Fundamentals & Insurance: Financial Aid Flashcards
1
Q
FAFSA
A
- used to calculate the expected Family contribution
2
Q
Expected Family Contribution
A
- used to determine how much a family should contribute towards their childs education
- considers the size of the family, # of fam members in college at the same time, income, assets, unusual financial burdens such as medical bills
- used to determine what type of federal financial aid a student qualifies for
= Tutition/cost of attendance - expected family contribution = Financial need
3
Q
Independent Students
A
over 23 married working on masters/doctorates if they have legal dependents other than spouse vet of the US armed forces
4
Q
Financial Aid Programs
A
- Federal Pell Grant
- Stafford Loan
- Parent Loans for Undergraduate Students (PLUS)
- Grad PLUS loan for graduate students (PLUS Direct)
- Federal Perkins Loan Program
5
Q
Federal Pell Grant
A
- strictly need based and dependent on the EFC amount
only for students who have not earned a bachelors or professional degree qualify - are always available if a student qualifies
6
Q
Stafford Loan (federal direct loans)
A
- primary type of financial aid provided by the US Dept of Education
- = student loans
- repayment begins after 6-mo grace period of leaving school or falling below part-time status
- subsidized and unsubsidized loans
- subsidized: the interest is paid for by the fed gov while the undergrad is in school, NEED based
- unsubsidized: the interest begins to accrue when funds are disbursed, NOT need based, available to undergrad and grad students
7
Q
Parent Loan for Undergraduate Students (PLUS)
A
- a loan for parents to pay their childrens undergrad studies
- NOT needs based, but dependent on PARENTS credit score
- NOT subsidized
- appropriate for parents who can afford to make a loan payment, but may not have saved anything for education
8
Q
GRAD PLUS Loan for Graduate Students (PLUS Direct)
A
- graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate degree/certificate
- dependent on student credit score
- maximum amount you can borrow is the cost of attendance - any other financial assistance received
- begin making payments 6 months after graduation, leave school or drop out below half time
- interest accrues as you go, you can pay it as you go or let it add to your balance
9
Q
Federal Perkins Loan Program
A
- expired in 2017
- is for students with exceptionally low EFC amounts
- NEEDS based
10
Q
Campus Based Financial Aid
A
- Federal Supplemental Education Opportunity Grant
- Federal Work Study
11
Q
Federal Supplemental Education Opportunity Grant
A
- Campus based financial aid
- awarded to students w/ very low EFC
- NEEDS based
12
Q
Federal Work Study
A
- on/off campus employment to help pay education expenses
13
Q
Income Based Repayment
A
- monthly student loan repayment of 10-15% of discretionary income with remaining debt forgiveness after 25 years
- recalculated each year based on income, fam size, spousal income
- Stafford loans and most other federal loans are eligible
- PLUS loans are NOT eligible
14
Q
Pay as You Earn (PAYE)
A
- available if borrower has a high debt-to-income ratio
- monthly student loan repayment of 10% if discretionary income, with remaining debt forgiveness after 20 years
- only direct federal loans (stafford loans) and PLUS loans to graduate students are eligible
- PLUS loans are NOT eligible
15
Q
Revised Pay as You Earn (REPAYE)
A
- monthly student loan repayment of 10% if discretionary income, with remaining debt forgiveness after 20 years
- only direct federal loans (stafford loans) and PLUS loans to graduate students are available
16
Q
Graduated Repayment
A
- loan paid over 10 years starting off lower than the Standard Repayment Plan, and increases every 2 years
- Results in more interest being paid than the standard repayment program but may be more advantageous for students starting off in an entry-level job
17
Q
Extended Repayment
A
- available when the loan balance is over $30,000
- payments can be either fixed or graduated, and are payable over 25 years
18
Q
Income Contingent Repayment
A
- Similar to Pay As You Earn, except 20% of discretionary income or payment amount on a fixed payment over 12 years
- loan balances after 25 years will be forgiven
19
Q
Tax Advantaged Plans for Education Savings
A
- Qualified State Tuition Plans ( prepaid tuition, 529 plans, 529 ABLE accounts)
- Coverdell Education Savings Amount
- Roth IRA
- Series EE Savings Bonds
- Uniform Gift to Minor’s Act
20
Q
Prepaid Tuition
A
- considered an asset of the parent for financial aid purposes
- used to pay for in-state college credit at today’s cost
- basically purchasing college credits today and using them when you kid goes to college
advantage: locks in cost in today’s dollars
disadvantage: only earn a return = tuition inflation, child may receive scholarship and not use the tuition credits, parents may return tuition credits only receiving principal back w/o interest, state schools may have less than desirable curriculum in the students area of interest, designed to only pay the cost of tuition not including room and board
21
Q
529 Savings Plan
A
- considered an ASSET OF THE PARENT for financial aid purposes
- anyone can contribute
- any appreciation is tax-free if used for qualified education expenses
- $16,000 gift per person per year up to 5 years, max of $80,000 per person, $160,000 per couple
Advantages: possible state income tax deduction for contributions if your state has a state income tax, the client lives in the state in which they opened the 529 plan, no AGI phaseout limit, account owner controls the assets, can change the bene at any time, contributor can remove assets from their GE
Disadvantages: 10% penalty on the earnings if not used for educational expenses, - allows grandparents to lower their Gross Estate
22
Q
Qualified education expenses for 529 plans
A
- tuition and fees
- books
- supplies
- equipment
- room and board
23
Q
529 ABLE accounts
A
- assists person with disabilities
- 1 ABLE account per beneficiary
- contributions can be made by anyone but cannot exceed $16,000 in total per year
- rollovers from a 529 to a 529 ABLE plan are allowed, as longs are the benes are the same person, rollover will be treated as a contribution for that year
- if account exceeds $100k, SSI payments will be suspended until account goes below $100k
- account balances under $100k are not counted in determining eligibility for federal-means tested program
24
Q
Coverdell ESA
A
- considered ASSET OF THE PARENT for financial aid purposes
- TOTAL account contribution limit is $2,000/year/beneficiary
- contributions are phased out for MFJ tax filers with income $190-220k and single tax filers with income $95-110k
- tax-free if used for educational expenses, tax-deferred for other expenses
- can be used for private elementary or secondary education
- can change bene at any time
- funds in Coverdell must be used by age 30 of the bene
- 10% penalty on earning if not used for qualified educational expenses
- account owner cannot make contributions beyond the benes 18th birthday
25
Q
Qualified Elementary/Secondary Expenses
A
tuition and fees books supplies equipment tutoring computer related expenses certain special needs services for special needs beneficiaries room and board uniforms transportation if required
26
Q
Qualified Higher Education Expenses
A
tuition and fees
room and board
computer related expenses
27
Q
Roth IRA
A
- $6,000 max contribution or max of income if < $6,000
- $1,000 if > 50 years old
- not tax deductible
- qualified distributions are excluded from Gross Income
- must meet 5 year holding period and either death disability, 59.5, or 1st time housing purchase of $10k
- non-qualified distributions have earnings that are included in GI and earnings are subject to 10% penalty
- education expenses: no 10% penalty, but any earnings are included in GI.
28
Q
Series EE Savings Bond
A
- $25 min purchase, $10k annual max
- nonmarketable, nontransferable
- do not pay interest periodically
- bond slowly increases in value over 30 years based on fixed rate
- redeemable after 1 year with 3 months interest penalty if redeemed in less than 5 years
- interest is not subject to federal income taxes until bond is redeemed
- may qualify for tax-free treatment if redeemed for educational expenses
- interest is not taxed at state/local level
29
Q
UGMA/UTMA
A
- assets are considered ASSETS OF THE CHILD when determining financial aid
- taxation of unearned income ( interest, divs, cap gains) may be subject to the kiddie tax
- if child < 19: the unearned income may be taxed using the parents tax brackets
- if child > 19,: the unearned income is taxed at childs rate
- a FT student age 23 or less is subject to kiddie tax rules
- greatest risk is that the kid can use the assets for something other than education
- UTMA: may include real estate, stocks, MFs or bonds
- UGMA: stocks, MFs and bonds, but no real estate
30
Q
Deductibility of Student Loan Interest
A
- interest is deductible ATL and is limited to $2,500
- loan must be used for tuition, room, board, supplies, or other necessary expenses
31
Q
Lifetime Learning Credit
A
- available for tuition and fees for undergrad, grad, or professional programs
- tax credit amount is 20% of up to $10,000 in qualified expenses per year
- Max LLC per family is $2,000 per year
- can be claimed for an unlimited # of years
32
Q
Qualified expenses for LLC
A
- tuition and fees
- student activity fees
- books
- supplies
- equip
33
Q
American Opp Tax Credit
A
- applies to tuition and fees for FOUR years of post-secondary education
- 100% of first $2,000 in qualified expenses
- 25% of second $2,000 in qualified expenses
- max tax credit PER STUDENT is $2,500 per year
- tuition and fees must be paid directly to university
- DO NOT have to be paid directly to university: books, supplies, and equpent
34
Q
Employer Education Assistance
A
- an ER may reimburse /pay for an EE’s educational expenses
- up to $5,250, not included in income
35
Q
Not available for grad students
A
- pell grants
- subsidized!! stafford loans
- supplemental education opportunity grants
36
Q
PLUS
A
- only for undergrad coursework
37
Q
Stafford Unsubsidized Loan
A
- are available for grad students
38
Q
Prepaid tuition
A
- included in the parents; asset when calculating the EFC not the childs
39
Q
FAFSA Assets include:
A
-cash, savings, checking, businesses, investment farms, real estate (other than a personal residence), other investments
40
Q
FAFSA assets do NOT include:
A
- personal residence, life insurance, retirement plans ( 401ks, annuities, IRAs, keoghs)
