Lesson 8

Question 1

Average Tuition Costs 2019-2020

Answer 1

Public University In State Tuition - $11,260
Public University Out of State Tuition - $27,120
Private University Tuition - $41,426

Question 2

Tuition Inflation

Answer 2

2.3% for private colleges
3.1% for public colleges
general Consumer Price Index (CPI) averaged just 1.6%

Question 3

Total Cost of Attendance (COA)

Answer 3

2x Tuition

Question 4

Uneven Cash Flow Method

Answer 4

uneven cash flow method has two steps:

• Determine the lump-sum amount needed today to fund the college education. Be sure to use an inflation-adjusted rate of return.
• Determine how long the client intends to save and whether the savings payments are at the beginning or end of the year.

Question 5

Account Balance Method

Answer 5

This education funding method uses nominal dollars initially and then an annuity due calculation.

• It assumes parents will stop saving when the child starts college and begins withdrawals.

Question 6

Hybrid Approach

Answer 6

This education funding method combines the other approaches and uses ordinary annuity calculations.

In this course, we’ve only covered the math for the traditional method. In your own practice, you may prefer one of these alternatives! Select the approach that you’re most comfortable with and you can most effectively explain to your clients.

Question 7

Subsidized Stafford Loans

Answer 7

Federal government pays interest on loan while the borrower is in school and during 6 month grace period.

Question 8

Unsubsidized Stafford Loans

Answer 8

Borrower pays interest from the time the funds are dispersed.

Question 9

Standard Repayment Plan

Answer 9

Repay up to 10-years with minimum monthly payments of at least $50.

Shortest repayment option with least interest paid.

Question 10

Extended repayment

Answer 10

must have $30,000+ federal loans

Repay up to 25 years (may make extra payments).

Longest repayment option, borrowers pay significantly more interest.

Question 11

Graduated Payment

Answer 11

Repay up to 10 years.

Borrowers initially make low payments

Payments increase every 2 years, up to 3 times original amount

Allows borrowers to increase payments as income increases.

Question 12

Income Driven Repayment Plan (IDR)

Answer 12

calculate the monthly payment based on AGI and the Federal Poverty Guideline according to family size.

Question 13

Income-Contingent Repayment (IRC)

Answer 13

Payment no more than 20% of borrower’s discretionary income (100% of poverty guideline)

If payments insufficient to pay interest, shortfall added to principal.

After 25 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Question 14

Income-Based Repayment (IBR)

Answer 14

Amount of payment calculated must be less than standard repayment.

Payment is 10% of discretionary income (income over 150% of poverty).

After 20 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Question 15

Pay As You Earn (PAYE) /Revised Pay As You Earn (REPAYE)

Answer 15

Minimal differences between these programs.

Available if borrower has high debt-to-income ratio

Payment is 10% of discretionary income (income over 150% of poverty level based on family size) and cannot be more than required under the standard plan.

For subsidized loans, if payment is less than interest due, federal gov’t pays 50% to 100% of shortfall for up to 3 years from the date loan payments commence. Beyond that, shortfalls increase loan balance.

After 20 to 25 years, outstanding balance is forgiven and taxable as cancellation of indebtedness income.

Question 16

Uniform Gift to Minors Act (UGMA)

Answer 16

accounts allow minors to own cash or securities.

Question 17

Uniform Transfer to Minors Act (UTMA)

Answer 17

ccounts allow minors to own cash, securities, and real estate.

At the age of majority (18 or 21 depending on the state), the child can access the account without permission of the custodian for both UGMA and UTMA accounts.

Question 18

disadvantages to using UGMA / UTMA

Answer 18

Because they’re considered assets of the student, they have a very negative impact on qualifying for need-based financial aid.

Once a child reaches the age of majority, assets can be used for something other than a college education.

Earnings in the UGMA / UTMA may cause a “kiddie tax” issue.

Question 19

Expected Family Contribution

Answer 19

determined based on information provided on the FAFSA. The EFC is a measure of a family’s financial strength and an estimate of how much it will contribute toward education costs.

Question 20

EFC Regular Formula Method

Answer 20

How much income and assets are expected to fund college

Only certain assets are considered at all in the EFC calculation. Excluded assets include:

• Retirement assets, home equity, annuities, cash value life insurance
• An additional “asset protection allowance” that is based on the age of the oldest parent

Question 21

EFC Simplified Method

Answer 21

available only to lower income families. It ignores family assets and considers only income.

• In order to use this method as a dependent student, total parent adjusted gross income (AGI) must be $50,000 or less.
• In order to use this method when not a dependent, the student’s household AGI must be $50,000 or less.
• The EFC calculated by this method is typically much lower than the EFC as calculated with the Regular Formula.

Question 22

EFC Automatic Zero Method

Answer 22

In order to use this method, the student’s or parents’ AGI must be $26,000 or less.

If this is the case, then neither the income nor the assets of the student or parents are assessed and the EFC is zero.

Question 23

Grants

Answer 23

Grants are only awarded for undergraduate studies.

There is no repayment for grants.

Grants are typically awarded based on financial need.

Question 24

Pell Grant

Answer 24

Need-based aid for undergrad students.

Maximum for 2020-21 is $6,345.

Question 25

Teach Grant

Answer 25

Teacher Education Assistance for College and Higher Education (TEACH) Grant

Up to $4,000/year for students that intend to teach in low-income communities for at least 4 years.

If student doesn’t teach, grant converts to a student loan with back-dated interest due.

Question 26

Federal Supplemental Educational Opportunity Grant (FSEOG)

Answer 26

Awarded to students with exceptional financial need.

Pell Grant recipients with lowest EFC are considered first.

Receive between $100 to $4,000/year.