Articles

  1. Financial Aid- April Showers of Disbelief: “How Exactly Are We Going to Pay for This?”

  2. Ten Tips On Taxes- Taxes 2003: Ten Smart Tips for Last-Minute Filers

  3. Saving for Education -Conquering School Daze: Think you can’t afford both day school and college? Maybe you just need a plan.


April Showers of Disbelief:

“How Exactly Are We Going to Pay for This?”

That much-anticipated acceptance letter has just arrived from your child’s school of choice, and what a happy moment it is for the family! That is, maybe, until you look at the tuition and the school’s financial aid package. It can be enough to dampen anyone’s spirits.

Financial aid is common in this country, especially in college where 55 percent of all undergraduates receive some form of assistance. But the numbers for private primary and secondary schools aren’t as good. In the Boston area, about one-third of students at Jewish day schools receive financial aid. Nationally, only about 16 percent of private secondary school students do.

Applying for assistance involves filling out an extremely detailed data form and sending the school a pile of papers. But how the process actually works is unclear to most families. So here’s a closer look.

First of all, whether it’s for secondary school or college, financial aid officers start by computing what is called the Expected Family Contribution (EFC). This is the amount they think you should be able to pay, based on your income and assets and offset by any financial commitments that will compete with tuition for your dollars. The EFC is compared to the total cost of attending school. For a university, this includes things like room and board and other living expenses; for a private secondary school, it closely mirrors the tuition. If the total bill is more than your EFC, the difference (or at least some of it) can be made up by financial aid. If the EFC is greater than the total bill … well, sorry, folks.

Eliminating the guesswork

Being forewarned means knowing what your Expected Family Contribution is. The only way to know for sure is to fill out the financial aid forms and mail them to Princeton, N.J. A report summarizing your information and calculating your EFC will be sent to the school to which your child has applied. You can also pay to get a copy of the report sent to you – and it is well worth the money.

To get a rough estimate of what your EFC is likely to be, simply take 20 percent of your top-line (i.e., pretax) income and add 5 percent of your total assets. (For a more detailed evaluation, appropriate for both private primary and secondary schools and college, use the EFC calculator at www.collegeboard.com.) At the very least, this exercise will yield an important lesson, which is that schools expect a lot from you before financial aid kicks in.

Here’s an example of what this means in practice. If your family is sending one child to a Boston area Jewish day school and your annual income is above $110,000, expect to pay for everything. You will also be footing the whole bill if you have two students in day school and your income hits $130,000 or more. (The income barriers aren’t quite so high in the case of college, a reflection of the higher costs associated with higher education.)

When the numbers don’t add up

If you receive a disappointing financial aid package, the first place to turn to is the school’s financial aid office. And the time to do it is now. Most schools even have an appeals process. As part of this, consider doing the following:

1. Recheck your EFC. Mistakes happen all the time. Are the numbers accurate? Did you forget to submit something?

2. Count all expenses. Do you face recurring expenses that were not reflected in the form? Perhaps you’re caring for an elderly relative or have medical bills. Let the financial aid officers know about them.

3. Note extraordinary items. Was last year’s income particularly high because you won the lottery? Did you benefit from any one-time windfalls? This could affect your package.

4. Anything else. Make sure the EFC truly reflects your financial situation. If you’re about to lose your job, point this out to the aid officers.

5. Prepare to bargain. If other schools are offering a better package, use it for leverage. This is a good reason to apply to more than one school.

6. Push. If high tuition and lack of assistance make it impossible for your child to attend the school, don’t be afraid to say so. It’s amazing what a committed financial aid officer can do for you.

Education is expensive but it shouldn’t bankrupt you, and most schools understand this. While they may ask a lot from you, the financial aid packages they provide can be quite generous. Don’t despair. April showers have a way of bringing May flowers.

Harold M Simansky is the founder of Educational Investments, LLC, a Registered Investment Advisory firm in Chestnut Hill, MA. His book, College Costs How Much?! The Workbook to Help You Save for School will be published in May. He can be reached at Harold@edinv.com or 617-469-9018.

Conquering School Daze

Think you can’t afford both day school and college? Maybe you just need a plan.

By Harold M. Simansky

A college education may be the best investment a person can make, but it comes at a steep price. The average cost for four years at a private university runs about $100,000, and even a public school can cost $40,000. That’s today’s prices – practically chicken feed compared with what parents will be looking at in the years ahead. For children born after the year 2000, the tab could easily approach $250,000.

Faced with these staggering realities, many parents don’t even consider sending their kids to day school. After all, tuition at some private elementary or secondary schools compares with college – and how many people can afford both? But don’t be so fast to dismiss private school for your girl or boy. There are ways to make it all a little more manageable.

The most important advice anyone can give you: Start saving as soon as possible. You’ll be sorry if you don’t. By starting on the day your baby is born, you can cover a $250,000 college bill by saving $600 a month. If you wait until she’s 10 years old, that sum ratchets up to $2,000 a month. And, amazing but true, if you wait until she’s 16 – you will have to save an astronomical $10,000 a month to catch up.

I’m not trying to scare you – just the opposite. My point is that, with enough time, even the biggest expenses can become far more manageable. You just need to be aggressive about starting to save.

Boning up on the basics

Generally, you have two choices in saving for education. There’s a taxable account, like a mutual fund or certificate of deposit. And there’s a tax-free account specifically earmarked for education, like a Coverdell Education Savings Account (ESA) or a 529 Savings Plan.

A tax-free account is the smartest move for most people because you end up with more money. But be very, very sure the money will be spent for education. Use it for anything else and you’ll not only pay taxes but a 10 percent penalty.

If you’re saving for college or day school, or both, an ESA is the plan for you. An ESA, formerly known as an Education IRA, is the only savings program in which money grows tax-free and can be used for both college and private school. An ESA’s biggest drawback is that it won’t allow you to save a lot, a total of only $2,000 per year per student – and that’s from all sources. While this may get you started, it’s unlikely to get you the whole way.

A 529 Savings Plan beats that, hands down. Here, individuals can contribute as much as $11,000 a year into a student’s plan – or make an additional one-time contribution of up to $55,000 ($110,000 for a couple). The only rule governing these one-time contributions is that you can’t give any more money to this particular student for five years. Remember, though, the money in a 529 can only be used for college – not private school.

A good place to start is by opening an ESA in your student’s name. If he ends up going to private school, these funds can be tapped to pay for it. If not, the money can always be used for college farther down the road. As you hit the $2,000 ceiling on the ESA, keep rolling money into a 529 Plan.

Help is there for the asking

Even with the best savings plan, a lot of people simply come up short – that’s why there’s financial aid. More than half the students in colleges across America get some sort of assistance, and it’s not uncommon in private schools, either. In the Boston area, more than a third of all students attending Jewish day schools receive aid. And the numbers continue to rise.

Don’t be shy about applying for aid, believing your income is too high. You’ll likely find yourself in good company. At some private schools, families with incomes as high as $250,000 – even topping $300,000 – receive financial assistance.

If you’re still not sure, speak to the person who handles financial aid at the school of your choice – and don’t be afraid to be candid about your situation. These aid officers frequently lament that too many parents deny their children a day school education by failing to properly investigate the possibilities.

Finally, assistance can come from many sources. A grandparent could help out by paying the cost of tuition directly (which has the nice side benefit of being exempt from gift tax limitations) or by establishing a 529 Plan in the student’s name. In both cases, the grandparent gains the benefit of helping a loved one while possibly enjoying some tax advantages.

Obviously, saving for education is a highly complex topic and we’re only able to skim the surface here. Just be careful not to lose sight of the most important point: No matter what your choice – private college or public university, day school or not – the time to start saving is now.


Harold Simansky is the founder of Educational Investments, LLC, (www.educationalinvestments.com) a Registered Investment Advisory firm focused on helping families save for education. Harold’s book on this subject, College Costs How Much?! The Workbook to Help You Save for School is scheduled to be published in April 2004.

Taxes 2003:

Ten Smart Tips for Last-Minute Filers

April 15 is closing in fast, but there are still some things you procrastinators can do to save a little money, or at least make the whole process less painful. Here is my personal top ten.

Get organized.

Throw out that old shoebox once and for all – it’s time to get serious about organizing your tax and financial records. Buy a filing cabinet, get some manila folders and start arranging your papers. It will save you hours of angst from now on, and you might even run across an elusive receipt for this year’s taxes.

Contribute to an IRA.

You have until April 15 to contribute to an individual retirement account for 2003, and there are two distinctly different options. With a traditional IRA, you can deduct your contribution from your 2003 taxes. With a Roth IRA, there’s no deduction now but at retirement you’ll be able to withdraw your money totally tax-free. For 2003, the limits on annual contributions are $3,000 for individuals and $3,500 for people over age 50.

Contribute to an ESA.

Recent rule changes make a Coverdell Education Savings Account just about the best way to save for your kids’ education. While not deductible from this year’s taxes, the money can grow free of taxes as long as it used for either college or – uniquely – private primary or secondary school. The annual limit on contributions is $2,000. As with IRAs, the deadline for making a 2003 contribution is April 15 of this year.

Remember the good you’ve done.

If you’re itemizing, don’t forget to include non-cash contributions to charitable organizations – clothing, furniture and the like. Just be careful about calculating their “fair market value” – it’s not what you paid originally. If non-cash gifts total more than $500, you’ll need to fill out Form 8283.

Know your deductions.

At first pass, the hurdle for deducting miscellaneous items and medical expenses might seem too high to be of value, since you can only deduct what exceeds a certain percentage of your adjusted gross income (2 percent for miscellaneous expenses; 7.5 percent for medical). But it’s worth doing a little homework. Miscellaneous deductible items include dues to professional societies and unions, work-related education, some job search expenses, subscriptions to professional journals and magazines, tax preparation fees, appraisal fees, safe deposit box fees, investment fees and expenses, and a host of others (detailed in IRS Publication 529). Deductible medical expenses include dental treatments, visits to chiropractors and acupuncturists, and even weight-loss programs in some cases. IRS Publication 502 has the details.

Remember your losses.

Not quite recovered from the stock market roller coaster? Previous years’ losses can still be used to offset 2003 gains, so keep careful track of them. Beyond that, up to $3,000 in losses can be used to offset your 2003 ordinary income.

Stop loaning Uncle Sam your money.

A large tax refund is just an interest-free loan you gave to the government because you didn’t properly estimate the tax you owed. Adjust your withholding so you can enjoy more cash throughout the year rather than a lump sum down the road. Conversely, if you have to pay a lot on April 15, consider withholding more throughout the year.

Understand what you own and what you owe.

Tax time may be the only time in the year you actually look your finances in the face – so take this opportunity to run a reality check on your investment portfolio. Is your current mix of stocks, bonds, cash and mutual funds appropriate to achieve your goals and in line with the risk you want to take? Similarly, take a frank look at any debt you have. Is there any way to reduce it, make it more manageable?

Get an extension.

If there’s no way you can get your taxes done on time, get an automatic four-month extension by filing Form 4868 (either by mail or on the phone with the IRS). This will give you until August 15 to file your return. Just don’t make the mistake of thinking an extension will also buy you time to pay your taxes – because it decidedly will not! Come April 15, make sure there’s a check in the mail to the government with at least an estimate of what you owe.

Get help.

Computing taxes is more confusing than ever. With up to seven different tax rates applying just to long-term capital gains this year, you might want to consider hiring a professional. Besides making the whole process easier, it could save you a few dollars.