AZ College Solutions

Financial Aid Despite the Economy

College Financial Aid still available despite down economy, rising tuition

Recent economic reports have made it difficult to determine whether college is getting more or less affordable.  We hear that state education budgets are dropping but the federal government is allocating more.  With record numbers of students enrolling in colleges, does this mean that colleges are benefitting from more income or that they have less grant money available for each student?   While the reports are confusing our advice is to stay positive as the overall outlook is still promising. 

Discounting on the Rise

First, the good news.  A recent report from the National Association of College and University Business Officers (NACUBO) found that the average discount rate (the share of tuition and fee revenues used to award aid) for full-time freshman increased 3 percent between fall 2007 and fall 2008 and preliminary estimates show another increase for fall 2009. 

You may ask “how can this be?”  With all of the economic issues, budget cuts and staff reductions, it would lead one to believe less financial aid is available.  But colleges are not exempt from the realities of student enrollment.  Just as airlines often provide discounts to ensure their flights are full, colleges must also compete for students to ensure their classes are full. 

By shifting workloads, implementing hiring freezes and delaying construction, smaller colleges are transferring the savings into increased financial awards.  The Ivy League schools may not be providing any additional aid, as they continue to have more applicants than openings, but the smaller private colleges, with small endowments, will make the necessary aid adjustments to keep students from going elsewhere.

Continued Tuition Hikes

Unfortunately, another way they can keep the aid percentage high is by implementing parallel tuition increases. The annual 6-10 percent increase doesn’t seem to be going away anytime soon.  Also, as we discuss in our classes, schools also work to attract students willing to pay the sticker price.

Award letters are currently being mailed to college-bound families and this is a great time to compare and contrast.  If the student “fits” the college criteria, the awards will be generous.  If there is less of an award, there is less of a fit.  Focusing on the colleges that want you, and have provided good award letters is the best plan for getting the best discounts. Also remember that you still have the option to negotiate if you feel the college did not fully consider your situation. 

Student Loan Relief

The recent passing of the educational stimulus bill is also encouraging for college-bounds students.  It’s very likely that families will benefit from a more straightforward loan application process and lower interest rates on programs like PLUS and Stafford loan, which already have good benefits.  However, most of the funds are going to fund Pell and Access Challenge Grants, towards programs at Community Colleges and for minority serving colleges.  These can be tricky for most families to qualify for but services like ours can help fully maximize all available options.

We hope these recommendations help you navigate the current college financing environment.  If this is still a little confusing, contact us to help you navigate the process.

College Tax Ideas

JUST IN TIME FOR COLLEGE PLANNING …

OK, so you have a college bound senior and you are preparing a budget for their freshman year, and you have included tuition, books and other assorted expenses.  After looking at all the numbers at least twice, you are no doubt asking yourself, “Is there any way to reduce the total?!”

The answer is YES!   There’s a new $2,500 college tax credit for 2009 and 2010.  At this point in time, it is only valid for 2009 and 2010, since it was part of the stimulus bill authorized in February.  It is officially known as the American Opportunity Tax Credit.  The credit may be extended, but it will take government authorization, so we will wait and see what happens after 2010.

For parents of sophomores and juniors, it is never too early to start planning ahead for college and we’ve outlined four strategies that will help you get started.

1.  Start a state sponsored 529 plan. This popular option allows you to deduct all or a large portion of your contributions on your state income tax return.  The earnings on a 529 plan are also allowed to grow on a tax deferred basis.   Aside from the tax benefit, if the 529 plan funds are used to pay for college expenses then the earnings may be tax free at the state and federal level.

2.  Establish a Coverdell ESA. This is a useful strategy as contributions to a beneficiary account can total up to $2,000 per year.   While not tax deductable, contributions to a Coverdell ESA and any earnings are not taxed on the distributions as long as qualified education expenses are equal to or greater than the distributions.

3.  The Uniform Gift to Minor Act (UGMA) is another way to fund the expenses of a soon-to-be college student.  Donors are allowed to contribute up to $12,000 per year without any gift tax considerations.

4.  The child tax credit of $1,000 is also available for children under the age of 17, which can reduce tax payments and allow those funds to be set aside for college savings.

With careful planning; the tax credits, college plans and UGMA’s mentioned above should provide a basis for preparing an effective plan to fund the upcoming college expenses of one or more high school students.

As with any new tax year, there are many changes to the tax law.  Be sure to check with your tax professional regarding all the criteria for the new college tax credits and other plans available to assist with college expenses.

 One of the primary goals of AZ College Solutions is to reduce a family’s college expenses before the student starts college, but we also want to make sure we keep you informed of any other items which will help make the college experience a bit more pleasant.  If you would like more information on how we make college simple, please learn about our process on the web or call us at 480-993-1920.  We also offer FREE seminars to help you navigate the college planning process with success and confidence.