Overcoming the High Cost of Education

Exams happen in Real life.

There is much talk these days about the failure of higher education. While it is true that simply graduating with a degree does not guarantee a successful career or certain financial future, most people agree that advanced training or education is an important aspect of career preparedness. As parents and grandparents, we all want the best for our children and grandchildren. But we all know they can have dreams and interests that, admittedly, often concern or befuddle us. Furthermore, high tuition costs, as well as the increasing burden of student loan debt and a changing economy can create much anxiety around the prospect of attending college. Much of the stress can be relieved through proper planning.

Today, college planning involves more than simply opening a 529 account as soon as possible after the child is born. That’s only one side of the equation—the resource side.  Today, planners and parents also need to map out costs. To reduce the cost of college, there are three important timeframes to consider: 1. Planning to reduce costs before ever getting to college; 2. Continuing to manage costs while attending college; and 3. Repaying student loans while anticipating lifestyle changes after college. Effective planning of costs starts from the time the student is a freshman in high school. The plan should cover the time until all student loans are paid off.  A complete analysis reveals the impact that additional borrowing would have on the overall costs of the education. But there are other important factors that can affect the true cost of education during and after college.

College choice is arguably one of the most critical decisions that a young person will ever face. Most people agree that financial consideration should probably not be the deciding factor for choosing a college, but it certainly should be one of the factors. Frank Hanna in his book, What Your Money Means and How to Use it Well, sets out criteria for determining if attendance at a particular school is a “genuine need” or simply a “beneficial good.”  The book is worth reading for any money decision, but he speaks eloquently to this one.

Higher education is big business today. It is always a good idea to realize that colleges compete for talent and many are willing to put money behind attracting the student that fits their need.

More often today, the cost of college is determined by how long it takes to get a degree. One of the most sure-fire ways to reduce the cost of attendance is to graduate on time, or early. Careful planning of curriculum is essential. Even starting college with significant credit toward graduation is possible today by taking college credit courses while still in high school.

Every family should prepare a Free Application for Federal Student Aid (FAFSA) when their child is a senior in high school, and each year they’re in college. This is true whether they expect to need additional financial assistance or not. Parents should always gain an understanding of the Expected Family Contribution (EFC) before the college search gets underway. There are actually two formulas: the Federal method and the Institutional Method.  Which one to use depends on which is accepted by a particular college. A good EFC calculator can be found at the website of The College Board. Click here to go there.

It is also recommended that a student take the Federal Direct Stafford Loan each year while an undergraduate. It is not needs-based.  If not needed to pay for undergraduate education, setting the money aside could help pay for any post-graduate education expenses. It can also help improve a student’s loan repayment and forgiveness options after graduation. But loans should not be taken without a plan as to how they will be repaid. That often means running projections for ten years, or longer, into the graduate’s career.

Colleges and universities have well-defined requirements for graduation depending on the major. Know what is considered full-time and how many credits a student can take in a semester without additional costs, and how many credits are needed to graduate on time. Students often go with the flow without much thought to how their course load can help them after graduation. Look at course catalogs and major requirements beforehand. Often courses can be used to extend learning and acquire important skills even though they may be from different academic departments or even different universities, while still fulfilling necessary credit requirements.

For many, it is tough to know what they want to do when they grow up. I know some retirees who still aren’t sure. It is important to do some research into your child’s proposed career field. But in our highly specialized world, it is also important to examine other potential opportunities available to him or her, given their interests and strengths. Understanding not just which, but where certain jobs may be in demand, and if there is a wage ceiling in the career or industry, can provide a picture of the costs of living after college, and the impact on student loan payoff. You don’t have to be afraid of debt, or the costs associated with going to college. It is possible to create a strategy for success that will help your family navigate the stress, excitement, and high emotion of college planning.  The stakes for failing to plan are high and rising.  Begin now.


Being Smart about Doing Good

As the holiday season approaches, our mailboxes are filled with ad campaigns, catalogs, and appeals from charitable causes of every stripe. As the saying goes, ‘tis the season for giving, and there are many worthy causes working to create positive change in the world through our generosity.

Even if you regularly give throughout the year, as we move into December and year-end giving, you may not know that you could be missing out on an important provision of the tax code while making an impact through your investments. This is especially true in a year like we have had in the stock market. Rather than making outright cash donations, giving away appreciated assets can be more advantageous. When you give away a stock or other security with a long-term gain, you get to deduct the full fair market value of the asset, potentially eliminating capital gains tax from the sale of the asset. By donating an asset, the charity receives the full value, you get the deduction, and the capital gains tax on that security’s appreciation goes away, forever.

There’s another secret to wise giving: a donor-advised fund. These are accounts that help you to time your deduction for maximum tax benefit. They can even be used to turn your sporadic acts of giving into a philanthropic legacy. These are especially attractive if you expect your tax rate to be lower in the future than it is this year. You get a tax deduction for the gift in the year that the funds are transferred into the account, even if the funds remain invested and are actually given to your favorite charity sometime in the future.

You may contribute appreciated securities, stocks, or non-liquid appreciated private assets, and real estate to a donor-advised fund. Just as the name implies, you decide which charities ultimately receive the contributions, and in what amount. Grants paid out to selected charities can be deferred, while contributions or transfers of assets made into your charitable account can continue to grow as the balance is invested or re-invested over time.

These two tools can be combined. Donate an appreciated stock to a donor-advised fund. It is important to establish a strategy to structure your assets and plan your contributions and giving to help ensure you and your chosen charities are getting the most benefit. You may even be able to pass on your passion for giving to the next generation through a family legacy account, or incorporate the use of donor-advised funds into your estate planning strategy, leaving a legacy that continues to make an impact beyond your lifetime. Some parents set up these accounts to teach philanthropy to their children and grandchildren.

There is still time to make a year-end contribution, but you need to act soon as the processing deadline is rapidly approaching. It is important to keep in mind that different assets may take longer to process than others, and so may have earlier deadlines. If you are interested in setting up a donor-advised fund and would like more information, contact one of our advisors to discuss your options.

Time to Choose a Different Medicare Plan?

5 questions to ask yourself

It’s that time of year again. And no, we aren’t talking about Black Friday or Cyber Monday? It’s the Annual Election Period (AEP) for Medicare which runs until December 7. I know, reviewing your coverage probably isn’t on your to-do list for the holidays. Just think of it as a special gift you get to pick out yourself. The open enrollment period is a chance for a do-over if you don’t like the plan you have or if it no longer fits. What changes you can or decide to make will depend on the type of Supplement coverage you have, whether it’s Original Medicare (Part A and B) or a Medicare Advantage Plan (Part C) from a private insurer. Here are 5 things to consider to help you decide if your current Medicare Supplement coverage is right for you (or a loved one).

1. What are my true medical needs?

This might seem like an obvious question, but how’s your health? It is important to review any plan details to find out what you’re actually getting, or perhaps more importantly aren’t getting, compared to your medical needs. Someone who is fairly healthy and mostly engaged in preventive care practices is in a different situation than someone who might have a serious on-going medical condition requiring more intensive treatment. Your situation can change over time; plan benefits can change from year to year as well.

2. Does my doctor or hospital accept my plan?

It is important to know if the doctor you would like to see will accept your coverage. But also just as important is knowing that you will be able to get the care you need at a hospital or other treatment facility. Basic Medicare only covers certain procedures or may pay only a portion of a medical procedure, and this can affect the treatments and procedures that medical professionals may recommend. You also may not need extra coverage for certain medical procedures.

3. Do  I need drug coverage?

If you have a private health policy, or carry other prescription drug coverage, you may not need a Medicare prescription drug plan (Part D). If you do decide you need the coverage, look at the options in light of what you need. What are your current out-of-pocket costs for prescriptions? Do you take expensive medications?

4. Do I really need coverage for some things?

Have you dreamed of the day you could take off to see the world? If so, you may consider travel coverage. Medicare supplement plans (Part F, G, etc.) sold by private insurance companies can help cover costs Original Medicare doesn’t, but the costs for these plans vary widely and it pays to shop around. Depending on your circumstances, you may be over-insuring by choosing this type of coverage. It may be more cost effective to simply set that money aside.

5. How much premium can I afford?

How much are you currently paying for plan premiums, out-of-pocket expenses and copays? Every insurance company has to offer similar benefits for Medigap insurance, but they can, and do, charge different premiums for the same coverage. Some Medicare Advantage plans may not be much more costly than the premium for Original Medicare, and may cover some additional routine care expenses (like vision, dental or wellness programs). Many include prescription drug coverage. On the other hand, such plans can also have higher premiums, different provider networks, and out-of-pocket limits. Consider the long term; what’s your tolerance and capacity for financial risk and how does that fit with your Medicare plan?

You only have until December 7th to review the coverage you have and elect something different, if what you have isn’t working for you.  If you don’t have the time to review it now, the good news is that you will only have to live with it for one more year before you have another opportunity.