Student Aid Demystified
How to Pay for College: What You Need to Know About Savings & Federal Student Aid.
A presentation on the options available when saving for college. Includes information on Federal Aid as well as 529 Plans.
1
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
©2017 Legg Mason Investor Services, LLC, a Legg Mason, Inc. subsidiary. Member FINRA, SIPC
Student Aid Demystified
How to Pay for College:
What You Need to Know
About Savings &
Federal Student Aid
2
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Challenge
3
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
The cost of college continues to
climb
at a higher rate than CPI
Source: Advisor
Perspectives.
Consumer
Price Index (CPI
)
is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation,
food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and aver
aging them; the goods are
weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. I
nve
stors cannot invest directly in an
index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
Challenge
4
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
With a rising tide of college debt
Source: Advisor
Perspectives.
Challenge
5
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Solution
6
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Solution
College Funding Pyramid
7
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
1. How
do we set
a savings
goal?
Solution:
What
You Need to Know
8
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
1. How do we set a savings goal
?
Put our five-step savings plan in place:
1. Determine the cost of college
2. Identify your savings profile
3. Set
your savings goal (may
be less than total cost
)
4. Choose
a savings
vehicle
5. Establish
a savings schedule
9
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
2.
What advantages
do
529 College
Savings
Plans offer?
Solution:
What You Need to Know
10
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
2. What advantages do 529
plans
offer?
529s offer three primary advantages:
1. T
ax benefits
2. P
rofessional money management
3. C
ontrol by account owner
To remember them easily, think
“
T
he
P
referred
C
hoice
”
11
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Solution:
What You Need to Know
3.
If we can’
t save the entire
cost of college, what
sources
of federal student
aid
are available?
12
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
3. What sources of
federal student
aid are available?
Available at no cost to students:
Scholarships
Grants
Work
-study
Comes at a price:
Student loans (federal and private)
For links to student aid resources, please see page 30.
13
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
4.
How do we apply for
federal aid? Do we
complete
the FAFSA
SM
?
Solution:
What You Need to Know
14
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
4. How
do we apply for federal aid?
Do
we complete the FAFSA?
Completing the “Free Application for Federal Student Aid” form (“FAFSA”)
is the first step:
Most college students and families are expected to contribute
How much, depends upon the Expected Family Contribution = EFC
FAFSA
looks at assets, income, other information to determine
EFC
Fastest and easiest way to apply is online at FAFSA on the
Web
SM
www.fafsa.gov
www.fafsa.gov
15
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
5. What are the most
important factors in
calculating the EFC?
Solution:
What You Need to Know
16
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
5. What are the most important factors in calculating the EFC?
Summary
Assets & Income
Source of data: savingforcollege.com
Additional considerations
How many children in the family?
How many children in college?
Owner
Assets
1
Income
2
Student
20%
50%
Parents
Up to 5.6%
22%
- 47%
1
Total
current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home i
n w
hich parents
and student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or business
es with 100 or fewer
full
-time or full
-time equivalent employees. Net worth means current value minus debt. Source:
FAFSA
7/1/16
- 6/30/
17.
2
Income
includes the adjusted gross income from the parents‘ and students’ Forms 1040 along with certain other items representing unt
axed income
and benefits, e.g., untaxed portions of IRA distributions and veterans non-
education benefits, such as disability. Source: FAFSA
7/1/
14
- 6/30/
15.
17
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
6. How,
exactly,
are 529 plan
assets and distributions
counted in the EFC?
Solution:
What
You Need to Know
18
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
6. How
,
exactly
, are 529
plan
assets and distributions
counted in
the EFC?
Summary
529
plan
owned by a parent treated as parental assets
Distributions from a parent
-owned plan are considered income
Third
-party
-owned
plans, e.g., grandparents, are treated differently
1
Total
current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home i
n w
hich parents
and
student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or businesses w
ith 100 or fewer
full
-time
or full
-time equivalent employees. Net worth means current value minus debt. Source:
7/1/16
- 6/30/17.
2
Income
includes the adjusted gross income from the parents‘ and students’ Forms 1040 along with certain other items representing unt
axed income
and benefits, e.g., untaxed portions of IRA distributions and veterans non-
education benefits, such as disability. Source: FAFSA
7/1/
14
- 6/30/
15.
Owner
Assets
1
Income
2
Parent
Up to 5.6%
0%
Third
Party
0%
50%
Source of data: savingforcollege.com
19
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
7. Is it true that it’
s better to
use a Roth IRA to save for
college because it doesn’t
affect the EFC calculation
on the FAFSA?
Solution:
What You Need to Know
20
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
7. Is
it true that
it’ s better to use a Roth IRA to save for college?
Not necessarily
The value of a Roth IRA is not reported as assets on the FAFSA
However, tax
-free distributions must be reported as untaxed income
Appears on following year’
s FAFSA
Will be counted 22
- 47% in the following year’s EFC calculation
21
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
8.
College is years away.
Can we estimate how
much federal financial
student aid our child may
qualify for
without
filling
out the FAFSA?
Solution:
What You Need to Know
22
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
8. Can we estimate federal student aid our children may qualify for
without
filling out the FAFSA ?
Parents not ready to apply for federal student aid but who are seeking an
estimate can use a free financial aid calculator:
FAFSA4caster
It provides an early estimate of
eligibility
The calculator is offered at the website of Federal Student Aid, an
office of
The U.S. Department of Education
https://studentaid.ed.gov
/sa/fafsa
/estimate
23
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Get
the
Fund
amentals
of Funding
24
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Get the
Fund
amentals
of Funding
1.
Read our new
brochure
2.
Ask
us questions
3.
Know
Scholars Choice
®
is a strong-
performing plan
25
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Why Scholars Choice?
A Leading 529 Plan from a Leading Investment Company
With over
$710
billion
in assets under management, and
over a century
of experience delivering
solutions to clients,
Legg Mason
is a global leader in the investment management business.
1
With
over
$3.8
billion
in assets under management, and
over 15 years
helping clients achieve
their college savings goals,
Scholars Choice 529 Plan
is one of the largest and one of the
first
-ever advisor
-sold 529 Plans
.
1,2
Expert
Portfolio Construction + Performance Monitoring
The Plan’s Investment Manager,
QS Investors,
performs ongoing:
Fund selection
from among both Legg proprietary and non
-proprietary funds
Asset allocation
adjustments of all Scholars Choice multi
-fund Portfolios
.
1
AUM
as of 12/30/16.
2
Source:
Strategic Insight, “529 Quarterly Data Update —
Fourth Quarter 2016”.
QS
Investors is the Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program
;
together they serve as Manager of the Program.
26
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Low Fees
Low asset
-based fees
3rd
-lowest expenses
of all actively
-managed, advisor
-sold
Plans
1
Competitive load structures
Class A:
•
low up
-front
(maximum) sales charge of 3.5%
•
NAV
breakpoint at $500,000
Class C:
•
no up
-front sales charge
•
NO back
-end CDSC
Why Scholars Choice?
1
As of 12/30/16. Source: Strategic Insight “529 College Savings Quarterly Fee Analysis
– Fourth Quarter 2016.”
27
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Full
Range of Investment Options
Age-Based Portfolios
Years to Enrollment Portfolios
Static Multi
-Fund Portfolios
Individual
-Fund Portfolios
Cash Reserve Portfolio
Why Scholars Choice?
An
investment in the Cash Reserve Portfolio is not a bank deposit and is not insured or guaranteed by the FDIC or any other gove
rnm
ental
agency.
There
is no assurance that the Cash Reserve Portfolio will be able to maintain the value of its units at $1 per unit. It is possibl
e t
o lose money by
investing in this option. The Cash Reserve Portfolio will not seek capital appreciation and may underperform other investment
op
tions. While the
Cash Reserve Portfolio will invest all of its assets in a money market mutual fund and will value its units based on the underly
ing money market fund
share value, the Cash Reserve Portfolio itself is not a money market mutual fund
.
28
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
State Tax Deduction
Available in 6 States.
CO
(Colorado), plus the (5) “tax parity”
States
– AZ, KS, MO, MT, PA.
Unlimited for Colorado Residents.
Contributions
to the Program
by Colorado taxpayers are deductible from Colorado state income tax in the
year of the contribution, up to the contributor’s Colorado taxable income for
that same calendar year.
•
Recapture Provision in Colorado.
The principal portion of rollovers and
Non-Qualified withdrawals are included in taxable income to the extent
of prior tax deductions.
(Excludes withdrawals made due to death or
disability of Beneficiary, or receipt of scholarship.
)
Why Scholars Choice?
If neither the investor nor the Beneficiary is a Colorado taxpayer, a prospective investor should consider before investing w
het
her the investor’s or
the Beneficiary’s home state offers a 529 Plan that provides state tax and other benefits only available to state taxpayers i
nve
sting in such plans.
29
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Contact us:
scholarschoice@leggmason.com
Visit our website:
scholars
-choice.com
For more information
30
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Student Aid Primary Sources
Scholarships and Grants
www.scholarships.com
Private database of > 3,700,000 scholarship opportunities
www.careerinfonet.org/scholarshipsearch
U.S
. Dept. of Labor database of >
7,500 scholarship opportunities
http://studentaid.ed.gov/types/grants
-scholarships
Work
-Study
/
www.studentaid.ed.gov
/types/work
-study
Resources
31
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Student Aid Primary Sources
Federal student loans
www.studentaid.ed.gov/types/loans
Perkins Loan
Direct Subsidized
Loan
Direct Unsubsidized
Loan
Direct Plus Loan:
Student’s Cost of Attendance (COA) minus any other financial
aid (for parent of dependent undergraduate students and for graduate or
professional students)
Private student loans
If student does not have sufficient funds
Consult with school’
s Financial Aid Office or
parent’s bank
Resources
32
HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVINGS & FEDERAL STUDENT AID
Important Information
An investor should consider the Program’s investment objectives, risks, charges and expenses before investing. The Program
Disclosure Statement at www.scholars-
choice.com
/PDS, which contains more information, should be read carefully before
investing.
If an investor and/or an investor’s beneficiary are not Colorado taxpayers, they should consider before investing whether the
ir home
states offer 529 plans that provide state tax and other benefits only available to state taxpayers investing in such plans.
Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These
materials and any
tax related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of
avoiding tax penalties or complying with any applicable tax laws or regulations. Tax
-related statements, if any, may have been w
ritten in
connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allo
wed by
applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax
advisor.
Investments in the Scholars Choice College Savings Program are not insured by the FDIC or any other government agency and are
not
deposits or other obligations of any depository institution. Investments are not guaranteed by the State of Colorado,
CollegeInvest
, QS
Investors, LLC, Legg Mason Investor Services, LLC, or Legg Mason, Inc. or its affiliates and are subject to investment risks,
including loss
of principal amount invested.
Scholars Choice is a registered service mark of
CollegeInvest
. CollegeInvest
and the
CollegeInvest
logo are registered trademarks.
Scholars Choice College Savings Program is administered and issued by
CollegeInvest
, State of Colorado. QS Investors, LLC is the
Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program; together they s
erve as
Manager of the Program.
QS Investors, LLC, Brandywine Global Investment Management, LLC,
ClearBridge
Investments, LLC, Royce & Associates, LP, Western Asset
Management Company, and Legg Mason Investor Services, LLC are Legg Mason, Inc. affiliates. Thornburg Investment Management, I
nc.
and
Templeton Global Advisors Limited are not affiliated with Legg Mason, Inc.
© 2017 Legg Mason Investor Services, LLC, a Legg Mason Inc. subsidiary. Member FINRA, SIPC 4/17
Next
More from Legg Mason Global Asset Management
The most important insight of the day
Get the Harvest Daily Digest newsletter.
