2. College Costs – Past, Present and Future
Four-Year Institutions
1996-97 to 2016-17
$40,000
$50,000
$60,000
$30,000
$20,000
$10,000
Average
Public
University
Average
Private
College
Elite
Private
College
$15,000
$9,000
$35,000
$54,000
$35,000
$70,000
$24,000
$48,000
$70,000
$80,000
$28,000
1996 2006 2016 1996 19962006 20062016 2016
Source: College Board (in Constant (2006) Dollars)
4. College Funding Today
Cost of Attendance (COA)
- Expected Family Contribution (EFC)
= Financial Need
- Resources of the Student
= Adjusted Financial Need
5. Parents’
Income $100,000 $100,000 $150,000 $150,000 $150,000 $150,000 $200,000 $200,000
Assets $100,000 $100,000 $100,000 $100,000 $200,000 $200,000 $100,000 $100,000
Number
in College 1 2 1 2 1 2 1 2
Number
in family 5 5 5 5 5 5 5 5
EFC $20,200 $10,100 $39,700 $19,850 $45,300 $22,700 $53,800 $26,900
Qualifying Parameters
How Can I Qualify For Financial Aid?
6. 1. Good Grades
2. Good SAT/ACT test scores
3. A solid resume of achievement
4. Apply early in the academic year
5. Apply to schools that compete for the same
students
6. Apply to schools that have a low yield factor
7. Apply to 6-8 colleges
How Can I Get Private College Money?
Qualifying Parameters
7. ------------Cost of Attendance-------------- -----------------Resources------------------
Tuition & fees: $35,922 Parent Contribution: $9,477
Room/Board: $ 9,966 Student Contribution: $ -0-
Travel: $ 1,800
Other: $ 2,060
Total: $49,748 Total: $9,477
-------------------Summary-------------------
Cost of Attendance: $49,748
Total Resources: $ 9,477
Total Awarded: $40,271
Awards FALL SPRING TOTAL
Columbia University Grant 16,500.00 16,500.00 $33,000
Federal College Work Study 373.00 373.00 $ 1,746
Federal Perkins Loan 950.00 950.00 $ 1,900
Federal Stafford Loan 1,750.00 1,750.00 $ 3,500
**TOTAL** 19,573.00 19.573.00 $40,271
9. 0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
46-55 56-65 66-75 76-85
Population
Source: U.S. Census Bureau, 2004
Millions
Age
Retirement
Retired
RMD
Social Security
Health Care
L-T Care
Retirement
College
Expenses
Retired
RMD
Social Security
Health Care
Inflation
Market
Devaluation
Population Effect on College and Retirement
10 YEARS (2017)
10. 0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
56-65 66-75 76-85 86-95
Population
Source: U.S. Census Bureau, 2004
Millions
Age
Retirement
Retired
RMD
Social Security
Health Care
Retired
RMD
Social Security
Health Care
L-T Care Retired
RMD
Social Security
Health Care
L-T Care
Inflation
Market
Devaluation
Increased
Taxes
Increased
Expenses
Population Effect on College and Retirement
20 YEARS (2027)
11. Money You Can’t Use For Retirement
Years Until
Retirement
15
20
30
Public
$70,000
$167,760
$224,500
$402,050
Private
$140,000
$335,520
$449,000
$804,090
Elite
$200,000
$479,310
$641,430
$1,148,700
*Assumes additional 6% rate of return and ONE child’s college expenses
Effect of “College Cost” on Your Retirement
13. Plan College & Retirement At The Same Time
The Only Solution
Retirement
College
1. Students plan ahead
Career first – then college choice
2. Parents plan backwards
Retirement first – then college
3. Don’t procrastinate
14. Research your career choices
Career choice determines major
Major determines available school choices
Available school choices determines college cost
Student’s Strategy
Get A Degree In 4 Years
15. One Choice:
1. Leverage your assets and the tax code
Recapture your college costs over
the next 20 years before retirement
Parents’ Strategy
16. • Taxes
• Home / Mortgage
• Retirement (401k / IRA)
• College
It’s All About Cash Flow
Your 4 Biggest Cash Outflows
17. You get taxed when you:
Earn
Save
Spend
Die
Taxes are the single largest expense item in your budget
Average worker must work 4 months to pay taxes
Taxes can also be increased by decreasing deductions
AMT and other government takeaways
Step #1 in your College – Retirement Plan
Focus on reducing taxes
Taxes – Taxes - Taxes
18. Example: Shifting Assets & Income in College Years
$1,800
Tax Scholarship
Assets Shifted
Original Cost
Taxable Income
Parents’ Tax Rate
Parents’ Tax Liability
$ 24,000
$ 12,000
$ 12,000
15%
$1,800
Assets Shifted
Original Cost
Taxable Income
Child’s Tax Rate
Child’s Tax Liability
Less: Hope Credit
Net Tax Liability
$ 24,000
$ 12,000
$ 12,000
5%
$ 600
$ 600
$ 0
19. Mortgage
Mortgage interest is tax deductible
May be better than college loan
$2,500 maximum tax deduction
Can be used to increase cash flow
Home
Rate of return on home = 3-5%
Rate of return on home equity = 0%
Step #2 in your College – Retirement Plan
Manage your 0% return home equity better
Home / Mortgage
20. Example: Tale Of Two Families
$149,500 In Additional Benefits Using Home Equity Management
21. At Age 65
100% taxable (tax-deferred)
Ordinary income tax rates (treated as earned income)
In a devalued market (because of Boomer RMD)
Higher tax brackets (to cover Boomer Social Security)
Step #3 in your College – Retirement Plan
Create a hedge against your highly taxed
and market vulnerable retirement fund
Your Retirement Fund (401k/IRA)
22. Example: Tax Effect on Your Retirement Distributions
Your Retirement Fund (401k/IRA)
At Age 65
$400/month
30 years at
7%
$470,400
30% tax rate
$329,300
$400/month
30 years
5% - 4% - 3%
$400/month
30 years at
7%
$470,400
40% tax rate
$282,200
$400/month
30 years at
7%
$470,400
50% tax rate
$235,200
Taxable (30%) Taxable (40%) Taxable (50%) Tax-Free
$329,300 (5%)
$282,200 (4%)
$235,200 (3%)
23. PRELIMINARY
COLLEGE FUNDING PLAN
ORIGINAL PLAN TO FUND COLLEGE
PARENTS
AGE
Parents: 45 : 44
INCOME
Parents: $90,000
ASSETS
Home: $350,000
401k(s): $250,000
Personal Savings: $15,000
DEBT
Mortgage: $150,000
Credit Cards: $8,000
Installment Debt: $10,000
Auto Debt: $30,000
Old College Debt: $0
COLLEGE CONTRIBUTION
Parents Asset Contribution: $24,000
Parents Monthly Income Contribution: $200
PRELIMINARY
COLLEGE FUNDING PLAN
ORIGINAL PLAN TO FUND COLLEGE
THOMAS
Attend Public University at $15,000 per year
Absorb Stafford (student) loans for 4 years
Receive estimated grants and scholarships of $1000
GPA = 3.4
ACT/SAT Score = 1430
JENNIFER
Attend Public University at $17,350
Absorb Stafford (student) loans for 4 years
Receive estimated grants and scholarships of $1000
GPA = 3.2
ACT/SAT Score = n/a
YEARS TO COLLEGE
Thomas: 1
Jennifer: 4
COLLEGE CONTRIBUTION
Thomas Asset Contribution: $1,000
Jennifer Asset Contribution: $1,000
Case Study: The Smith Family
24. Student Parent Parent Total
Oldest Grants Yearly Lump Monthly (Year) Lump Out-of-
# in Parent's or Student Contribution Contribution Contribution Pocket
Year College Age College Cost Scholarships Loans To College To College To College Cost
1 1 45 $15,000 $1,000 $3,500 $250 $2,400 $6,000 $1,850
2 1 46 $15,750 $1,000 $4,500 $250 $2,400 $6,000 $1,600
3 1 47 $16,538 $1,000 $5,500 $250 $2,400 $6,000 $1,388
4 2 48 $34,729 $2,000 $9,000 $500 $2,400 $6,000 $14,829
5 1 49 $18,233 $1,000 $4,500 $250 $2,400 $0 $10,083
6 1 50 $19,144 $1,000 $5,500 $250 $2,400 $0 $9,994
7 1 51 $20,101 $1,000 $5,500 $250 $2,400 $0 $10,951
8 $0
9 $0
10 $0
11 $0
12 $0
13 $0
14 $0
15 $0
Total $139,495 $8,000 $38,000 $2,000 $16,800 $24,000 $50,695
College Funding Analysis
25. Lump Monthly
Asset Debt Monthly Cash Flow Cash Flow
Item Type Value Owed Payment Increase Increase
ASSETS
Home $350,000
Personal Savings $15,000
401k/403b $250,000 $1,250 $250
IRA
Annuities
College Savings
Stocks
CDs/Bonds
Mutual Funds
Other Investments
LIABILITIES
Mortgage 30 Yr Fixed @ 6.5% $250,000 $1,580 $100,000 -$380
HELOC / 2nd Mortgage $12,000 $140 $12,000 -$140
Credit Card 1 Chase 19.95% $0 $0 -$8,000 $500
Installment Loan 1 Macy's Furniture 20% $0 $0 -$10,000 $600
Auto Loan 1 GMAC Lease $0 $0 -$20,000 $400
Auto Loan 2 Bank Loan -$10,000 $200
New Parent College DebtConsolidated (Total) $50,695 $400 -$24,000 -$400
Mortgage Loan Costs Closing -$5,000
INSURANCE
Health Insurance $500 Deductible $150
Auto Insurance $1000 Deductible $200 $50
Homeowners Ins $500 Deductible $140
Life Insurance $500 Deductible $400
Total $615,000 $312,695 $4,260 $35,000 $1,080
Projected Cash Flow Analysis
26. Additional Additional Projected Projected Projected Projected
Current Lump Monthly Growth Value Value Value
Item Type Assets Investment Investment % 10 Years 20 Years 30 Years
INVESTMENTS
Home $350,000 3.0% $470,000 $632,000 $850,000
Personal Savings $15,000 $0 0.0% $15,000 $15,000 $15,000
401k/403b $250,000 $1,250 7.6% $742,000 $1,765,000 $3,894,406
IRA $0 $0
Annuities $0 $0
College Savings $0 $0
Stocks $0 $0
CDs/Bonds $0 $0
Mutual Funds $0 $0
Other Investments $0 $0
Additional Cash Flow $35,000 $1,080 7.2% $245,000 $650,000 $1,463,000
Total Projected Investment Value $615,000 $35,000 $2,330 $0 $1,472,000 $3,062,000 $6,222,406
Projected Investment Value Analysis
27. We can help you:
Restructure your assets
Eliminate your high cost debt
Reduce your taxes
Identify and reduce hidden expenses
Increase your cash flow
Recapture the money you spend for college
Create an IRS approved tax-free hedge fund for retirement
No change in your current lifestyle
Reduce The Financial Pressure Of College!
28. For More Information Contact
Patrick L. Cole, CCPS
Certified College Planning Specialist
Direct: 901-502-2650
Office: 615-783-1630
pcole@SimsFinancialGroup.com
