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Volume 15, Issue 11

Applying for Federal Aid for College

When thinking about funding sources for your children’s college education, you may assume your family earns too much to qualify for Federal grants, loans, and work-study assistance. However, families with higher incomes are frequently eligible to receive some form of financial aid from the government.

The U.S. Department of Education uses a formula for calculating financial aid eligibility that considers a range of factors in addition to income and assets, including family size and other financial obligations. When assessing a family’s ability to pay for college, the Federal government recognizes only a small percentage of parents’ assets as potential contributions, while other types of assets, including home equity and savings in IRAs and 401(k) plans, do not factor into the qualification formula.

Filing FAFSA

Even if you expect to cover your child’s college costs through sources other than Federal aid, it is usually worthwhile to complete the Free Application for Federal Student Aid (FAFSA). In addition to determining your family’s eligibility for Federal assistance, the FAFSA is the primary qualifying form used by many college, state, local, and private financial assistance programs.

The first step in applying for financial aid is filling out the FAFSA, which is distributed and processed by Federal Student Aid, an office of the Department of Education. Hard copies of the FAFSA are often available at high school guidance offices, libraries, or post offices, or by calling the Federal Student Aid one office. The simplest way to complete the FAFSA is by going to the office’s website, www.fafsa.ed.gov. Filling out the form online will alert you to mistakes or omissions; it can also expedite the processing time by one to two weeks.

Assuming you are a parent requesting aid for your dependent child’s education, the documents you will need to complete the FAFSA include your Federal income tax return and W-2 forms from the previous year, current bank statements, records of untaxed income such as Social Security or veterans benefits, current business and investment mortgage information, and investment records. If you are divorced and are the child’s custodial parent, only information about your own household’s income and assets, including any child support and alimony, are required by the FAFSA. While some colleges look at the financial resources of the non-custodial parent in determining the student’s need, the Federal government does not.

The Student Aid Report

When filling out the FAFSA, you may request that your financial information be sent to up to six colleges. If your child intends to start college next year, it is usually advisable to file the FAFSA as soon as possible after January 1st of that year, as deadlines for submitting FAFSA information are generally early in the year for some colleges and state awards programs.

Within a few days to a month after it is filed, you should receive by postal mail or e-mail a form known as the Student Aid Report (SAR). On the SAR, you will find the Expected Family Contribution (EFC), an estimate of the amount of your family contribution toward the student’s college expenses for the year. The colleges you listed on the FAFSA will use this figure as a basis for determining the amount and type of any financial aid you will receive.

If financial need is determined, the schools that admit your child as a student will prepare a financial aid package covering all or part of the difference between your family’s EFC and the cost of the college. Depending on your family’s income and the resources of the institution, colleges may offer more or less aid than the difference between the EFC and the cost of attending.

The type of Federal aid your child receives is largely based on family income. Lower-income students may be awarded grants that do not need to be repaid, such as the Pell Grant or the Federal Supplemental Educational Opportunity Grant (FSEOG), and assistance may be available in the form of a Federal work-study job.

Besides these awards, students may be eligible for subsidized Federal loans, such as the Perkins Loan or the Stafford Loan. These loans must be repaid by the student, but the government pays the interest while the student is in school and during grace and deferment periods.

In addition, your family may be offered an unsubsidized Stafford Loan, which must be repaid by the student, or a PLUS Loan, which is in the name of the parents. Interest accrues on these unsubsidized loans from the time the funds are disbursed, though payments may be deferred until after graduation.

When loans offered by Federal programs prove insufficient to cover the actual costs of your student’s education, you can apply for a private education loan. These loans tend to have higher interest rates than government loans, but they are often less expensive than other debt sources. To learn more, visit www.studentaid.ed.gov or www.fafsa.ed.gov.

The “What” and “Why” Behind Estate Planning

Many people postpone the planning of their estates. Perhaps, they mistakenly assume that estate planning is only for the wealthy or that estate planning is similar to tax planning, which can always be done “later.” In other situations, estate planning may be relegated to the back burner because it can be difficult for people to face their own mortality. But, a properly structured estate plan is necessary if you wish to control the distribution of your assets during your lifetime and after your death, as well as to select guardians for your minor children or plan future care for other dependents.

Getting Started

First, select a professional estate planning team. For some, this initial step is difficult because it requires sharing your personal thoughts, fears, wishes, and financial information with others. Therefore, it may be helpful to include a trusted advisor, regardless of his or her area of expertise, on your estate planning team. Certainly, your attorney will play an instrumental role in preparing any necessary legal documents. However, your financial professional, bank trust officer, insurance professional, or accountant may also become involved. Generally, the size and complexity of your estate will dictate the complexity of the estate planning process.

Initially, your estate planning team will focus on your current financial status. This is important because you need to know where you stand today in order to optimally plan for the future. Consequently, you will need to gather all the necessary documents regarding current and future income, property ownership, insurance, and established legal arrangements. Here is some of the information you’ll need to provide:

  • Current income from employment and all investments.
  • Investment documents, certificates, statements, passbooks, etc.
  • All retirement benefits: Social Security (including survivors’ benefits), Individual Retirement Accounts (IRAs), and pension and profit-sharing plans.
  • Any expected deferred compensation payments.
  • Deeds to primary and vacation residences.
  • Life insurance policies of which you are the owner, the insured, or the beneficiary.
  • A list of all personal property.
  • Current and expected debts and obligations, including mortgage and loan balances, real estate liens, tax liability, consumer debts, and estimates of funeral costs and estate settlement expenses.
  • Your will, if you have one.
  • Trust agreements, if any.

A complete analysis can begin once you’ve gathered this information, which will allow you to take a closer look at your family’s needs. As you do so, consider the following questions:

  • How will your family’s overall cost-of-living change in the years ahead?
  • Who will take care of any minor children if something happens to you?
  • Who will make medical and financial decisions on your behalf if you become incapacitated due to illness or injury?
  • What are the projected educational expenses for your children?
  • Is there a family member who needs special care or medical attention?
  • How will estate taxes affect your assets?

Keep an Open Mind

The careful planning of an estate requires you to share personal and financial information with one or more professional advisors. Keep in mind that it is this information that will enable your estate planning team to help you design an estate plan that will help to fulfill your specific goals and wishes for asset control and distribution.

Once you have created your estate plan, bear in mind that, as your circumstances change over time, your estate plan may need to change, as well. Regular reviews can ensure that your estate plan continues to meet your current needs.

A Short Course in Insurance: Term vs. Permanent

When choosing life insurance coverage, you may wonder which type is most appropriate for your needs. Over the years, you will need to review and update your insurance coverage, as you will probably find that your needs will change. There are two basic types of coverage—permanent (sometimes referred to as cash value) and term life insurance.

Let’s take a closer look at the short- and long-term benefits of each.

Permanent Life Insurance

Permanent life insurance helps provide financial security for surviving loved ones at the death of the insured. Permanent life insurance generally accumulates a cash value, which can be accessed for any purpose through the use of loans and surrenders. These loans are generally tax free, and there are no restrictions on their use. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, can increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

Some permanent policies provide policyholders with non-guaranteed dividends. Such dividends are the result of higher investment returns and lower expenses than were originally predicted by the insuring company. Dividends can be used to pay future premiums, and they can be reinvested in the policy to generate additional cash value. Dividends are not guaranteed.

Premium amounts for permanent insurance will not change as long as they are paid in accordance with the schedule set forth in the policy. Payments may continue for a predetermined period chosen by the policyholder. The length of the payment period and the amount of coverage will affect the premium cost.

Permanent life insurance protection is guaranteed. As long as premiums are paid, the insured is guaranteed coverage for life in accordance with the terms of the policy. Evidence of insurability will never be necessary as long as the original policy remains in force. Guarantees are contingent upon the claims paying ability of the issuing insurance company.

Term Life Insurance

In a term insurance policy, there are three basics to consider: first, the period of protection is for a predetermined, specified term; second, policies do not accumulate cash value like permanent insurance; and third, premiums may initially be substantially lower than permanent life insurance premiums.

Nonrenewable, nonconvertible term insurance for one, five, or ten years may provide the most affordable protection, especially for those who require coverage while their children are minors or to back a business loan. Premiums could, however, increase over the period of protection. Term insurance is also available for longer durations, but increasing premiums may result in higher overall costs than permanent life insurance over the long term.

Term insurance may be ideal to help cover a specific need, such as an outstanding mortgage. These needs can be met by purchasing coverage for a specified period of time and at the lowest premium outlay. In fact, many companies offer decreasing term insurance in which the death benefit proceeds decrease over time (for instance, to cover a decreasing mortgage balance).

Which Policy When?

Life insurance serves many purposes. In determining the coverage that’s right for you, it is important to consider your short-term and long-term goals, your current financial status, and the coverage you can afford. A thorough review of your needs can help you choose the right policy for your individual situation.

The information contained in this newsletter is not written or intended as tax, legal, or financial advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2009.



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