controls the assets
  • Account owner can change the beneficiary
  • contributor can remove assets from their gross estate
32
Q

What are the disadvantages of Savings Plans or 529 plans?

A
  • 10% penalty on the earnings and the earnings included in gross income if not used for qualified expenses
33
Q

What are the exceptions to the 10% penalty for including distributions in gross income for 529 plans

A
  • death
  • disability
  • scholarship for beneficiary
  • Earnings portion is still taxable though
34
Q

what are qualified education expenses for 529 plans

A
  • tuition and fees
  • books
  • supplies
  • equipment
  • room and board for students at least half time
  • $10,000 can be used for elementary or secondary public, private, or religious school
  • $10,000 for student loans
  • Apprenticeships that are register with the Secretary of Labor under the National Apprenticeship Act
35
Q

What are 529A ABLE Accounts

A
  • Achieving a Better Life Experience accounts (ABLE)
  • assist persons with disabilities similar to a Section 529 Tuition plans
  • only one ABLE account for each beneficiary
  • beneficiaries need to be eligible for SS disability or SS income or filed a disability certification with the IRS
36
Q

Who can contribute to an ABLE account

A
  • Anyone
  • limited to $15,000
  • 529 plans can be rolled over into ABLE accounts as long as the beneficiary is the same or a family member of the beneficiary
37
Q

Are ABLE account balances counted in determining eligibility for any federal means tested programs

A
  • No as long as the balance remains under $100,000
  • If over $100,000 SSI payments will be suspended until account balance is under this amount
38
Q

What are Coverdell Education Savings accounts

A
  • Considered an asset of the parent for financial aid purposes
  • Contributions are limited to $2000 per year per beneficiary
  • AGI phase out (Amounts on CFP sheet)
  • Contributions grow tax deferred unless used for qualified education expenses (if used for qualified education expenses all tax free)
  • Account owner can change the beneficiary at anytime
  • 10% penalty on earnings and earning are included in gross income if not used for qualified education expenses
39
Q

Can a Coverdell ESA be used for private elementary and secondary eduction

A

Yes

40
Q

When must the funds of a Coverdell ESA be used by

A

used by the time beneficiary turns 30

41
Q

When can an account owner make contributions to a Coverdell ESA

A

up until the beneficiary turns 18 years old

42
Q

What are qualified education expenses for Coverdell ESA accounts for both elementary/secondary and higher education?

A

Elementary/Secondary Expenses

  • Tuition and fees
  • books
  • supplies
  • equipment
  • tutoring
  • computer related expenses
  • certain special needs services for special needs beneficiaries

Higher Education

  • tuition and fees
  • books
  • room and board
  • computer related expenses
43
Q

What is a qualified distribution from a Roth IRA

A
  • 5 year holding period and
  • Death, Disability, attainment of age 59 1/2 or first time home purchase limited to $10,000
  • Contributions and conversions can always be withdrawn tax free
44
Q

What is the penalty for nonqualified distributions and what are the exemptions

A
  • 10% penalty and earnings are included in gross income
  • Education benefit waves the penalty but earnings are still taxable
45
Q

What are qualified education expenses for Roth IRAs

A
  • Tuition and fees
  • books
  • supplies
  • equipment
  • room and board of a student enrolled at least half time
46
Q

What is a Series EE/Series E Savings bond

A
  • Sold at face value
  • minimum of $25 and $10,000 annual maximum
  • Nonmarketable and nontransferable
  • Do not pay interest increase slowly in value over 30 years
  • redeemable after one year with 3 month interest penalty if redeemed in less than 5 years
47
Q

When is interest taxable on a Series EE bond and where is it taxed

A
  • taxed when bond is redeemed
  • taxable for federal only not state or local
  • can be tax free if redeemed for education purposes
48
Q

What are UGMA and UTMA accounts

A
  • considered an asset of the child for financial aid purposes
  • may be subject to kiddie tax
  • child can use funds for anything not just education
49
Q

What assets can an UTMA account hold

A
  • real estate
  • stocks
  • mutual funds or bonds
50
Q

What assets can an UGMA account hold

A
  • Stocks
  • Mutual funds and bonds
51
Q

Interest on student loans is deductible above or below the line and is limited to?

A
  • Above the line
  • limited to $2,500
52
Q

What is the Lifetime Learning credit and what is the credit amount

A
  • available for tuition and fees related to undergraduate, graduate, or professional programs
  • tax credit is 20% of up to $10,000 in qualified expenses per year
  • Maximum lifetime credit amount per family is $2,000 per year
  • Claimed for an unlimited amount of years
53
Q

What are qualified expenses for the Lifetime Learning credit

A
  • tuition and fees
  • student activity fees
  • books
  • supplies
  • equipment (Fees must be paid directly to institution)
54
Q

What is the American opportunity tax credit and what is the credit amount

A
  • applies to tuition and fees for four years of post secondary education

Tax credit is:

  • 100% of first $2,000 in qualified expenses and
  • 25% of second $2,000 in qualified expenses
  • Maximum credit is $2,500 per year per student
55
Q

What are qualified expenses for the American opportunity tax credit

A
  • tuition and fees (Paid directly to college)
  • student activity fees (Paid directly to college)
  • Books (Does not have to be paid directly to college)
  • supplies (Does not have to be paid directly to college)
  • equipment (Does not have to be paid directly to college)
56
Q

Can the AOTC and LLC be claim in the same year

A

yes just not for the same child

57
Q

How much can an employer reimburse an employee for education before it is included in income

A

$5,250

58
Q

What is the maximum amount of AOTC per year

A

$2,500 per student

59
Q

What is the maximum amount of LLC per year

A

$2,000 per family

60
Q

Maximum that can be contributed to Coverdell account

A

$2,000 per donee (AGI Phaseouts)

61
Q

Which education savings and education credits have AGI phaseouts

A
  • Coverdell
  • LLC
  • AOTC
62
Q

What option is best for parents that have not started saving for college, with children that are near college age, and have a higher AGI

A

PLUS Loan

63
Q

Can room and board be used in the calculation for LLC and AOTC

A

No

64
Q

Which to forms of saving vehicles cannot be used for books and supplies

A
  • Prepaid tuition
  • EE Bond
65
Q

Which to savings plans only includes room and board if the student is greater than or equal to half time

A
  • 529 plan
  • Roth IRA

Fundamentals and Insurance (10 decks)

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