Key College Planning Facts

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College planning is a major financial goal for countless American families, and it can be a source of much anxiety and confusion. This “Test Your Knowledge” quiz can serve as a refresher course for some, or an introduction for others, to the world of financial aid and 529 college savings plans.

“Trends in College Pricing 2014,” revealed that the inflation-adjusted average published price for in-state students at public four-year universities is 42% higher than it was 10 years ago and more than twice as high as it was 20 years ago. In the private nonprofit four-year sector, the increases were 24% over 10 years and 66% over 20 years.

Test Your Knowledge

Here’s your chance to test your knowledge about college planning and 529 plans¹. We hope that the information shared here will shed new light on some of the details of the process.

1) What form do all colleges require of students applying for financial aid?

_ CSS Financial Aid PROFILE

_ FAFSA

_ EFC

Answer: FAFSA. Any college or university that awards federal student aid requires the Free Application for Federal Student Aid (FAFSA). For the majority of colleges this is the only aid application required. The CSS Financial Aid PROFILE is required by some private colleges for assessing eligibility for the specific college’s institutional aid dollars. The Expected Family Contribution (EFC) is a number calculated by the financial aid forms.

2) Saving for college in a 529 college savings plan negatively impacts eligibility for financial aid.

_ True

_ Maybe, but often the effect is minimal in the financial needs-analysis process

_ False

Answer: Maybe, but often not enough to worry about. The value of a 529 savings plan account set up by a parent or legal guardian is reported as a parental asset on the FAFSA and only increases the EFC by a maximum of 5.64% of the total account value. 529 plans and Coverdell Education Savings Accounts tend to be two of the better options for saving for college without jeopardizing financial aid. Income is generally more of a determinant of need-based financial aid eligibility.

3) Assets held in a 529 college savings plan can be used to pay for what type of school?

_ Four-year college or university

_ Two-year community college

_ Qualified trade school

_ All of the above

Answer: All of the above. With a 529 savings program, you can use your account at any accredited college or university in the country (and some outside of the country).

4) What happens to the 529 college savings funds if the student does not go to college?

_ The money can be used by another family member to pay for qualified expenses

_ The federal government will seize the account

_ Nothing

_ The plan will be declared void, and the money returned to the plan owner

Answer: You may generally change the beneficiary. That money can be used by a sibling, cousin, or other family member for qualified higher education expenses, without penalty.

5) 529 plan distributions from a parent-owned 529 account do not increase the family’s EFC.

_ True

_ False

Answer: True. Unlike distributions from a grandparent-owned account, distributions from a parent-owned 529 plan that are used to pay for a dependent student’s college expenses are not reported on the FAFSA and do not typically count as income in the federal needs-analysis process.

How did you do? Hopefully this information has helped you to better understand the financial aspects of college planning — in particular the powerful but somewhat complex 529 college savings plan. To learn more about 529 plans and selecting the right plan for your situation, contact a qualified Certified Financial Planner™.

¹ Investing in 529 plans involves risk, including loss of principal. Before you invest in a 529 plan, request the plan’s official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses, and the risks of investing in a 529 plan, which you should carefully consider before investing. You should also consider whether your home state or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

² Note that some private colleges may treat the needs-analysis process a little differently from what is reported here, and generally the comments in this document apply to the federal needs-analysis process. Individual situations will vary.

The commentary on this website reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.