College Savings Plan

10 Tips for Maximizing Financial Aid

August 24, 2015
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college-aid-377-177College tuition can be so costly that even high-income families can get offers of financial aid. Your first step is to complete the federal forms, and then contact the school directly to further negotiate a financial aid package.

So what does it cost to achieve this lifetime enhancement? The average cost of college (tuition, fees, room, and board) is around $19,000 for in-state public schools and $43,000 for private universities, as reported by the College Board. Keep in mind that these are averages for one year of college only. To plan accurately for college costs, it’s best to 1) identify the college the student is likely to attend and use those numbers; 2) multiply the one-year cost by 4 (or even 5); and 3) add an inflation factor.

Your income may lead you to think it’s not worth the trouble of applying for student aid. But because a greater portion of institutional grants is now going to higher-income families, and because subsidized loans offer such attractive rates and terms, anyone with a child enrolling in college should fill out the FAFSA (Free Application for Federal Student Aid at www.fafsa.ed.gov).

Even parents with students who are several years away from college should become familiar with the FAFSA so they can rearrange their affairs if necessary, perhaps contributing more to retirement plans (which are considered exempt assets) or spending down UGMA/UTMA accounts so those assets won’t raise the expected family contribution (caution: UGMA assets must be spent on the child and may not be for necessities; summer camp, cars, and computers are OK). Also, remember that the FAFSA must be submitted every year that the child is enrolled.

Here are some tips for filling out the FAFSA:

  1. Do it early. At many schools financial aid is distributed on a first-come, first-serve basis. Although the federal deadline on the form is June 30, the aid deadline set by individual schools could be as early as the end of February. Deadlines for state aid also vary. And although it asks for the prior year tax information, which may not be in yet, financial aid counselors advise using estimates or basing the figures on last year’s tax return rather than waiting.
  2. Do it online. Because of the FAFSA’s complexity, it’s common for people to make mistakes when filling it out. Paper applications with errors or missing information will be returned for corrections; therefore, their processing will be delayed. The online version of the form issues an alert for missing information and even recognizes some obvious errors.
  3. Do not include exempt assets. Retirement plans and home equity are exempt assets and should not be included in net worth information on the FAFSA.
  4. Keep all records. Make a copy of the completed application and save it, along with all records used to complete the FAFSA. Not only will this help in filing next year’s form, but documentation may need to be produced if yours is one of those selected for verification. The U.S. Department of Education checks FAFSA information against data from the Social Security Administration, the Veterans Administration, and the Internal Revenue Service. It also selects about one-third of all applications for verification.
  5. Read all questions carefully. The words “you” and “your” refer to the student, not the parents. Do not leave any answers blank. If the answer is “zero” or “not applicable,” enter “0” or “N/A.”
  6. Do not send letters of explanation with the FAFSA. Although it is a good idea to make financial aid officers aware of any unusual circumstances, such as a job loss or reduced income, such letters should be directed to individual schools. If they are attached to the application, they will be thrown away. Apart from the FAFSA, parents may want to contact the financial aid departments at individual schools to increase their chances of receiving a favorable financial aid package.
  7. Don’t discount expensive schools. Some families automatically cross high-tuition schools off their list. But interestingly, those colleges may actually be more affordable because they are often well endowed and can meet more of the need.
  8. Reconsider early decision. Some schools allow students to get a jump on the application process if they will commit to attending if admitted. While this may help the student’s chances of getting in, it could reduce the amount of aid that is offered, because of the student’s reduced bargaining position.
  9. Ask for a review. To try to receive a better aid package, ask that it be reviewed. Avoid using the words “bargain” or “negotiate,” however; financial aid officers do not like being put in that position, and they especially hate having offers from competing colleges waved in their faces. Counselors advise thanking the school for its generosity and then expressing doubt at being able to meet the family’s expected contribution as a way to ask for more aid.
  10. If outside scholarships come in, ask that loans be reduced first. Some students have discovered that outside scholarships from community organizations such as the Rotary Club end up going straight to the college. That’s because the grant portion of the aid package is reduced dollar for dollar by the amount of the scholarship. Ask that any outside scholarships be applied against the loan portion of the package.

The availability of student aid should not keep parents from saving for college. But because grants and loans are such an essential part of college financing today, even high-income families, who haven’t thought to request student aid, will probably want to participate in the student aid game rather than automatically writing checks to their child’s college.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage.

4 Myths About Financing College


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college-grad-377-177When parents or families contemplate the college admission process, the strongest emotion that they often experience is fear.  It’s only natural to dread the financial approach of this milestone, but as you prepare for it, here are some ideas to keep in mind.

Here are four myths about financing a college education that simply aren’t true:

1. We will be penalized because we saved for college. This can be an overstated worry because the financial aid formulas don’t consider all assets when calculating financial need. The aid formulas ignore qualified retirement accounts in their calculations. So a client could have $1 million sitting in retirement accounts, and it should not hurt aid chances. In addition, parent assets are assessed at a lower rate. The federal aid formula that’s tied to the Free Application for Federal Student Aid assesses relevant parent assets at no more than 5.64 percent. For every $1,000 parents have in non-retirement assets, the aid formula will reduce financial-aid eligibility by $56.40.

The formula also allows parents to shelter some of their non-retirement assets that are tied to the age of the oldest parent. A 50-year-old parent, for instance, can currently shelter $31,800.  Let’s say a married couple saved $100,000 in 529 accounts or other non-retirement accounts, and their federal asset protection allowance is $31,800. This would leave $68,200 of the money unprotected. This money would be assessed at 5.64 percent.

100,000 – 31,800 = 68,200

68,200 X 5.64% = $3,846

In this case, the family’s eligibility for financial aid would only drop by $3,846.

A family would be in much better shape if they had $100,000 stashed away for college than being eligible for an additional $3,846 in aid. And that extra aid could very well come in the form of loans.

2. My child won’t qualify for scholarships because she’s an average student. 
More than two-thirds of students who attend state or private colleges do not pay full price. And the scholarships and grants are even more plentiful if you look at who is capturing price breaks at private colleges and universities.   According to the most recent price study by the National Association of College and University Business Officers, 89 percent of freshmen attending private colleges receive a price cut, and the average discount is 53 percent. So if a college’s tuition is $45,000, the typical package would drop the cost to $21,150. With so many students receiving price breaks, it’s not just the “A” students who qualify for awards.

3. My child must attend an elite school to succeed.
Many families truly believe that getting into the Ivy Leagues and other elite universities will guarantee professional success in life.  Alan Krueger, the famous Princeton economist, coauthored two landmark studies that demonstrated quite convincingly that the largely wealthy students who go to Ivy League schools will fare just as well graduating from other schools. In the first study released 12 years ago, the researchers looked at students who attended one of the eight Ivy League schools and those who were accepted to these schools, but went elsewhere. When they examined their later earnings, however, the grads were essentially making the same income.  Even more compelling was Krueger’s second study, published in 2011, where he looked at the earnings of students who attended Ivy League schools and those who had the same excellent academic profiles but were rejected from the Ivies. Krueger documented the same salary phenomenon.

4. I’m worried about having money left in my 529 account if my child wins a full-ride scholarship to college.
This would actually be a great problem to have—not needing all the 529 money that you’ve saved for college.  In reality, less than a third of 1 percent of students receive true full rides that cover the entire cost of an undergraduate degree, according to Mark Kantrowitz, the author of Secrets to Winning a Scholarship. Parents with children who do capture fabulous scholarships can transfer any leftover cash to another child’s 529 account or even set up a 529 account for themselves. Parents who withdraw 529 money that isn’t used for college due to scholarships can avoid the 10 percent penalty, but the earnings on the withdrawal are subject to taxes.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110

The Sandwich Generation: Juggling Family Responsibilities

July 17, 2015
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At a time when your career is reaching a peak and you are looking ahead to your own retirement, you may find yourself in the position of having to help your children with college expenses while at the same time looking after the needs of your aging parents. Squeezed in the middle, you’ve joined the ranks of the “sandwich generation.”

What challenges will you face?

Your parents faced some of the same challenges that you may be facing now: adjusting to a new life as empty nesters and getting reacquainted with each other as a couple. However, life has grown even more complicated in recent years. Here are some of the things you can expect to face as a member of the sandwich generation today: (more…)

What is the Right Formula for Funding Education?

February 8, 2015
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collegesavingsEducation is truly an investment for a lifetime. The gift of a college education can open the door to a world of opportunity for your child or grandchild. Saving, even a little at a time, can make a big difference down the road. With the cost of a college education continuing to increase, the key is to start saving early and regularly. There are many different methods to fund education expenses.  Determining the best method for your family should first start with an honest conversation regarding your goals. At HFG Wealth Management, we utilize the life planning approach; our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values.

Ask yourself:

  1. How much of my children or grandchildren’s education do I want to fund?
  2. What is a feasible savings amount based on my financial situation?
  3. Which other funding methods (i.e. scholarships, work-study, student loans, financial aid) are likely to play a part in funding education?

Once these key questions are answered, a plan can be implemented to fund education. I have provided some helpful information on the various education funding methods that you may want to use to begin the planning process: (more…)

Are You Maximizing Savings for Your Child’s Education?

October 13, 2014
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     With schools now in full swing, funding education has probably crossed your mind this fall. HFG Wealth Management believes 529 plans are an excellent way parents and grandparents can save for college, similar to the way 401(k) plans help you save for retirement. Americans are pouring billions of dollars into 529 plans, and contributions are expected to increase dramatically in the coming decade. In this short period, 529 plans have emerged as one of the top ways to save for college.

     “Investing in 529 Plans proves to be a powerful tool for funding education while maintaining flexibility and providing generous tax benefits,” says Jordan Nightingale, CFP® at HFG Wealth Management. (more…)