Trans World Assurance Blog

The ABCs of Financial Aid (Part 4) by Trans World Assurance

Posted on Wed, Aug 17, 2011

 

transworld college clockFrequently Asked Questions

1. How much income is “too much” to qualify for Financial Aid?

Short of filling a FAFSA form, in a need-based situation, a wildly-generalized guideline for private colleges is that an annual income of less than $100,000 to $125,000 will frequently qualify for at least some financial aid (if no significant qualifying assets are involved).

2. Will my assets disqualify me for Financial Aid?

That depends upon the type of asset and the type of school – public (state) or private. Home Equity, Annuities, Retirement funds and Life Insurance are not counted toward the EFC at public schools — but might be, for need-based aid, at some private schools using Institutional Methodology.

3. Why bother saving – it only counts against me?

Families with that mind-set can “spend it” and have to borrow to pay for college – or they can save and “lose” 5.6% of parental assets per year. Spend $20,000 and have to borrow the $20,000, plus thousands more in interest. Or, save $20,000 and have $18,880 available for college?

4. How can I calculate my EFC?

A quick, fairly accurate version is at www.FAFSA.ed.gov

5. Should we only consider colleges that we can “afford”?

No! Colleges have huge variations in the amount of Financial Aid they’re willing to give – and how they “Package” it.

It’s urgent to start saving now. The clock is ticking.

(Photo courtesy of Campbellsville University.)


 Disclaimer

Trans World Assurance makes available the information and services contained herein in furtherance of Trans World Assurance's goal to inform and educate. While Trans World Assurance makes every effort to present accurate and reliable information on this site, Trans World Assurance does not endorse, approve or certify such information, nor does Trans World Assurance guarantee the accuracy, completeness, efficacy, or timeliness of such information. Trans World Assurance assumes no responsibility for consequences resulting from use of the information contained herein, or from use of the information obtained at linked sites, or in any respect for the content of such information.

Tags: Trans World Assurance, college planning, college funding, save for college, financial aid

The ABCs of Financial Aid (Part 3) by Trans World Assurance

Posted on Tue, Aug 16, 2011

 

FAFSA vs. Institutional Methodology:
Subject to minimum allowances, FAFSA requires 5.6% of certain parental assets be used for college costs and count toward the family’s EFC. However, FAFSA exempts some assets, specifically:

• Home Equity
• Retirement Funds
• Life Insurance, including Annuities

Many private colleges and universities require information beyond the basic FAFSA to calculate the EFC. This is called “Institutional Methodology.” Frequently, these colleges look at home equity, believing that families should be willing to use a portion of their home equity to pay for college. Some schools will also pay particular attention to sudden increases in various retirement funding vehicles or cash-value insurance.

Both FAFSA and Institutional Methodologies more heavily weigh student assets than parental assets. Student assets traditionally have been calculated at 20% (annually) to be used for college costs, compared to 5.6% for family assets above an excluded amount (that rises as parents get closer to retirement age).

Grandparent Assets:
Transworld college grandparentsAssets of grandparents, aunts and uncles (unless they are guardians for the student) do not count toward the family’s EFC. Income and assets of step-parents, divorced parents and remarried, non-adopting partners are treated in a variety of ways, depending upon the college. Accordingly, the “off balance sheet” income or assets of such alliances are what typically pay for, at a minimum, the extras of fraternities or sororities, or more often, even books!

What About Loans?
Loans are future income used to pay for today’s expenses. Various subsidized and unsubsidized loans, sponsored by federal, state and private sources, are available to parents and student. Remember that borrowing is less efficient than saving and should be a “last dollar” strategy. Borrowing satisfies today’s cravings at the expense of tomorrow’s standard of living.

Borrow or Save? The penalty for “instant gratification” is severe. Consider the following table:

--------------------------------------
Assumptions:
Total Amount Needed: $50,000
Years to Borrow or Save: 10
Interest rate (borrowing or saving): 4%

                               Save        Borrow     Difference
Monthly Amount:    $330.56    $506.23    $175.67
10-Year Total:         $39,667    $60,747    $21,080
--------------------------------------

Few families realize the penalty they face by not adopting a disciplined, regular savings plan. The above table, using extremely modest assumptions, shows just how deleterious procrastination can be.

More realistically: How about a 4% interest rate on saving and a 7% interest rate on borrowing? The 10-year difference between the cost of saving $50,000 and the cost of borrowing $50,000 becomes nearly $37,000!

Beware of Scams:
Some financial advisors may claim that they can:

(a) Find “hidden” scholarships and/or

(b) Guarantee that your child will receive more financial aid than he or she otherwise would qualify for.

Beware:

• Never pay for scholarship searches. Any student or high school guidance counselor can do a free scholarship search on the Internet.

• It is true that, while the uniform methodology EFC formula does not consider certain assets in calculating the Expected Family Contribution for a student’s college education, some of the more common “tricks” – such as hiding parents’ assets by putting them in the child’s name or making advance payments on a home mortgage and so on – can backfire.


Disclaimer

Trans World Assurance makes available the information and services contained herein in furtherance of Trans World Assurance's goal to inform and educate. While Trans World Assurance makes every effort to present accurate and reliable information on this site, Trans World Assurance does not endorse, approve or certify such information, nor does Trans World Assurance guarantee the accuracy, completeness, efficacy, or timeliness of such information. Trans World Assurance assumes no responsibility for consequences resulting from use of the information contained herein, or from use of the information obtained at linked sites, or in any respect for the content of such information.

Tags: Trans World Assurance, college planning, college funding, save for college, financial aid, scams

The ABCs of Financial Aid (Part 2) by Trans World Assurance

Posted on Wed, Aug 10, 2011

 

Need vs. Non-Need Aid: 

transworld college moneyUsing federally-approved formulas that place more emphasis on income than assets, a figure called the Expected Family Contribution, or “EFC,” is generated. The EFC, as the name implies, is the dollar amount that the family is expected to contribute annually to the student’s total college costs (tuition, room and board, books, travel, incidentals, etc.). The EFC figure is a constant – that is, it does not change depending upon the cost of college.

For example, a family with an EFC of $18,000 would receive no need-based aid at a college where total annual costs were $15,000/year – but would, theoretically, receive up to $20,000 at a college where total annual costs were $38,000/year.

In other words, at a college costing $15,000/year, the family (including the student) would be expected to pay $15,000, out of pocket – but, at a college costing $38,000/year, the family would pay just $3,000 more ($18,000 total)!

Scholarship? Loan? Or Work Study?

The big question: At the more expensive college, of the $20,000 of need-based financial aid ($38,000 minus an $18,000 EFC), how much is Scholarship? Loans? Work-Study?

Governmental sources of Financial Aid must be need-based. In general, this means public (taxpayer or state-supported) colleges and universities only give need-based aid. (Athletic scholarships at NCAA Division I and II schools are a different story.)

Some Colleges Also Give Non-Need Aid:

Of the approximately 1,540 private colleges and universities, however, all but perhaps 50 also give non-need based financial aid — usually called “grants” or “scholarships”. In other words, most private colleges may give aid beyond what the EFC indicates “need” to be! It is this non-need aid that generally is used to help achieve institutional, not individual or family, objectives.

Non-need aid, other than certain loans, can come from private sources, from funded college sources (endowment) and/or from non-funded college sources (simply a price discount). Non-need aid does not come from the government.

‘Blending’ vs. ‘Stacking’:

When students receive scholarships from non-college sources (Rotary Club Scholarships, local newspaper essay winner, etc.), most colleges calculate at least a portion of the award to reduce the amount of scholarship provided by the college from the college’s own resources. Some colleges actually use written formulas.

Thus, a student receiving a $1,000 scholarship from his/her local newspaper or church may find that the college simply reduces its non-endowment funded award by $1,000! This practice is known as “Blending”; external funds reduce what the college might be willing to offer.

The portion, if any, which reduces the family’s EFC is called “Stacking.” In other words, if a student was previously to receive $20,000 in aid and now, including the $1,000 outside award, receives $21,000 – that award was “Stacked,” not “Blended.”

High School Guidance Counselors recognize that many awards are simply “Blended” and are frequently less than anxious to provide recommendations, transcripts, etc. for a $500 award – knowing that it might not actually change the family’s expected contribution.

‘Gapping’:

Many colleges and universities simply do not have enough government, institutional, or other sources of funding to totally meet individual student need – the difference between the EFC and the total cost of education. This difference, if it occurs, is called “Gapping” – providing less financial aid than the student needs to attend college.

Disclaimer

Trans World Assurance makes available the information and services contained herein in furtherance of Trans World Assurance's goal to inform and educate. While Trans World Assurance makes every effort to present accurate and reliable information on this site, Trans World Assurance does not endorse, approve or certify such information, nor does Trans World Assurance guarantee the accuracy, completeness, efficacy, or timeliness of such information. Trans World Assurance assumes no responsibility for consequences resulting from use of the information contained herein, or from use of the information obtained at linked sites, or in any respect for the content of such information.

Tags: Trans World Assurance, college planning, college funding, save for college, financial aid

Trans World Assurance Higher Education Series: Private College

Posted on Sat, Jul 30, 2011

Trans World Assurance Higher Education Series: Private College

transworld assurance college 6Myth: “Private or Public – what’s the difference? A degree is a degree.”

Fact: It’s true that both private and public colleges give accredited, four-year undergraduate degrees – but there are important differences. Specifically:

Values. A major study recently showed that private colleges graduates seem to believe their institutions do a better job in developing, encouraging, and nurturing, the exact kind of personal values that many families want their children and grandchildren to possess.

Graduation Rate. Students will, on average, graduate at least a year sooner from a private college.

Cost. It often costs less to complete a private undergraduate degree.

 

Myth: “Private College is only for rich people.”

Fact: According to the National Association of Independent Colleges and Universities (NAICU), the average family income of students attending private colleges and universities is lower than the average at public flagship universities.

 

Myth: “My child or grandchild won’t qualify for financial aid.”

Fact: Most private colleges and universities have both “need” and “non-need” based financial aid. Approximately 85 percent of full-time undergraduates at private institutions receive some form of financial aid. 

 

NAMES ARE DECEIVING
It would seem to be easy to identify an institution as being public or private by its name – but that’s not the case. Try these:

1. University of Pennsylvania
2. New York University
3. University of Miami (Florida)
4. Miami University (Ohio)
5. College of William and Mary
6. University of San Diego
7. San Diego State University
8. University of California, San Diego

Private: 1,2,3,6
Public: 4,5,7,8

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance Higher Education Series: Graduation Rates

Posted on Fri, Jul 29, 2011

Trans World Assurance Higher Education Series: Graduation Rates

transworld college 6College is a great experience, but after four years, most parents hope their children will complete their undergraduate degrees and get on with their lives –either taking a job or beginning graduate school.

Here’s an amazing fact: according to a study “Degree Attainment at American Colleges and Universities” conducted by Alexander Astin and Leticia Oseguera of the UCLA Higher Education research Institute, students attending private colleges and universities are more than twice as likely to graduate in four years than their public school counterparts. In fact, the authors found that, in their study, just 28% of students at public universities graduated in four years, compared with 67% of private universities. Comparing private colleges was equally amazing: private college students in 197 nonsectarian, Catholic, and other Christian colleges were 2.2 times more likely to graduate in four years than the 7,457 public college students in the study.

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance Higher Education Series: Private Schools

Posted on Thu, Jul 28, 2011

Trans World Assurance Higher Education Series: What is a Private College or University?

transworld college 4In the United States, we differentiate between public and private colleges and universities. The technical, legalistic distinction is in how each is governed. Public institutions are governed by state appointed or approved Trustees, who are responsible for setting tuition rates, approving the hiring of senior staff, and determining that the institutions are meeting broad-based educational goals of the state. In return for this control, state funds (your taxes!) subsidize the cost of educating public college and university students. Private colleges, unlike public institutions, receive little or no direct financial support from their state legislatures. This means two things:

1. They must look to other sources of income, including more reliance on tuition and support from alumni, foundations, and corporations; and,

2. They are not governed by publicly appointed Boards and have more freedom in how they operate. Both and pubic and private institutions also receive indirect support from financial aid (scholarships, loans, jobs) given directly to students from state and federal sources.

transworld college 3

The nation’s first colleges, beginning with Harvard in 1636, and the first universities (University of Pennsylvania, 1740) were private, not public, institutions. As you can see from the previous table 1,676 colleges are private (71% of four year institutions) and, at the Bachelors’ degree level, they enroll 35% of all full time students. 46% of the U.S. Congress graduated from private colleges, as did President George W. Bush, his father, Bill Clinton, John Kennedy, and Richard Nixon. In fact, 22 of the 33 college-educated Presidents of the United States graduated from private colleges or universities. Furthermore, 50% of business/corporate CEOs (Chief Executive Officers) and senior executives with undergraduate degrees graduated from private colleges and universities.

ACCREDITATION
Public and private colleges and universities are approved, or accredited, by the same agencies. These agencies, which in turn are accredited by the federal government, approve of the overall mission, financial health, and success of meeting each college’s stated goals and objectives. The colleges are reviewed periodically by professors and senior staff of peer group institutions. In addition, major fields of studies, such as business, nursing, teacher educations and so forth, may also have accrediting organizations. The point is, both public and private schools are subject to the same rigorous peer-review process to insure that students are offered uniformly high standards of learning.

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance Higher Education Series: Selectivity

Posted on Wed, Jul 27, 2011

Trans World Assurance Higher Education Series: Selectivity

transworld assurance collegeIt seems that every day we read an article in the newspaper or a magazine, or hear a report on the radio or TV, about how hard it is to get into college. And some schools are incredibly selective: for example, in 2002 Princeton admitted only 11% of its applicants; UCLA, 24%; Rice (Texas), 24%; New York University, 28%; and Notre Dame, 34%. Harvard had more applications from students who had perfect SAT (Scholastic Aptitude Test) scores and/or graduated #1 in their high school class than spaces available. Swarthmore College in suburban Philadelphia rejected over half its applicants who had perfect SAT scores in math or verbal.

Of the almost 2,200 four year colleges and universities, however, only two or three percent are extraordinarily selective. The remainder admit high percentages of qualified applicants, and virtually all their very qualified candidates. The Atlantic Monthly magazine estimates, in its November 2003 issue, that less than one tenth of all high school graduates “are involved in the struggle for places in the most selective schools.” Furthermore, in the same issue, the magazine states, “A school’s selectivity does not necessarily reflect the quality of the education it offers.” In fact, a recent study concluded that future earning of students with similar abilities and credentials were not particularly influenced by the selectivity of the schools they attended.

Without regard to selectivity, carefully conducted studies have shown that graduates of private colleges and universities believe that they received superior educations in terms of outcomes, that is, job opportunities, creation and maintenance of personal values, making friends and, in some instances, finding spouses.

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance Higher Education Series: Diversity and Choice

Posted on Tue, Jul 26, 2011


Trans World Assurance Higher Education Series: Diversity and Choice
One important aspect of America’s wonderful higher education system is our variety of educational choices. We have two year and four year undergraduate institutions; public and private; single sex and coed; large and small; rural and urban; historically Black, religious, and nonsectarian; technical, liberal arts, and business administration; and just about any other kind you could possibly imagine.

transworld college logosAfter finishing an undergraduate degree (generally a Bachelor of Arts or Bachelor of Science), many students continue to pursue higher degrees: Masters, Doctorates, or specialized degrees in Law and other professions. The choice of  fields of study and the variety of institutions offering advanced degrees is amazing.


College or University


Some people confuse the terms “College” and “University”, thinking that a university must mean a higher quality education than a college. In reality, the terms simply refer to the level of degrees given and have nothing to do with quality. A college only offers an undergraduate two or four year degree, but a university offers at least one degree at the masters or doctorate level.

For example, the undergraduate portion of Harvard University is called Harvard College. Foreign students, especially from Latin America, sometimes insist upon attending a U.S. University, since, in Latin America, “Collegio” frequently means high school and “Universidad” means college or university. Generally speaking the two terms, College and University are often used interchangeably.

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance Higher Education Series: The Basics

Posted on Mon, Jul 25, 2011

trans world assurance collegeTrans World Assurance Higher Education Series: The Basics

What a great country we live in! Our colleges and universities – what we call “higher education” – are the envy of the world. In fact, typically, nearly 600,000 foreign students leave their homelands to study in the United States.

Keep in mind that a college education isn’t a surefire guarantee of success and happiness. Many senior citizens didn’t go to college – yet have done very well for themselves. Furthermore, many younger folks also didn’t go to college and have been successful. Look at Bill Gates, the founder of Microsoft. He’s the world’s richest man – and a college dropout!

But, on average:

• College graduates’ first jobs pay over $15,000 more than high school graduates’ first jobs.

• College graduates average 89% more in yearly earnings than high school graduates.

• College graduates earn over one million dollars more in their lifetimes than high school graduates.

• College graduates tend to socialize with, even marry, other college graduates.

• College graduates are more apt to be leaders at business, government, religious, and social organizations.
 

trans world assurance college 1

Tags: Trans World Assurance, college planning, college funding, save for college

Trans World Assurance: Financial Aid 101 (Part 5)

Posted on Fri, Jul 22, 2011

BORROWING VS SAVING FOR COLLEGE
A college education, as any asset, can only be paid for in three ways: future income; current income, or past income.

Future income (loan) -
Various subsidized and unsubsidized loans, sponsored by federal, state, and private sources, are available to parents and students. Borrowing is less efficient than saving, however, and should be a “last dollar” strategy. Borrowing satisfies today’s cravings at the expense of tomorrow’s standard of living.

Borrow or Save? The penalty for “instant gratification” is severe. Consider the following table:

Assumption:
Total Amount Needed: $50,000
Years to (a) borrow or (b) save: 10 years
Interest rate (borrowing or save): 4%
 

save for college


Few families realize the penalty they face by not adopting a disciplined, regular savings plan, whether it be all-encompassing or specifically for colleges, but the above table, using extremely modest assumptions, shows just how deleterious procrastination can be. In fact, at more realistic assumptions of an annual investment return of 8 percent and a cost of borrowing of 7 percent, the 10 year difference between the cost of saving or borrowing $50,000 is nearly $37,000!

Present income. Oh, the lucky family that can write, twice yearly, one check for tuition! Actually, many families do engage in a variation – choosing to utilize one of the several plans that permit yearly tuition to be paid in equal monthly installments.

Past income (savings). To the extent that colleges offer advice beyond financial aid sources, they usually emphasize the importance of building up a nest-egg suitable for college expenses. In fact, as described above, accruing assets for anticipated college expenses, no matter what the vehicle (529, Coverdell, brokerage account, etc.) is more efficient than borrowing.

 

 

Disclaimer

Trans World Assurance makes available the information and services contained herein in furtherance of Trans World Assurance's goal to inform and educate. While Trans World Assurance makes every effort to present accurate and reliable information on this site, Trans World Assurance does not endorse, approve or certify such information, nor does Trans World Assurance guarantee the accuracy, completeness, efficacy, or timeliness of such information. Trans World Assurance assumes no responsibility for consequences resulting from use of the information contained herein, or from use of the information obtained at linked sites, or in any respect for the content of such information.

Tags: Trans World Assurance, college planning, 529 plan, college funding, save for college