Advisor Playbook College Planning

ADVISOR PLAYBOOK COLLEGE PLANNING

• Big Changes on the College Admissions Scene • Twelve Things You Need to Know About College Loans • 10 Ways to Cut the Cost of College • Cracking Financial Aid Forms • Seven Ways to Appeal a Financial Aid Award • Three Tools to Cut the Cost of College • Nine Things to Know About College in Europe • When Clients’ Teens Are Wait-Listed • Eight Things Clients Need to Know About Athletic Scholarships • Using Retirement Money to Pay for College WEALTH PLANNING

what you need to know: Big Changes on the Parents can now file for financial aid three months earlier than in the College Admission past. Traditionally, families couldn’t access the FAFSA until Jan. 1 each Scene year, but the federal government has now begun SIGNIFICANT CHANGES HAVE JUST KICKED IN FOR THE FAFSA. BY LYNN O'SHAUGHNESSY releasing the FAFSA on Oct. 1. The earlier release date wouldn’t be all that remarkable except for the other major develop- Higher-education selves. What seems clear is ment. For the first time industry insiders have been that families should be the ever, FAFSA filers will be speculating about what the big winners. completing their applica- new Free Application for tions using two-year-old Federal Student Aid rules A Look at the tax returns. This change is will mean for families and Changes being referred to as prior- also the colleges them- Here is a rundown on prior year or PPY. Photo: Steve Shepard/Getty Images Shepard/Getty Steve Photo: WEALTH PLANNING

Using two-year-old tax tax returns were wrong, Nearly a third of schools returns means that for stu- a school’s financial aid said they were exploring With the new dents heading to college package would be based adding the application admissions for the 2017-2018 school on faulty figures. In some choices of early decision calendar, students year and for returning cases, a school could with- and/or early action. college students, parents draw an aid offer or lower With the admission and their families will use 2015 tax returns. it weeks or months later. cycle pushed up, schools will have to start Under the old system, par- The FAFSA and anticipate reaching out to thinking about ents would have used 2016 PROFILE changes will students sooner. At the college choices (one-year-old) returns. also help families by giv- start of every school year, earlier. The CSS/Financial ing them more advance admission representatives Aid PROFILE, the second notice in the college have fanned out across the most popular financial aid admission process. With country to make a final application, has followed parents now able to file for push to reach high school lockstep with the FAFSA financial aid nearly a year seniors. Now, it’s antici- and will also require the before their children head pated that schools will be use of two-year-old tax off to college, it’s expected making much more of returns and offer the ear- that schools will provide an effort to reach out to lier application start date admission and financial juniors in the spring. of Oct. 1. aid verdicts sooner. An With the new admis- The earlier avail- industry survey earlier sions calendar, students ability of the FAFSA and this year suggested that 90 and their families will PROFILE, along with the percent of families would need to start thinking use of two-year-old tax like their award letters about their college choices MORE WEALTH PLANNING: returns, is designed to earlier. earlier. This means that make filing for financial With speedier notifica- they shouldn’t wait until http://wealthmanagement aid easier, less stressful tion, families will have the fall of senior year to .com/wealth-planning and reduce errors. much longer to decide generate a college list. And here’s why: The which college to pick and In this time of tran- financial aid cycle and fully understand the cost sition, it’s critical that the IRS tax-year cycle and financial ramifica- families apply for financial have always been too tions of the choice. Under aid as close to Oct. 1 as much in sync. Right after the old system, families possible. Some schools the Christmas holidays, sometimes didn’t receive offer aid on a first-come, parents were traditionally their aid packages until a first-served basis and the faced with having to deal few weeks before they had funds may be depleted at with their taxes for the to make a final decision. some schools if families previous calendar year An industry survey of wait until next year. and applying for financial nearly 550 college profes- It’s also important for aid. Making this double sionals released in the families to check what burden more difficult spring revealed that 69 the admission and finan- was that the deadlines for percent of schools said cial aid deadlines are for some state financial aid they would be releas- schools. In a letter sent to programs and colleges ing financial aid verdicts thousands of college presi- were early in the year, earlier beginning with the dents in August, the U.S. which forced parents to current admission cycle or Department of Education rush to do their taxes. next year’s. urged colleges not to When parents couldn’t The same survey alter their admission and revealed that 80 percent financial aid deadlines this Lynn O’Shaughnessy get their taxes done is a nationally recognized higher-ed promptly, they were of administrators believed year due to the FAFSA speaker, journalist and author of The always free to estimate the that schools that did not changes. It also asked the College Solution. She shift their admission schools to make a push to writes about college taxes to complete the aid for CBS MoneyWatch forms, but that was prob- cycles earlier would be at a notify families about the and her own blog, lematic. If the estimated competitive disadvantage. aid changes. n TheCollegeSolution.com. WEALTH PLANNING

1. To qualify for any Twelve Things You federal college loan, a family must file the Free Application for Federal Need to Know About Student Aid (FAFSA). Many of your clients prob- ably assume that they College Loans won’t need to file for financial aid, but that’s the only HOW TO EASE THE FINANCIAL PINCH. BY LYNN O’SHAUGHNESSY way to borrow through the federal government.

2. Some parents worry that if they file the FAFSA, even if it’s only to qualify As higher-education A growing number of for federal loans, that some prices continue to rise families have been turning schools (most notably steadily across the coun- to college loans to ease the highly selective private try, parents face the chal- financial pinch. institutions) will reject lenge of covering these Here are 12 things that their child’s application. costs as their kids head you should know about Private schools routinely to college. borrowing for college: favor high-income students, and a prime reason is because they don’t have the financial need that many applicants possess. A way to alleviate this con- cern is to file the FAFSA after the child has been accepted to the school.

3. Parents should not regard a late FAFSA filing, however, as a way to qualify for need-based aid from a school. College admission officers get irri- tated if a child states on the admission application that he or she won’t be filing for financial aid and then switches positions after an acceptance in a bid to get need-based grants from an institution. It’s unlikely that a student, even if eligible, would receive need-based aid after pulling that trick.

4. The federal Direct Loan is widely considered the No. 1 loan among all

the borrowing possibili- Images enisaksoy/Getty Illustration: WEALTH PLANNING

ties. Only college students $50,000 cost of attendance 10. When looking at can borrow through the –$18,000 student grants private loans, your clients Federal lending Direct Loan. and Direct Loan need to be aware that these programs offer Students who are $32,000 = amount parent loans don’t provide the several repayment attending college at least could borrow protections that federal part-time can obtain the through a loans do. plans and loan Direct Loan, which offers PLUS Loan Private loans, for forgiveness options. a fixed interest rate of 3.76 instance, don’t offer Private loans do not. percent for the 2016–2017 7. Strangely enough, par- income-based repayment school year. The interest ents can’t be turned down plans, which are features rate is set annually based for a PLUS Loan even if of the federal lending pro- on the 10-year Treasury. they have no realistic abil- grams. Qualified students ity to repay the debt. with federal loans can 5. There is a limit on how Since the federal gov- make payments based on much students can borrow. ernment isn’t significantly a formula that calculates For most undergrads, here limiting parent borrowing, what they can pay based on are the limits: it’s critical for parents to their discretionary income. calculate how much is safe There are several federal Freshmen: $5,500 to borrow. They can do repayment plans, including Sophomores: $6,500 that by using the federal Pay As You Earn. Juniors: $7,500 loan repayment estimator The federal lend- Seniors: $7,500 at studentloans.gov. ing programs also offer $27,000 loan forgiveness options, 8. Parents with excellent including for borrowers If a child takes more credit histories may also who end up as teachers than four years to obtain a want to explore private and work in public service bachelor’s degree (and the college loans. These private jobs. Private college loans majority do), the most that loans have traditionally don’t offer loan forgiveness undergrads can typically been designed for students, opportunities. borrow is $31,000. although the vast majority of them require an adult 11. A great resource when 6. Undergrads can bor- cosigner. exploring private loan row significantly more, Here are the sources for options is a new website, MORE WEALTH PLANNING: however, if their parents private college loans: privatestudentloans.guru. http://wealthmanagement are turned down when Mark Kantrowitz, a nation- .com/wealth-planning applying for the PLUS • Traditional banks ally recognized financial Loan, which is the federal • Online lenders aid expert, created the loan for parents. Certain • Credit unions website, which includes adverse marks on a par- • State lending authorities background on private ents’ credit history, such loans, as well as lists of as bankruptcies, foreclo- Your clients should also lending institutions. It also sures and 90-day late pay- know about a new type of provides a great deal of ments on debt can make private college loan now information on loan repay- them ineligible for the available exclusively to par- ment choices. federal loan. ents. A few lenders are offer- The PLUS Loan allows ing parent loans, including 12. In June, Fidelity a parent to borrow enough Wells Fargo, Sallie Mae, SoFi Investments launched a to cover the gap between and Citizens Bank. free tool that anyone can use to help borrowers Lynn O’Shaughnessy the cost of the school and is a nationally recognized higher-ed a child’s financial aid pack- 9. The interest rates on manage their student debt speaker, journalist and author of The age, which would include private loans designed for and evaluate their repay- College Solution. She ment options. It’s available writes about college the Direct Loan and any students or parents will be for CBS MoneyWatch grants/scholarships. highly dependent on the at new.fidelitylabs.com/ and her own blog, Here’s an example: borrowers’ credit history. student-loans. n TheCollegeSolution.com. WEALTH PLANNING

students. Nearly all colleg- 10 Ways to Cut the es and universities fall into that category. If parents generate a lower EFC, they Cost of College should look for schools that provide strong need- AS THE PRICE OF A DEGREE CONTINUES TO SKYROCKET, HERE ARE SOME TIP TO HELP CLIENTS based financial aid. Sadly, fewer institutions fall into AFFORD THE TAB. BY LYNN O’SHAUGHNESSY that category.

2. Consider schools that aren’t on dream lists. The most popular schools—those with the instantly recognizable brand names—are the most expensive and in general are the least likely to provide merit scholarships to affluent students. The institutions at the top of the U.S. News and World Report’s rankings typically charge the most and dispense few, if any, merit scholarships because the competition to get into these schools is so fierce. At Northwestern University, for instance, just 54 percent of stu- The College Board check to see if they will dents receive a discount recently released its annual qualify for need-based in the form of merit aid college cost report and, just aid by using the College and/or financial aid, but as it has for decades, the Board’s Expected Family at nearby Lake Forest price of a bachelor’s degree Contribution (EFC) cal- College, 98 percent of stu- is continuing to outstrip culator. An EFC, which dents do. Lesser-known inflation. is expressed as a dollar private institutions have You may be wondering figure, represents what a to try harder to attract how your clients are going family would be expected students, which means to afford the college tab. So, to pay, at a minimum, for giving nearly everybody a here are 10 ways to shrink one year of college. scholarship. the price: If parents have a Private schools located high EFC, which would in major cities, particu- 1. Use this calculator disqualify them for need- larly on the coasts, are also at the start of the based aid, they should more likely to have higher process. look for schools that give price tags than those in

Your clients should merit aid to high-income less desirable areas. Images erhui1979/Getty Illustration: WEALTH PLANNING

3. Look for extra 6. Pocket a quick daughter to drive during scholarships. tax deduction. Thanksgiving, Christmas Students should Most merit scholarships are In many states, parents and spring breaks at home investigate given automatically when who are in the process of with the significantly whether a school a teenager applies to a col- writing checks for college lower premium. lege. Students, however, can capture a state tax offers additional should investigate whether deduction worth hundreds 9. Think twice about scholarships that a school offers additional or even thousands of dol- transferring. require separate scholarships that require lars by first moving the Transferring happens more applications. separate applications. Many college cash into a 529 plan than you think. About a schools provide these for as little as 24 hours. third of students who start extra scholarships for such The vast majority of at four-year private and things as particular aca- states offer tax deductions public colleges and univer- demic majors; talents, like for their 529 plans, but sities transfer. art and dance; and many they don't stipulate how Cost-conscious par- activities, such as entre- long the money needs to ents should be leery preneurship or impressive sit in an account. Before if their child wants to volunteer work. proceeding, clients should transfer from one college check with their state plan to another because it can 4. Encourage stu- to make sure it hasn't boost the price of a bach- dents to become imposed a waiting period elor’s degree considerably. resident assistants. for contributions to qualify Transfer students will Parents should consider for state tax deductions. often lose academic cred- encouraging their children its, and any financial aid to apply to become dorm 7. Be smart about and/or merit aid is usually resident assistants. RAs college loans. lower than what is offered often get their dorm room The best loan to obtain is to freshmen. charge waived, and receive the Federal Direct Loan a salary. RA positions can with a current interest 10. Graduate early. MORE WEALTH PLANNING: be in demand, so your rate of 3.76 percent that Teenagers should inquire http://wealthmanagement child should find out what is designed exclusively about whether Advanced .com/wealth-planning the deadlines are as soon for students. A student Placement test scores or as they start their first year should take the maximum dual enrollment classes of college. Direct Loan before look- taken at a local college as ing for other alternatives, high school students would 5. Understand the such as the Federal Parent be accepted for credit. first offer isn’t Plus Loan and private col- Starting college with aca- always the last. lege loans. demic credits can boost a A student shouldn’t auto- child’s chances of graduat- matically accept a school’s 8. Shrink the car ing early. first offer, since it’s actually insurance bill. A friend of mine a buyer’s market at most If a child isn’t bringing encouraged her daughter colleges. Families can a car to college, parents to graduate early from generally improve their should ask their auto Mount Holyoke College, Lynn O’Shaughnessy chances of obtaining a bet- insurer to lower their an expensive liberal arts is a nationally recognized higher-ed ter offer if the teenager has premium. Some insurers institution, by offering to speaker, journalist and author of The obtained higher awards will dramatically reduce give her half of the money College Solution. She writes about college from other institutions. the price if a child doesn’t she would save if she for CBS MoneyWatch Schools will routinely want bring a car to college. My graduated in 3½ years. The and her own blog, to see the competing offers. insurer even allowed my enticement worked. n TheCollegeSolution.com. WEALTH PLANNING

assets on the FAFSA Cracking Financial and PROFILE? Parents should not include qualified retirement assets, Aid Forms including Individual Retirement Accounts, ADVISORS WHO CAN NAVIGATE COMMON, BUT COMPLEX, FINANCIAL AID FORMS SAVE 401(k)s and 403(b)s, when completing the FAFSA. CLIENTS THOUSANDS OF DOLLARS. BY LYNN O’SHAUGHNESSY Parents also should not disclose assets in qualified and nonqualified annuities when completing the FAFSA, but the PROFILE Every year, roughly 20 lars in financial aid and wants to know about million families fill out zilch. But advisors who non-qualified annuities. the Free Application for study up on these com- The PROFILE will ask Federal Student Aid, which plicated forms can guide about qualified retirement is the federal aid applica- their clients with college- accounts, but schools tion for financial aid. A bound kids on filling them rarely reduce aid because much smaller number also out properly. of these assets. complete the CSS/Financial Here are the most com- Aid PROFILE that roughly mon questions I’ve received Do financial aid formu- 260 schools, which are from parents and advisors las consider the cash nearly all private, require. about the forms and how value of life insurance? How your clients fill best to address them: The FAFSA doesn’t ask out these applications about the cash value of could mean the difference Should my clients life insurance, but some between thousands of dol- report their retirement PROFILE schools do and Photo: bowie15/Thinkstock Photo: WEALTH PLANNING

will assess the value as a rently high school juniors cial aid applications? parent asset. won’t have to wait long Families that do not file the While it's tempting though. They can submit FAFSA will not qualify for to get it done How are assets both the FAFSA and the federal student and parent sooner, clients can’t assessed in determin- PROFILE starting on loans. While this is not ing financial aid eligi- Oct. 1, 2016, for the 2017– common, some colleges tackle these forms bility? 2018 school year. require filing the FAFSA until their child is a Parents often assume to qualify for institutional high school senior. that assets will play a big- For the next three merit awards that aren’t ger part in aid eligibility years we will have linked to need. Families than they do. The FAFSA two children in col- should check with schools assesses parent assets lege at the same time. to see if a FAFSA is neces- (retirement accounts are Can we fill out one sary to qualify for a merit exempt) at a maximum FAFSA that will cover scholarship. of 5.64 percent and the both of them? PROFILE assesses these The FAFSA, as well as the My client wants his same assets at a maximum PROFILE, must be submit- 19-year-old son to be of 5 percent. Both formu- ted for each child. declared independent las, however, allow parents so he will qualify for to automatically shelter My clients are more financial aid. Is some of these assets. divorced, so who files this possible? Usually, parent income the FAFSA and the The requirements to plays a much larger role in PROFILE? become an independent aid eligibility than assets. The rules for the FAFSA student are quite difficult and PROFILE are different to meet. Most students If I pull money out of for divorced and separated won’t be considered inde- my accounts and hide parents. pendent until they reach MORE WEALTH PLANNING: it, do I have to declare The parent who has the age of 24. A student can http://wealthmanagement this cash? housed the child for the also become independent .com/wealth-planning I’ve actually had parents majority of a 12-month by getting married, being ask me this question. It period ending on the day in the military or attending doesn’t matter if nonretire- the FAFSA is filed is the graduate school. A student, ment money is in a bank, custodial parent. This will however, won’t qualify as an investment account, a be the custodial designa- being independent by liv- safe deposit box, a mattress tion even if this parent did ing on his own and paying or buried in the backyard, not pay child support or his expenses. it must be reported on did not claim the student financial aid applications. on his/her taxes. Where the What could happen if child lives is what matters. parents knowingly fail My clients have a son, Schools using the to include income or who is a junior in high PROFILE will vary in how assets on the FAFSA? school. Can they com- they handle divorced and Lying on the FAFSA is a plete the FAFSA and separated parents. Some crime. Parents can face PROFILE now or do schools will want the non- fines of up to $20,000 and they have to wait until custodial parent to share a maximum of five years he’s a senior? his or her financial infor- in prison. In addition, the While it could be tempt- mation. You can find the family might be liable for ing to get this task done list of PROFILE schools at repayment of all the ill- Lynn O’Shaughnessy sooner rather than later, student.collegeboard.org/ gotten financial aid. The is a nationally recognized higher-ed your clients can’t tackle the css-financial-aid-profile. federal government picks speaker, journalist and author of The FAFSA or the PROFILE about a third of FAFSA College Solution. She If my client doesn’t writes about college until their child is a high applications for verification for CBS MoneyWatch school senior. Parents qualify for financial aid and some colleges review and her own blog, whose children are cur- should they file finan- many more. n TheCollegeSolution.com. WEALTH PLANNING

eral financial aid system Seven Ways to Appeal will be undergoing a significant change that could result in more families a Financial Aid Award appealing their awards. Beginning with the CLIENTS UNHAPPY WITH A STINGY AWARD? A COLLEGE OR UNIVERSITY’S FIRST OFFER ISN’T 2017–2018 school year, ALWAYS THE FINAL ONE. BY LYNN O’SHAUGHNESSY parents and students will be expected to share two- year-old income figures, rather than one-year-old numbers, from their tax returns. Underwhelming lege than they had origi- This change is a wel- financial aid awards can nally anticipated. A college come development for be a rude awakening for or university’s first offer many parents who will no families who had previ- isn’t always the final one. longer have to scramble to ously been swept up in the While you won’t hear this complete their taxes before excitement of picking col- from schools, your clients filing for financial aid, but leges. It can be emotionally have the right to appeal it could create problems and financially devastating their child’s award. for others. when a college doesn’t Here are seven things The transition is hap- reciprocate the love that a clients need to know about pening later this year. As teenager feels toward his or appealing an award: usual, students who will be her dream school. heading to college in the Your clients, however, 1. Understand the fall of 2016 will use one- shouldn’t assume they will new financial aid year-old (2015) income be stuck paying consider- filing rules tax returns when complet- ably more for a year of col- In a few months, the fed- ing the Free Application Illustration: Scar1984/Thinkstock Illustration: WEALTH PLANNING

for Federal Student Aid rarely include a family’s and instead are hoping that and CSS/Financial Aid EFC on their award letters. their child obtains a better If students have PROFILE. Parents with I believe the omission is merit scholarship. received awards kids going to college for intentional and meant to from other schools, the 2017–2018 school draw attention away from 5. Use leverage year will also have to use inadequate awards. If students have received they can use those their 2015 (two-year-old) If the EFC isn’t on an awards from other schools, competing offers to income tax returns. These aid letter, parents should they can use those compet- boost a package at families can file their contact the school and ask ing offers to boost a pack- their dream school. 2017–2018 aid forms as for this dollar figure. age at their dream school. early as Oct. 1, 2016. The reliance on 2015 3. Ask about 6. Be diplomatic income will be great for the home equity While many schools will families that experienced calculation negotiate, admission and a poor financial year in The vast majority of financial aid staffers don’t 2015, but it could be a schools in this country want parents to use that disaster for those who had do not penalize a fam- word. They are also turned an unusually good finan- ily for home equity when off when parents brag cial year. calculating financial about how wonderful their Households who end need. The FAFSA, which child is and how lucky a up being hurt by the heavy most institutions use school would be to get him reliance on 2015 income exclusively, doesn’t even or her. Clients should be tax returns can appeal. ask if the parents own a heartfelt when talking to home. However, about the folks in charge of the 2. Look for this key 229 schools, including the purse strings. figure nation’s most elite, use the Before parents can appeal PROFILE, which does ask 7. Be specific a need-based financial aid about home equity. Clients shouldn’t complain offer, they need to under- How these mostly pri- to a staffer that a school stand just how stingy or vate schools assess home is outrageously expensive. MORE WEALTH PLANNING: generous an award really equity will vary. Some College administrators http://wealthmanagement. is. They won’t be able to institutions will use the already know that, and it com/wealth-planning do that without knowing entire home equity against will just antagonize them. their expected family con- the family, while others When your clients talk to tribution (EFC). The EFC, will ignore home equity or a financial aid officer, they calculated using a financial link equity to the house- should be specific about aid formula, is what a hold’s income so a family what they need and, ide- household can afford to that’s cash poor and house ally, provide back-up doc- pay for one year of college. rich won’t be penalized. umentation. For instance, If the family’s EFC is Either way, some a parent could say that $30,000 and the school’s schools will entertain an the award is inadequate cost of attendance is appeal based on the home because the family is tak- $55,000, then the family’s equity calculation. ing care of a younger child demonstrated financial with high medical bills and need is $25,000. In the 4. You can also then provide the receipts best scenario, the applicant appeal merit aid to prove it. would receive $25,000 in awards And of course, if a grants and/or scholarships. Some schools will only family’s financial situation Lynn O’Shaughnessy As a practical matter, most allow families to appeal a has changed since filing is a nationally recognized higher-ed schools, except for some of need-based aid award, but the FAFSA for reasons speaker, journalist and author of The the most elite, do not meet many institutions will also such as divorce, separa- College Solution. She writes about college the full need of most of entertain an appeal from tion, a layoff or medical for CBS MoneyWatch their students. affluent families that don’t expenses, they should let and her own blog, Unfortunately, schools qualify for need-based aid the school know. n TheCollegeSolution.com. WEALTH PLANNING

sons why this school—and Three Tools to Cut many others in the state— have terrible four-year graduation track records. The Cost of College And that’s hardly unique to California: THERE ARE FEW OTHER MAJOR FINANCIAL DECISIONS CLIENTS WILL MAKE FROM SUCH A Nationally, the four-year grad rate at state colleges CLUELESS POSITION. BY LYNN O’SHAUGHNESSY and universities is 33.3 percent; for private institutions, it is 52.8 percent. Perhaps not surpris- ingly, the schools that A few years ago, it share with parents to help years. I told the mother that boast the greatest four-year seemed unfathomable them make smarter finan- regardless of what kind of graduation rates are elite when a few elite schools cial decisions about college student her child was, it universities that offer the began charging $50,000 a and reduce their costs. You was highly unlikely that he resources students need year. Now the most expen- can start with these three: would graduate in the tra- to graduate on time. Most sive schools are charging ditional four years. of the students at these nearly $70,000 for two 1. Graduation Rate San Jose State’s four- schools also don’t have to semesters. Tool year graduation rate is worry about dropping out I don’t need to tell A mom once told me that an abysmal 7.7 percent. of school or reducing their you that runaway college she had lectured her son The lack of adequate state course load because of a prices are freaking out who was heading to San financial support and the lack of money or a need to your clients. Jose State as a freshman inability to enroll in all get a part-time job. There are, however, about the need to buckle the necessary classes in a But in fact there are simple tools that you can down and graduate in four timely manner are big rea- schools with similar student makeups that can have significantly different four- year graduation outcomes. The savings of graduating in four years can be considerable if families focus on a school where that is more likely to happen. An excellent place to check graduation rates is College Completion, which is a microsite of The Chronicle of Higher Education. On this website you can check the four- and six-year graduation rates of any college or university. You can also look at the graduation rates of individual schools by race, ethnicity and gender. To generate college ideas, the

site also allows you to sort Images Inc/Getty Vision Technologies New Illustration: WEALTH PLANNING

schools by graduation rate In contrast, let’s say The federal government nationally and by state. a wealthy family’s EFC requires schools to post The savings of is $55,000 and they are this special calculator on graduating in 2. Expected Family ineligible for need-based their websites. four years can be Contribution aid. If cost is an issue, this The purpose of the Calculator family should be looking calculator is to provide considerable if Parents often harbor unre- for schools that would give families with a personal- families focus on a alistic ideas about whether their child a healthy merit ized estimate of what a school where that they will be eligible for scholarship. particular school will cost is more likely to financial aid. Some parents To access the College after scholarships and happen. never complete financial Board’s EFC calculator, type grants from the federal aid applications because EFC calculator into the and state governments, they mistakenly assume search box on the College as well as the institutions that they won’t qualify. Board’s home page. To use themselves, are subtracted. Other parents, however, the calculator, your clients When using the tool, some believe they will be eligible will need to have their latest parents will discover that for need-based aid when income tax return and their a $60,000 school really their chances are nil. nonretirement investment will cost $60,000 while for Many parents I’ve talked accounts. others the price could be to assume that there’s sim- $40,000 or $30,000—or ply an income cut-off that 3. Net Price even much lower. disqualifies certain families Calculators To use a calculator, from receiving need-based Most teenagers apply to parents will have to provide aid. Unfortunately, there colleges blindly. Every year, some of the same financial are too many other factors high school seniors send information that the EFC that impact aid eligibil- off applications without any calculator requires. The ity to list them here. Your idea if the schools on their calculator may also ask clients, however, can obtain lists will provide merit- or about the child’s academic a good idea of whether need-based aid. Often, they profile including grade MORE WEALTH PLANNING: aid is a possibility—and don’t receive their award point average and stan- http://wealthmanagement what type of schools they letters until just a few weeks dardized test scores. .com/wealth-planning should be aiming for—by before they must put down Your clients need to using the Expected Family a deposit to secure their keep in mind, however, that Contribution (EFC) calcu- spot in the fall. half of net price calcula- lator on the College Board’s If a student does a poor tors are mediocre. These website. job of picking schools, it is calculators use the federal A family’s EFC repre- too late for a do-over. This template that asks few ques- sents what the aid formula pressure can lead to parents tions and are incapable of says a family should be able and their teenagers making determining if a child will to pay, at a minimum, for financially disastrous deci- qualify for merit scholar- one year of college. The sions. It happens far too ships. If a calculator asks EFC for a family with an often. In fact, I can’t think minimal questions and average household income of any other major pur- it only takes two or three of $55,000 would be in the chase where consumers are minutes to complete, it’s Lynn O’Shaughnessy $2,000-$4,000 range. If in such a clueless position. likely that it’s a poor one, is a nationally recognized higher-ed the college costs $50,000 Your clients can obtain and parents would be wise speaker, journalist and author of The and the EFC is $4,000, the a good idea of whether a to keep digging to get the College Solution. She writes about college student would be eligible school will be generous or most information they can for CBS MoneyWatch for up to $46,000 in need- not by using the institu- about a particular school’s and her own blog, based aid. tion’s net price calculator. true cost. n TheCollegeSolution.com. WEALTH PLANNING

A growing number of Nine Things to Know frustrated parents refuse to pay the high price of a bachelor’s degree in this About College in country. But their children are still going to college, just not here. More stu- Europe dents are attending college in Europe, where there are MORE STUDENTS ARE ATTENDING COLLEGE IN EUROPE, WHERE MANY BACHELOR’S PROGRAMS many bachelor’s degree OFFER FREE OR INEXPENSIVE TUITION. BY LYNN O’SHAUGHNESSY programs that offer free or inexpensive tuition. Here are nine things your clients’ kids should know about obtaining a degree in Europe:

1. No Need to Learn a Foreign Language A student doesn’t have to be proficient in a foreign language to attend a European university. Outside of the United Kingdom, there are more than 1,500 European bachelor’s programs taught in English.

2. Beyond the States Anyone serious about exploring their European options can take advantage of a helpful new resource, Beyond the States (www. beyondthestates.com). This website includes many free articles about attending school in Europe. For a monthly fee, the website also offers a database of all bachelor’s degree programs conducted in English that are located in non-English-speaking

Lynn O’Shaughnessy is a nationally recognized higher-ed speaker, journalist and author of The College Solution. She writes about college for CBS MoneyWatch and her own blog,

TheCollegeSolution.com. LanceB/Thinkstock Photo: WEALTH PLANNING

countries in Europe. fied an academic interest compared to the typical Students can The British Council is because many students in seven years for a Ph.D. complete their the go-to resource for stu- this country switch their in the U.S. degrees faster in dents who want to attend majors at some point dur- a university in Great ing their college careers. 8. Educational Europe because the Britain, the most popular Styles Differ schools don’t bother foreign option. From this 5. Parents Can European schools tend with electives and site, you can find schools, Use 529 College to be focused on inde- general education courses and scholarships Accounts at Many pendent study. In this credits. for international students. European Schools kind of environment, You can use 529 plans at students could spend very 3. Tuition Can Be overseas schools without little time in a classroom. Much Cheaper triggering taxes or a pen- Instead students will do a Many schools do offer alty as long as the institu- lot of independent read- tuition waivers and schol- tion accepts U.S. financial ing. There often will not arships for international aid or loans. be many opportunities to students. According to On the federal stu- earn a good grade, and Beyond the States, the dent aid website, you can instead grades can depend average tuition cost is obtain an Excel spread- on just one or two tests. $7,291 per year, and more sheet of all the foreign col- European schools than 40 European pub- leges and universities that aren’t focused on clubs, lic universities provide accept federal student aid. entertainment and sports American students with that are commonplace free tuition. 6. Undergraduates on U.S. campuses, and The average European and Graduate they don’t have the Greek housing costs are in the Students Can Apply system. A European range of $335 to $500 for a Federal Direct school rather than being a month, according to Loan located in a compact cam- Beyond the States. At international schools pus will often instead be that accept federal aid, spread out across a city. MORE WEALTH PLANNING: 4. It Won’t Take undergraduates and grad- While people in the U.S. http://wealthmanagement As Long to Earn a uate students can apply tend to strongly identify .com/wealth-planning Bachelor’s Degree for a Federal Direct Loan. with their alma maters, With some exceptions, an In addition, grad students this isn’t a common phe- undergraduate degree will and parents can apply for nomenon in European take three years, rather a Federal Direct PLUS countries. than the traditional four Loan. Students who pur- in the United States. sue their degrees overseas, 9. Homesickness Is Students can com- however, won’t qualify for Possible plete their degrees faster any federal grants, includ- The majority of American in Europe because the ing the Pell Grant that’s college students live schools don’t bother with intended for low- and within 100 miles of their electives and general edu- middle-income students. home. If a student attends cation credits. Students a school overseas, the trips jump right into their 7. Earning a home will likely be limit- majors instead. Graduate Degree ed, and some won’t be able Needing to identify an Can Be Much to hack the tremendous academic major before Cheaper distance. starting college may be a Many master’s degree pro- Some students also deal breaker for teenag- grams are just a year long won’t be able to handle the ers who are undecided rather than two or three cultural and culinary dif- about what to study. And years. And doctorates can ferences—not to it can also be risky for be completed in just three mention learning a new students who have identi- or four years in Europe, language. n WEALTH PLANNING

percent of private institu- When Clients’ Teens tions use waitlists. Nearly a third of public universities (31 percent) also rely Are Wait-Listed on them. Here are five things PUTTING APPLICANTS IN AN ADMISSIONS HOLDING PATTERN IS STANDARD OPERATING your clients should under- PROCEDURE FOR SELECTIVE SCHOOLS. BY LYNN O’SHAUGHNESSY stand about waitlists: 1. Waitlists are common among selective schools. Putting applicants in an admissions holding pattern is standard operating procedure for selective and highly selective schools. Look at colleges and universities that near the top of U.S. News & World Report rankings and you’ll find many schools that employ this admission strategy. Popular schools that rely on waitlists include:

• Amherst College • Carnegie Mellon University • Ohio State University • Northwestern University • Princeton University • University of California at Berkeley • University of Michigan • University of North Carolina • Vanderbilt University • University of Texas

2. Waitlists are growing in popu- High school seniors verdicts. And, it might be larity. dream for years about the months before they know A major reason why col- moment they will open if they are in or out. lege administrators use their college acceptance According to the 2016 waitlists is to gain better letters. Some teenagers, survey by the National control over their admis- however, have to wait even Association for College sion process. Many smart,

longer before they get their Admission Counseling, 43 high-income students now Images Mueller/Getty Malte Illustration: WEALTH PLANNING

view the admission pro- It’s extremely difficult the orchestra or students cess at prestigious schools to get off the waitlist of from distant states. Less than a third as a high-stakes lottery. the most popular schools. of wait-listed Apply to enough highly Here are two examples 5. Check out wait- applicants end up ranked colleges and uni- from the 2015-2016 list odds. versities and, the thinking admission cycle: Families can research getting acceptance goes, you’re bound to get waitlist chances on the offers. into at least one of them. University of Michigan College Board’s website. To This attitude makes it • Applicants offered a retrieve the relevant sta- more difficult for admis- waitlist spot: 11,197 tistics, type in the name of sion staffers to discern • Applicants who accepted any school in the College which teenagers really the invitation: 3,970 Board’s search box. Click want to come to their • Applicants who were on the “Applying” link in institutions. If administra- accepted off the list: 36 the left-hand column on tors guess wrong, their the college’s profile page admission yield rates can Clearly the University and waitlist figures will be plummet. of Michigan abused the at the top. waitlist practice. The num- 3. Schools don’t ber offered a spot on the Steps Teens Should like to say “no” to waitlist far exceeded the Take alumni and VIPs. number of students in the Teenagers should follow Colleges are also loath flagship’s freshmen class of a college’s directions very to antagonize alumni 6,689 students. carefully when receiving a and important people by waitlist invitation. If they rejecting their children. Massachusetts Institute want to accept it, they They can accomplish the of Technology should do so quickly. same thing by extending • Applicants offer a waitlist Students should send a meaningless waitlist spot: 652 a detailed letter to the invitation. Some families • Applicants who accepted admission office explain- MORE WEALTH PLANNING: actually consider a waitlist the invitation: 575 ing why they want to http://wealthmanagement offer a badge of honor. • Accepted from the list: 52 attend the school. .com/wealth-planning And schools certainly The student should ask don’t try to dissuade them While MIT’s waitlist her high school counselor of this belief, even when invitations might seem to contact the college to they have no intention of like overkill, the number provide an additional accepting these applicants. accepted off the waitlist is endorsement. 1 percentage point better Schools don’t like to 4. It’s difficult get- than its overall acceptance talk about it, but they com- ting off waitlists at rate (8 percent). monly select students off popular schools. School officials that waitlists that can pay full According to the NACAC offer waitlist invitations price. If a family isn’t seek- survey, 16 percent of to excessive numbers of ing financial aid, an appli- applicants received waitlist teenagers justify the prac- cant should emphasize that. offers during the 2015- tice by saying that they Schools also dislike Lynn O’Shaughnessy 2016 admission cycle, and never know what kind of extending admission offers is a nationally recognized higher-ed 41 percent agreed to be students they will need and then being turned speaker, journalist and author of The placed on waitlists. Less as the freshmen depos- down. If a college truly is College Solution. She writes about college than a third of wait-listed its come in. The school the No. 1 choice, a student for CBS MoneyWatch applicants ended up get- might need more sociolo- needs to share that with and her own blog, ting acceptance offers. gy majors or violinists for the school. n TheCollegeSolution.com. WEALTH PLANNING

Division I, where students Eight Things Clients who receive sports scholarships always get a full ride. A full-ride scholarship in Need To Know About the NCAA system covers tuition and fees, room/ board and required course- Athletic Scholarships related books. These are the six JUST 2 PERCENT OF HIGH SCHOOL ATHLETES SNAG SPORTS SCHOLARSHIPS AT NCAA SCHOOLS. sports—also called head- HERE’S HOW TO GUIDE PARENTS CONVINCED THEIR CHILD COULD MAKE THE CUT. count sports—and the number of scholarships BY LYNN O’SHAUGHNESSY permitted for each school:

Men’s Number of Sports Scholarships Football...... 85 Basketball . . . . .13 Parents with athletic children dream of under- Women’s Number of writing the cost of college Sports Scholarships with sports scholarships, Basketball . . . . .15 but they need to understand Tennis ...... 8 the realities of what it takes Gymnastics. . . . 12 to capture these awards. Volleyball . . . . .12 If you have clients with teenage athletes, here are Athletes who compete eight things that you should on a headcount team get pass along about sports either a full-ride scholar- scholarships. ship or no athletic award at all. For instance, if there 1. The odds of are 10 athletes on a school’s capturing an ath- women’s tennis team, two letic scholarship are of them won’t receive an poor. athletic scholarship. Just 2 percent of high scholarships are typically which includes the nation’s school athletes receive not as generous as regu- largest brand-name sports 3. Most teams are a sports scholarship at lar financial aid or merit programs, receive sports equivalency sports. a National Collegiate scholarships that student scholarships. Sixty-one per- All other Division I teams Athletic Association athletes can receive. What cent of athletes in Division are characterized as (NCAA) school. many families realize too II, which is composed equivalency sports. The In reality, athletic late is that teenage athletes of many lesser-known NCAA dictates how many should not sacrifice their schools, receive athletic scholarships that teams in Lynn O’Shaughnessy studies as they pursue scholarships, but these are a particular sport can offer, is a nationally recognized higher-ed what they hope will be a routinely smaller. but full rides are not man- speaker, journalist and author of The big sports payoff. datory. In fact, coaches will College Solution. She According to NCAA 2. Only certain often split up a scholarship writes about college sports offer full for CBS MoneyWatch statistics, 56 percent of and give it to multiple and her own blog, athletes competing in the rides. athletes. Consequently, a

TheCollegeSolution.com. organization’s Division I, There are just six sports in student could get a schol- vladacanon/Thinkstock Illustration: WEALTH PLANNING

arship so small that it institutions, participate in to look for prospects. Since Division III schools might just cover the cost of the NAIA. most college programs are a source of a semester’s books. Sports scholarships don’t have large enough college money In Division I baseball, are also possible at the recruiting budgets, coaches for example, a maximum community college and use these online athletic even though they of 11.7 scholarships exist. junior college level. You databases for a portion of don’t award athletic To attract more students, can learn more by visiting their scouting. scholarships. a baseball coach might the website of the National Teenagers can post divide them up so that Junior College Athletic their athletic profiles for more students would Association. free. Parents can pay if they receive something. If a hot want additional services prospect got a full ride, 5. Students should such as recruiting videos or there would be less avail- make sure coaches consulting with recruiting able for his teammates. see them. experts. Here are examples of For those who aren’t dis- Two large recruiting the maximum scholarships couraged by the realities of services are Next College allowed for some of the athletic scholarships, there Student Athlete (NCSA) equivalency sports: are smart ways for students and BeRecruited; there are to boost their chances of many other regional and Men’s Number of receiving athletic dollars. smaller operations. Sports Scholarships Teenagers should make Golf ...... 4.5 sure to compete at events 7. Don’t overlook Ice Hockey . . . . 18 that coaches attend. Sports colleges that don’t Lacrosse. . . . . 12.6 combines and showcases award scholarships. Swimming . . . . 9.9 have grown in popularity Division III schools are a Track and Field . . 12.6 in recent years, and coaches source of college money Water Polo . . . . 4.5 are taking advantage of even though they don’t them as a way to see many award athletic scholarships. Women’s Number of prospects. These schools offer finan- Sports Scholarships Coaches also like these cial aid and most award MORE WEALTH PLANNING: Softball...... 12 events because it allows merit scholarships too. http://wealthmanagement Track and Field . . 18 them to see high-caliber Division III encompasses .com/wealth-planning Gymnastics. . . . 12 athletes competing against 444 schools, including Ice Hockey . . . . 18 each other. That will be some of the nation’s most Lacrosse...... 12 much more illuminating elite institutions, such as Swimming/Diving. .8.1 than watching a talented the University of Chicago, athlete compete against a Washington University in It’s important to keep in mediocre team. St. Louis, Williams College mind that many schools do Teenagers, however, and Pomona College. The not fully fund their athletic shouldn’t assume that they Ivy League schools are in scholarships so there can be will automatically be dis- Division I, but they don’t less money available than covered at one of these provide athletic scholar- what the NCAA allows. events. Athletes need to let ships either. coaches know that they will 4. Other sources of be there, introduce them- 8. Dive deeper athletic scholarships selves during the event, and when exploring exist. follow up with the coach scholarships. An alternative to the afterward. Families should use NCAA sports programs is ScholarshipStats.com, a the National Association 6. Students should wonderful source for athlet- of Intercollegiate Athletics. try an online ic scholarship statistics, to Close to 300 colleges and recruiting service. research athletic prospects universities, which are Coaches typically use in specific sports, as well as mostly smaller private online recruiting services at individual schools. n WEALTH PLANNING

401(k)s Using Retirement The easiest way most work- ers can use their 401(k) accounts to pay for college Money to Pay for expenses is by borrowing money directly from the account, assuming their College employer allows loans from the plans. If so, the 401(k) CAREFUL PLANNING CAN HELP CLIENTS MINIMIZE THE COST OF USING THESE FUNDS OF LAST owner can usually borrow RESORT. BY KEVIN MCKINLEY the lesser of $50,000 or 50 percent of the account value. There is no credit application or approval process for a 401(k) loan, and the debt doesn’t show up on the borrower’s credit report, thereby avoiding a potential negative effect on their current debt terms or future borrowing. However, if the borrower’s employment is termi- nated while a loan balance is outstanding, the loan usually has to be repaid immediately. Otherwise, it counts as a distribution and will be taxed as income and penalized if the account owner is under age 59½. Another more drastic method is for the client to take a “hardship withdrawal” from his 401(k), again assuming their employer allows these distributions. Only a few circumstances allow employees to use the hardship withdrawal provision, but one of them is the need to pay for higher education expenses Ideally, clients would be start of a semester will incurred by themselves, able to pay for college costs be relieved to know that a spouse and/or children from a combination of sav- it’s possible to use their and dependents when no ings, income and financial 401(k)s, IRAs and Roth other funds are available. aid such as grants and low- IRAs to pay for higher If a hardship withdrawal is cost loans. But often those education expenses with- approved by the employer, sources aren’t enough (or out necessarily getting then the amount taken out aren’t attractive enough) to clobbered by taxes and will be subject to income the foot the entire bill. penalties. Here’s what you taxes, plus a 10 percent Those who are in a need to know when clients penalty if the 401(k) owner

financial pinch at the call you in a panic. is under age 59½. wildpixel/Thinkstock Illustration: WEALTH PLANNING

Last but not least, cli- ers of any age can always Loans from a 401(k) ents who have reached age withdraw the contribution are not included in the Clients who have 55 and have a 401(k) from portion of their account EFC, as long as the money reached age 55 a previous employer can at any time for any reason is spent before the fam- and have a 401(k) make withdrawals from (including paying college ily applies for financial that account at any time, expenses) with no taxes or aid. But any unused loan from a previous in any amount and for any penalties whatsoever. proceeds remaining when employer can make reason. The withdrawals Better yet, the IRS the family applies in the withdrawals from will be taxed as ordinary allows Roth IRA owners future may be included that account at any income, but there will to designate the withdraw- as a “parent asset” in the time. be no “pre-59½” penalty als as the “contribution” EFC. Up to 47 percent of applied. portion of the account, money withdrawn from until the money taken out 401(k)s, IRAs and Roth IRAs equals the amount contrib- IRAs is usually included in Funds in IRAs can be with- uted. But if the Roth IRA the “parental income” por- drawn at any time by the owner is under 59½ and/ tion of the EFC; therefore, owner, but the withdrawal or has held the account it may have a substantial will be taxed as ordinary for less than five years, the negative effect on the income on the distribution. earnings portion of the amount of need-based Usually, the IRA owner account will be taxed as aid received by the fam- would also pay a 10 per- ordinary income. However, ily. Consequently, clients cent penalty on the within that situation the client who anticipate receiving drawal if they are under can still avoid the 10 per- need-based aid may want age 59½. But, if the money cent penalty if the money to wait to tap retirement taken out is used to pay is used to pay for qualified accounts until the student for qualified higher educa- higher education expenses is near the end of their tion expenses incurred incurred during the same college years and won’t be by themself, spouse, calendar year in which the applying for aid in the fol- MORE WEALTH PLANNING: dependents or any of their distribution is made. lowing years. http://wealthmanagement descendants in the calen- .com/wealth-planning dar year of the withdrawal, Financial aid effects More information the IRA owner can avoid Assets held in the afore- Clients who hope to qual- the 10 percent penalty. mentioned retirement ify for financial aid should However, this exempt accounts are generally not begin filling out the amount may be reduced included in the “expected FAFSA form at www.fafsa. by scholarships, grants family contribution” (EFC) ed.gov as soon as possible and other forms of finan- formula that determines after the October 1st pre- cial assistance. The net how much families have to ceding their child’s atten- figure is known as the come up with before any dance at a higher educa- “adjusted qualified educa- need-based aid is awarded. tion institution. They can tion expenses” (AQEE), But by definition, clients use the FAFSA4Caster the details of which can be who are forced to tap at the same site to get a found in Publication 970 retirement accounts to rough idea of how much at www.irs.gov. pay for college are also need-based aid they may likely to qualify for some get, and what moves may Roth IRA kind of need-based finan- increase (or decrease) Assets held in Roth IRAs cial aid awarded by the their eventual award. can be withdrawn tax-free, federal program, and/ Clients can also use H&R Kevin McKinley as long as the owner has or the school. And sev- Block’s Tax Calculator is principal/owner of McKinley Money reached age 59½ and at eral methods of accessing at tinyurl.com/taxest to LLC, an independent least five years have passed retirement accounts can simulate how withdrawing registered investment advisor. He is also since the owner made their dramatically affect the money from their various the author of Make first contribution to the financial aid awarded in retirement accounts may Your Kid a Millionaire account. Roth IRA own- subsequent years. affect their taxes. n (Simon & Schuster).