Saving for College

  Okay, thank you for joining me. My name is Jonathan Hughes and this is MIFA's Saving for College presentation. This should run about 45 minutes or so and um, this is being recorded so everybody who registered for this presentation will receive a copy, a recorded copy of this presentation as well as the slides.

So let me get going here, I'll share my screen

and I'll get started.

As I said earlier, my name is Jonathan Hughes. I'm the Associate Director of College Planning and Content Creation at MIFA. I've worked at MIFA for over 20 years helping families in Massachusetts to prepare for college. And, um, you know, I work Pretty intimately with the savings programs that you plan and the U fund that we're going to go over, uh, in this presentation today and savings is probably my favorite thing to talk about, uh, because, you know, you get to help people do the most constructive thing that they can do to prepare their kids for colleges, which is to save for them.

And, uh, it sounds like somewhat of a platitude, but it really is true that when it comes time to use the money and talking with families at that point. You do really realize that nobody regrets saving. Everybody's really glad that they have saved what they've been able to save, even if that's only a little bit.

And that's something we're going to talk about a little bit later on. The first thing I want to do is talk about MIFA, which is the Massachusetts Educational Financing Authority. We were created back in 1982 by the Commonwealth of Massachusetts. To help families to plan save and pay for college. Um, so we are a resource for you throughout this entire process.

This is families with very young children to families who have students in high school getting ready to go to college to students who are in college and graduates getting ready to refinance. their loan. So we have a lot of, uh, free content that's available. Um, so we help Massachusetts family. We help all families really to plan, save and pay for college.

So we're going to talk about saving here tonight. We offer fixed interest rate loans as well for families and students to attend college. So that, that sort of takes care of the paying part. And the planning part is also kind of what we're doing here today. We do a lot of guidance. We have a lot of tools, tips, resources for free on MIFA.

org, our site. We have a bunch of college guidance experts that you can call, you can email, you can connect with us over social media, and I'll give out that information by the end of the presentation. Um, you know. All the guidance that we offer is free. Uh, the only, everything that we offer is free except for the loans, which obviously you have to pay back.

Um, but what I'm, I'm really driving at when I'm talking about all this is that if you're starting to think about saving for college now, You've got a lot ahead of you before you get to paying for college and sending your kids to college and we are here for as a resource for you at any time throughout that process.

So please don't hesitate to contact us in whatever way is convenient for you. We're going to talk about A few things tonight. The first thing we're going to touch upon is to what why saving is important. So why save including dispelling some myths about saving that that are really important. We're going to talk about two specific college savings options.

Those are the programs that I just mentioned that you plan and the youth fund which are offered by MIFA. Um, I'm always careful to say that whatever way that you can save is a good way to save. Um, so the way that you do save is the best way. However, there are some ways that carry special Or, or specific incentives or benefits to them when used for college.

And so there are some ways when specifically is for college that may go a little further than just sort of bank account savings, and that's what we're going to talk about. We're going to talk about strategies for saving. So what have families done? What have students done? What have parents done in the past that have helped them to save that we know helps families to save.

So I want to talk about some of those things. And then finally, I think it's a good. thing to wrap up with to give you an understanding how families actually pay for post secondary education. There's two things I want to say about this bullet. The first is how families actually pay for college or post secondary education is probably the most common question that I've received over my 20 plus years at MIFA.

Um, the, when you boil it right down, most people who are getting ready to send their kids to college or getting ready to go to college want to know How do people do this? So we'll talk about some of the ways that they do it. Um, secondly, I say post secondary education. What I mean by that is whatever comes after high school.

So college is part of that, but also career training or, or right into the workforce may be, um, the path that you or your student may take. And the idea is not that everybody has to go to college, right? It's that whatever you're going to do after high school, whatever you're going to do for your career, you want to have a plan.

You want to be in a good position, uh, to succeed there. So we'll talk about that. Okay. First question. Oh, one thing I'll say, if you do have any questions, um, please put them into the Q and a, and, uh, if I get any questions throughout, I can answer them. I'll also be here afterwards in case anybody has any questions.

So the first thing that we're going to talk about are some myths that we've heard about saving for college and to put this right at the front, because it really is. Probably the most important thing that I want to leave you with. So, myths we've heard about saving for college. The first one being, my savings will hurt my financial aid.

I cannot tell you how many times I've had this conversation with families, with parents where they say, yeah, but if I save, aren't they going to look at that and say, well, you don't need any financial aid that I'm going to give you. The truth is, No, it won't. Um, there are two ways that financial aid can be awarded when it comes time to apply for financial aid when your student is a senior in high school.

And those are merit. So those think of things like academic scholarships or athletic scholarships. Those Things those scholarships are awarded based on something that the student has done so recognition of student achievement It has absolutely nothing to do with how much you make or how much you've saved It is true that most financial aid is the other kind of financial aid, which is need based financial aid.

So not merit based, but need based. So things like grants, um, things like subsidies on, on federal student loans, those things are assessed on your economic situation. So that's student income, student assets. Parent income and parent assets. So if you are a parent saving for college and you have a dedicated account, maybe, or any account really to save for your kids for college, that is going to be assessed as a parent asset.

Um, and that may affect your financial aid pretty minimally and certainly not in many cases, um, with any weight and certainly not coming close to value of actually having. the money. So I want to talk about it, but It's hard to get into financial aid calculations without getting really detailed and in the weeds.

Um, but basically they're looking at, as I said, the four main pillars, student income, student assets, parent income, parent assets. Students tend to not have a lot of income or assets. So that goes out, uh, parent income and parent assets are mainly what determines your financial need for financial aid. And the vast majority of the weight there is going to be placed on the income.

and not the assets. The second thing that we've heard is that it's not worth saving for college if I can't save the entire cost of college. Well, you know, not many people can save the entire cost of college. The fact is that very few families will have to pay the entire cost of college. There is financial aid available.

Uh, the vast majority of families will qualify for some level of financial aid. So everything that you save You know, factor in aid first, and then whatever your balance is left over, you have, if you have some savings that can possibly cover that balance, or at least make it so that you don't have to borrow that full balance.

Everything that you save is something that you don't have to borrow. Now, somebody has a question here. Is it true that 529 money can be rolled out into a Roth IRA of the child if it's not in use? A very timely question there. Well, we'll get into 529, the specifics of 529s in a minute. I will answer your question that that is a new regulation that was passed.

So as of, uh, 2024, there are some stipulations where you can roll money out of a 529 into a Roth IRA for the beneficiary. Um, there, there are some wrinkles with that and you want to talk to your 529 plan holder, whatever company that is about that, uh, because there are some guidelines as to. You know, you have to have the 529 plan in existence for 15 years, for example, to do that.

Um, and I believe you can't use any money that you've contributed within the last five years. So there's, there's some policy guidelines there and there's some, some regulations as to when and how much you can transfer over. But, uh, that is something that is a new change that will be allowed. somewhat in some cases, um, if that answers your question, but thank you for, for asking it.

So in short, the message that I want to leave you with here is that your college savings will help you. As I said, nobody that I have talked to has ever regretted saving for college. Um, you know, if you have some money saved, it's just the best thing that you can do by the time you're getting to actually.

Filing financial aid forms and applying for colleges. It can put more college options on your list. We know that you have this money saved. It may help you to actually fill out these applications. The biggest thing for me, it will reduce or eliminate hopefully even the need to borrow loans. The fact is that, you know, most.

Many, if not most families, at least, will, uh, be borrowing something to get through two or four or more years of college. Having some savings, though, can really help alleviate the burden of those loans. Um, allows the student to work less and study more, and it has a minimum impact on aid eligibility. Um, the other thing I want to say, too, is that, There's been a lot of studies done, um, on specifically 529 plans that show that regardless how much you actually have saved in the plan, even if it's below 500, uh, that that has an outsized impact on students rates of college attendance and college graduation.

So if a child knows that money is being set aside for them in a 529. They are, I believe, I may get this backwards, but I believe it's four times, I'm sorry, three times as likely to attend college and four times as likely to graduate. And that is across income levels, um, and across, as I said, savings levels as well.

So even with very little money, uh, that is the case. So your college savings definitely will help you. Now talking about two specific savings options, I've already mentioned 529 plans. 529 plans have in recent years become sort of the College savings vehicle of choice, probably the most well known college savings vehicles in the country.

The 529 plans themselves were created in the late 90s at the federal level, and then each state was sort of tasked with, um, setting up and operating their own 529 plans. And so the Massachusetts 529 plan is called the U Fund. It's a MIFA program that we offer in conjunction with Fidelity Investments.

And so this is how it works. You open up a U Fund account and you put money in the account and that money is invested by Fidelity. It's invested in the market and it grows with no taxes on the earnings. So it grows with the market. tax deferred. When it comes time to use the money, as long as those funds are used for qualified education expenses, then you pay no taxes on the earnings.

So it's a tax advantaged way to pay for education. So what are qualified education expenses? There are things like tuition fees. Food, housing, books, supplies, and equipment. And just because you're in the Massachusetts plan doesn't mean that you have to go to college in Massachusetts to use the funds.

It's good at any accredited college or university nationwide. It actually works for colleges. outside of the country as well, if they are set up to take us federal funding. So there's a lot of variety in where and how these funds can be used. In fact, it doesn't even have to be used for a college per se.

These funds can be used for training programs or educate, uh, career training programs, as long as once again, the institution itself. the school is eligible to take U. S. federal funding. Um, so again, a wide variety in how this can be used. The combined account maximum cannot exceed 500, 000. So if you have an account that has over 500, 000 in it, you're not going to be able to put any more money into that.

Good problem to have if you have it. It's not something that most people run into. Uh, the one thing that is important for most people, there is no annual account maintenance fee, meaning there's not a fee that you're going to have to pay out of pocket as part of this plan. There are fees associated, um, but they, they come out of the earnings and the investment.

Um, The other thing that's important, there's no minimum investment to get started. Time was there used to be a 50 minimum investment to get started in the U Fund, but there's none anymore. So you can open an account with 15 or 10. You can open an account with no money with the plans on funding it later.

We really just want to eliminate any obstacles that may exist for people to start saving. We know starting saving is the hardest part. So once you're over that, it's much easier to continue. Um, And finally, it says multiple investment options. So this is an investment plan. You put money in it, it is invested.

Uh, we at MIFA here, I certainly am not an investment, uh, advisor. I'm not an expert in investment. I really don't know anything about it. Um, but Fidelity is, and they can. advise you on investing, they can get a feel for your risk tolerance, your comfort level with dealing with certain types of investments, and they can sort of advise you accordingly.

And they are, I'm happy to say, very helpful and very available. You can call them. There's the phone number 800 544 2776. They're available, I believe it's 8am to 7pm. Um, And so I always tell this story. The first time I was opening my account, I was able to call, I had some questions. I was able to call at 10 AM on a Saturday and get somebody to help me with my questions.

So I'm very pleased to be able to sort of personally vouch for them. Um, but they're a terrific partners of ours and, and, um, you know, I can't, can't, can't stress their availability and their helpfulness enough. And so, um, the other thing is if you, Pick an investment option and then you find out later that you want to change it you're able to do that as well So, um, but they really should be your resource for any sort of investment questions of which there are really not many on the form There's one or two, but they do have to be answered before you're setting up an account.

So That's how the U fund is designed to be used. But what if, you know, things don't quite go as planned. So what if you set up your five 29, your U fund for your child or for your student, and they don't end up going to a college, well, first thing I'd like to say about that is to stress once again, they.

The U Fund can be used for vocational training programs at eligible institutions. So it's not necessarily the case that it has to be used for college. Secondly, uh, the funds can be transferred to another beneficiary within the family. So if you have more than one child or if there's a cousin or something that could use the funds, if the original beneficiary doesn't end up using them.

you can transfer that over. Uh, so that is an option. What happens if my beneficiary goes to graduate school? If you're lucky enough, uh, that you still have funds in your 529 account after your student graduates from their graduate, their undergraduate program, and they're, they're moving on to graduate school, they can use 529 funds for that as well.

But if you do have to cash funds out of your 529 and use them for an ineligible expense, uh, well then you lose. There are penalties associated with that. It is important to say that they are associated with the earnings on the account and not with what you put into it. So your, your contributions are not going to be penalized, just the earnings on that.

And there's, there's two parts of that. So there's a 10% 10 percent penalty on the earnings. Um, and then the earnings will be taxed at the owner's rate of income. So you lose that tax benefit, um, if it's used in a way that it wasn't designed for. Uh, there are three exceptions to paying, paying that 10 percent penalty, two of which we don't really want to dwell on too much.

So that is death and disability of the student. So, uh, there is that option, but the third is scholarship. So if the student. earns a scholarship and you had to take money out and you can't use your 529 funds, uh, in the way that they were intended because of that scholarship, then you don't pay that 10 percent penalty on that scholarship amount.

Um, but even in those three cases, the earnings will be taxed at the owner's a rate of income.

Uh, question here is, can you submit what you think would be eligible and see if it would be approved? So the way it would work, I think for, you know, I think what you're asking is, can you ask, can I use the 529 for this? Would it be eligible? Um, you can talk to the plan holder in our case, Fidelity about that, but it's important to know the mechanism on this is on the back end.

So if you take money out, and you use it however you use it. If you're audited by the IRS, you have to be able to show I use this 529 money for a qualified educational expense. Now you can have this money sent right to the college or you can cash it out to the owner. But if you cash it out to the owner, you need to make sure that you can document that I use this to pay.

these expenses. So I use this to pay for books. I use this to pay for, um, food and housing or something, you know, tuition, whatever it may be. Um, So you wouldn't submit it beforehand. That's just not the process. You just have to be able to document how you used it. But if you have questions about how something could be used, you, you could call, um, and if you have a U fund, you could call me for, you could call fidelity at that time to get a feel for it.

And of course, as an all tax related questions, uh, your tax preparer should be consulted that he should really be the ultimate authority there, he or she.

There's been some expansion in terms of 529 qualified expenses. So, uh, 529 plan funds can now be used for textbooks, fees, and equipment for apprenticeships. And that's up to 10, 000 a year can be withdrawn, uh, and retain that tax benefit for those types of expenses. Same thing, 10, 000 annually for tuition at private and public K 12 education and a one time 10, 000 disbursement can be taken for a student loan repayment.

So this is an expansion of, of qualified expenses. And I should say that, you know, over the life of the 529 program, the trend has been towards more expansion, more use, more ease of use, um, and more benefits. So this is another example of that.

The other program that we have, which is, which is quite a bit different than the 529 plan, the U fund is the U plan, which is the prepaid tuition program. This takes a bit of explaining, but it is a really good plan. I like this plan a lot because we used to work, you know, I said, fidelity, um, manages the investments for the U fund.

They also manage the accounts. So when I call up about my 529, I'm getting me. I'm getting, uh, fidelity on the phone and they're telling me about my account. Well, we spent many years of Mifa internally, um, servicing the Upland account. So when people would call up about their Upland accounts, they would get me or they would get my coworker.

So I know a lot about the plan and I really liked the plan and I'll stop talking about me now and talk about the Upland. Um, basically this works differently. Um, it predates. The 529 plans. So this has been around since 1995. And the point of the U plan, it allows you to prepay up to 100 percent of tuition and mandatory fees, um, at every participating college.

So that right away is a couple of differences in the U fund. Um, it's designed to work at colleges, which are part of the U plan. So, A large network of Massachusetts public and private colleges are over 70 colleges and universities. All the participating colleges are in Massachusetts. Um, and so the way the plan works is you open up an account again like the you fund you can open an account at any point during the year, you can put in a lump sum you can have money automatically withdrawn every every month or so you know however you wanted to do that.

Um, and the money for the you plan is actually not invested in the market. It's invested in bonds that are backed by the full faith and credit of the commonwealth and those bonds accrue interest at CPI, consumer price index. But that's not the point of the plan. The point of the plan is depending on how much money you put in, you're buying a percentage of this year's tuition at each participating college in the plan.

Okay, so let's say. I put in 1, 000. Make the math easy for me. So that 1, 000 is going to buy 10 percent of tuition at a college that costs 1, 000. I'm sorry, 10, 000 this year. It would buy 3 percent of tuition at a college that costs 30, 000 this year. Every college has a different tuition. and fee figure. So your, whatever you put in is going to buy a different percentage at each college.

You don't have to pick the college when you put the money in only when you're getting ready to use the money. When the child is going to college, I'll talk about what happens if they don't go to a college on the list in just a minute. Cause I know that's the big question, but, um, okay. So let's say. By the time the child ends up going to college, they're going to that first college.

So you put in a thousand dollars, you bought 10 percent of tuition because tuition costs 10, 000. Well, when the child goes to that college, it's now 25, 000, but you've got 10 percent of that. So you got 2, 500 because you bought 10 percent of tuition and now 10 percent is worth. That's essentially how the plan works.

So you're prepaying a percentage of tuition and that percentage varies based on the college and how much you put in. Um, there is a 300 minimum to buy a U plan certificate. So, um, you can, you don't have to put 300 in right away, but the way it works is there's a bond purchase every year. So we take all of the funds that we got from your account throughout the year.

Before that, if it's 300 or more, you bought a U plan certificate. Uh, if it isn't then. It stays in the account. And maybe if you have it next year, you'd buy a U plan certificate. Um, that is essentially how the plan works. Now, every year you can continue buying. So let's say you put in a thousand dollars this year.

You bought 10 percent of tuition at that particular college. You put in a thousand dollars the year after that. Tuition's gone up a little bit from last year to this year. So your 1, 000 doesn't quite buy 10, 000 again this year, it might buy 9. 5 percent of tuition. So, uh, you know, now you've got 19. 5 percent of tuition for the child's freshman year.

So, you know, you can keep adding to your percentage that way when you're putting money in, you designate how much you're putting in and for what year or year. So you want to pick one or more maturity years, one or more year that the student is going to be in college for, um. And you lock in that percentage of tuition for that year.

So you can continue to do that. There is a five year minimum, though, between when you put money in and when it can mature. So if your child is already in high school, you might be sort of running out of time to do this. This works best for younger students than that.

Now, what happens if Your child doesn't go to or participate in college. I know that's a big question because this people get really hung up on this. I can't do this because I don't know where they're going to go to college. And I understand that. Um, but if that happens, well, again, like the U fund, you can transfer those funds over to another student if they can use the funds.

Or you can cash out and get what you put in plus the interest back. Uh, so you get what you put in plus the CPI interest. Uh, there are no, uh, it's our bond counsel's opinion that there's no Massachusetts tax. Penalty for cashing out. So you don't have to pay taxes on that. Uh, for the state of Massachusetts, also federally as well.

Um, if you live in another state, they may have other tax laws that I'm unaware of. So check with your tax preparer there. Uh, but just to give you that knowledge, cause I've had people get worried about that as well. Um, what happens in my beneficiary goes to graduate school. So this locks in only for undergraduate.

degrees, not for graduate school programs. But again, if you have money left over, you can always cash out and get what you put in and plus the interest and use that for graduate school expenses. Um, so that essentially is how The U plan works and there's a lot to say about the plan. So, uh, I think, you know, for a while, I know I went through this at my mind, I didn't want to think about it too much cause I didn't understand it.

And I, um, but once I did understand it, I really. Grew to like the program and especially when I saw people's accounts when they were using funds, especially if they started a program really when their child was really young and they ended up going to a participating college, uh, with the rate that the, that tuition has increased, um, you know, a lot of people did, did.

Quite well. Um, that, that, that was, that was my experience. Um, that, that's every case is going to be different, but, um, but I really, as I said, grew to like the EU plan. So if you have any questions again, you can, you can reach out to us. You can visit us on the website for that. I'll be happy to answer any questions about the EU plan now or after the presentation.

I wanted to just close here on our savings programs by talking about the Massachusetts tax benefits for saving in the U plan and the U fund. So you can deduct up to a certain amount of your contributions on your Massachusetts state income taxes. So you can deduct up to 2, 000 of your contributions against your income on your Massachusetts state taxes, that's up to 2, 000 for married filers filing jointly, or up to 1, 000 for individual filers.

And those limits are per filer, not per account. So if you're filing Massachusetts taxes, and you're, you're claiming some of these, those are your set limits. 2, 000 if you're a married filer filing jointly, or 1, 000 for an individual filer. Um, You know, this is something that many states do, um, in Massachusetts was a little bit later, uh, to, to add these.

Bonuses or benefits, really, uh, incentives to, to save. Um, but we're, we're glad that they did, obviously, and we've seen people take advantage of that. So, uh, just another benefit of you saving in these programs. I also want to mention the Baby Steps program. If you've not heard of this program, again, another one that we're really excited about that we've seen other states and municipalities, uh, Sort of do.

And when, when the word came down that the state treasurer wanted to implement a program like this in Massachusetts, well, I can tell you that I was really happy about that. Basically what this is, it's Massachusetts's first statewide seeded college savings. account plan, child savings account plan. And basically what it does, sets aside 50 for every child born or adopted in Massachusetts in a U Fund account.

So, they have one year from, you know, the first It's still their first birthday of the first anniversary of their date of adoption to open an account and claim that 50. Uh, and that's been the case since January 1st of 2020. So if you know somebody who, um, is about to have a baby or just had a baby, maybe eligible for Baby Steps, if they're born in Massachusetts, um, or, you know, parents in Massachusetts, um, then all they need to do is sign up for a youth fund account and they will be seated in 50 from the Baby Steps program.

Thank you. And then they have that, that money. It's theirs. They can add to it if they want. They don't have to, uh, hopefully this will grow and accrue value and they're able to use that. So, um, that is something that we're really excited about and it kind of feeds into our strategies for saving because one of the reasons that, um, We start at birth for the baby steps program is that we know that starting early really does pay off so start saving as early as possible I would never say that it is too late to start saving truly because anything that you save as I said earlier is something that you don't have to borrow, right?

So even if you're a year or two out, put some money away that can go towards a payment plan when you're in college or, or some five 29, uh, account to, to use for some expenses, but kind of like retirement, it is. to your advantage to save early, right? Um, and we have a slide in that, uh, on, on where you can see the sort of benefits of that.

Um, it's, we'll get to that in a minute. Uh, start with a goal in mind. We have more information on that as well. Um, starting with a goal is always great, but don't let not having a goal prevent you from starting, right? So just say whatever you can just open an account and save whatever you can. That's what I did when I first started and just.

You know, wasn't able to save very much in a monthly basis, but glad I was able to save what I, what I did. Taking advantage of unexpected funds, so tax refunds, um, you know, anything that you're not expecting, you might save it in, in a 529 or in a college savings account, you may save half of it. Using automatic transfers is the big one.

I mean, we know that people who get money automatically deducted, either from their paycheck or from their checking accounts, tend to save more than people who don't. And I can tell you from my own personal experience. Both using automatic withdrawal to pay my loans and also to, to save for five twenty nines, um, was a huge, huge help.

Again, I always tell this story, but when I was. When my son was born, um, we opened up a 529 and about a year into his life, I said to my wife, well, we really have to start putting money aside in the 529. She told me that we actually had been doing that for about 10 months. I just didn't notice because it was coming out of my, my account and I didn't even see it.

So, um, Not that uncommon. We know that this is an effective way to do it. Another really effective way to, to grow savings is to get the word out to your family and friends to contribute. So this is something that, you know, relatives, uh, family, friends like to do. And as parents, it's wonderful, especially when you have a younger child.

Um, This image here is, uh, on the right here is of a gifting page. Fidelity sets up a gifting page if you have a, a, a U fund. And, um, you can create this with the image of your child, the year that they're going into college, uh, and some, you know, dreams that they have. Um, And then you can just create a link and email that link out to family and friends and they can gift money directly in.

So that's a great thing to do. Um, they also make it very easy. People can just send in checks to the account. They have a mobile check deposit option on the Fidelity app. So if you have that. Like I would sometimes get a check from my aunt for my son's 529 and you just take a picture of the check and mobile deposit that in, though it's very easy and we always like to talk about that because it really is an effective way to grow accounts and then involving your child in the process so that always, I'll be honest.

Seems really optimistic to me, but I do know people have done it and, um, you know, I, I, I remember speaking with a, um, financial aid director of college who said, I guess she made her daughter save half of everything that she got for birthdays, first communions, whatever, um, milestone it may have been. in her 529.

So not only did that help grow her 529, but it also became a habit for her to continue throughout the rest of her life to save half of what she got, right? And we're going to talk about that as a good practice to pay yourself first. Um, I want to take, we have a Oh, no. Okay, we're good. Um, so I want to take this opportunity here to look at our college planning tool.

So, um, I've talked about starting with a goal in mind and how we have a tool to help you determine what that might be. And so this is this I like this because this answer to question that's really hard to answer. I would get calls sometimes from particularly the parents of really young children, like newborns, and they would be really happy.

Yeah. gung ho by this to say, I want to pay for college. I want to have college paid for my daughter or my son by the time they get there. What do I need to save every month? And that's a really hard question to answer, right? It's, it's, it's almost impossible because there's just a lot of things we don't know, right?

We don't know what college they're going to go to, which makes a really big difference. You don't know how much financial aid you're going to be eligible to receive, something that your bill is going to be. That makes a big difference. Um, so it's hard to say. But this is a tool that we have that can help you to get an idea and answer some of those questions.

It's all estimates, of course, but it can help. Um, what you can do is go on to the MIFA college planning tool, create a profile for your family. Um, and when you're doing that, you're going to put in information like how old your son or daughter is. And it's going to calculate, of course, by the time they get 18.

you know, it should be this year and based on tuition increases at different types of colleges or different colleges. This is what tuition is likely to be at this college or this type of college. So you can search colleges and put them into the calculator. You can search types of colleges and put them into the calculator.

And you can see here, this upward graph, unfortunately, is the tuition costs. You can also project, you can say, this is how much money I have saved, or this is how much money I will save every month until then. And then it will estimate, by the time your child is 18, based on a certain rate of return in the market, which you can also customize, how much money you are likely to have saved by the time you get to that college.

So we have what tuition is likely to be, how much you're likely to have to pay for it. And the final piece, if you put your income in, it should give you, it will do an expected family contribution calculator, or it's now a student aid index calculator, to give you some idea of how much financial aid you may be eligible for.

At least gift aid. And what gift aid is, is grants and scholarships. So not including loan, not including work studies. Um, So grants and scholarships, money you don't have to repay, um, and so in this, and then it will, so, okay, I want to draw your attention to this image here. So it says here, the cost in this particular example, and this is by year, should be about 60, 000.

The family is eligible based on the calculations for about 7, 000 in gift aid. And based on the rate that they are saving, they're going to have about 32, 000 to pay for college. So that means that it's going to cost them about 60, 000. They're going to have about 40, 000 to pay, which means they're looking at almost a 21, 000 shortfall.

So this may be Uh, a loan that they take out or loan may be part of that 20, 000, but they know based on the short ball, how comfortable they would be financing that and financing four times that if it's a four year college. So they know they need to either bump up their savings, start applying for scholarships.

It's just something, you know, you can search for colleges on scholarships on that site as well. Look at some less expensive colleges, you know, some combination of those three. And, you know, this is something that you can keep. And I on and there are different levels every year you complete certain tasks.

Um, so it's comprehensive and it can be really, really helpful and it does a lot of other things too, but that to me is the heart of it. Now I want to show you just a little bit on saving early and the importance of saving early. And specifically this illustrates the, uh, principle of compound interest, right?

And so compound interest is, it's not just what you're saving. Uh, it's the interest that gets accrued on that and compound interest is actually interest gaining on interest, uh, and which is how it works in 529 plan. So your, your, your interest is actually gaining interest as well. Uh, so that can really, if you're saving long enough, have an outsized impact.

So in this example here, we have, uh, Julie who is saving 50 a month in a 529 account, but she starts on her child as first. born. Whereas Jonathan saves 100 a month, but I don't start until, oh, that's me. That, that, that Jonathan, I believe is, uh, is me. Um, his, I don't start until my child is in second grade.

So I'm seven years later than Julie, but I'm trying to make up for it. So I double my contributions, right? So who's going to have more money. by the time their child turns 18. The answer is Julie, uh, even still, even though I'm doubling because when she starts saving, she's putting 50 in, she's going to contribute 10, 800 and gain almost that exact amount in interest and have about 21, 536.

Whereas I'm going to put in 100. I actually have to put in a lot more. I do pretty well. I am almost where she's at. I got 19, 798. But look how much I have to put in. It's 13, 000. And only about, only about 600 of interest that I've earned. Now this is all hypothetical, of course, and as it says here, this assumes consistent monthly saving until the child is 18 and an annual investment return of 7%.

I cannot speak to obviously, and I'm not a market person, but Fidelity does this for us and, and, and gave us this, these, um, Estimates and they are, they're sure that this is a reasonable estimate. So, um, using that as, as the return on investment over that time, this is what we're looking at. So even though I'm doubling my amount and I still start saving pretty early, you know, child is in second grade.

You know, it doesn't come close. It doesn't really match what Julie is able to earn as far as interest is concerned. No, that will ultimately we're pretty close, but just show you the power of starting early and using, um, compound interest. Any questions on anything so far that I haven't answered yet. I'm about to move into the final sort of segment here, which is how families pay for post secondary education.

And so, um, I don't know if you want to guess how much college is going to cost. Everybody has a sort of I think idea in their mind of how much a year of colleges. If you want to take a minute and just put that amount into the q amp a which you think a college may be. I kind of spoiled it a little bit here because I've got different types of colleges.

And that is kind of the point that I want to make and you'll see when we, when we get to this, that how much college is. It really depends on the kind of college. It's very, very common. It happens every year, uh, around August. You're going to see news stories that college now costs at this particular college.

What are we up to now? Maybe 75, 000, 80, 000 a year. Um, I'm not here to tell you that college can't be that expensive or that it isn't that expensive at these colleges that somebody's not telling the truth. But the reality is more complicated than that. Um, you know, first of all, you should know that they pick the highest tuition and fee figure in the area to, to trumpet that.

And this is before financial aid. And so this, these are my two points. So the, this data here is taken from a college board publication called trends and student pricing. At least most of it is where they sort of survey all the different types of college different colleges throughout the country, all the colleges that country and by state and by type and sort of.

You know, average out how much college is going to cost. So those colleges that are on the, on the news or in print are the most expensive options, which are typically the four year private colleges. And so, you know, we have a lot of these in Massachusetts and the New England area. Um, this is a national average number.

So one year tuition fees, housing, food, books, supplies, transportation, all the expenses included for one year, four year private college. averages out nationally to be about 67, 670 per year. So in the Massachusetts or New England area, we're higher than that. Um, you know, we may be higher than that. We have a lot of colleges, uh, in a lot of expensive colleges here, but this is the national average.

So that's your most expensive option. However, there are other types. So four year public colleges, Public colleges have lower costs, especially if you are attending a public college in the state that you live in. So if you attend a public college in the state that you live in, you are eligible for a discounted tuition figure.

So if you're an in state student going to a four year public college, the average for that The average cost, including all things, is about 27, 940. So you can see a huge difference already in cost. Now, if you go to a four year public college outside of your state of residence, you're going to lose that tuition discount, uh, in most cases.

But, um, You know, that still averages out to be significantly less than a private college. So about 46, 240 per year. Now, again, this assumes that you're paying all of these things and you may not be right. So you might not be living on campus. So in that case, Food and housing wouldn't be part of your expenses.

Tuition and fees are what they call direct expenses, they're billed. That's what they are. Tuition, um, housing, food, book supplies, there's going to be some variability there. Um, this next category, vocational schools, this does not come from the college board. They don't survey vocational schools. This comes from value colleges.

Um, the university, community college, or trade schools. Uh, it's hard to tell, um, because there's so much variation in different vocational programs, but the, this is the, the best figure I could find is less than 33, 000 for the entire education. So these are certificate training programs, um, for careers that don't require degrees, but they do require certi require certifications, uh, and there are a lot of these.

So, uh, you know, less $33,000 would sound like a lot, but again, remember this is the entire education, whereas these first two are per year. Um, but it, it, it's difficult again to, to say sort of uniformly how much these things may cost. And then finally, what's almost always the least expensive option are the two year public community colleges.

And these average out to be about 9, 620 per year. because that doesn't include food and housing. Most community colleges don't offer that. None in Massachusetts, I believe have, uh, food and housing. They're all commuter colleges. So the average student, you know, it averages out to about 9, 620 per year. Now, again, main point.

A lot of different types of college, colleges, um, big variation in costs. Second point is this is all sticker price. So this is before financial aid, right? And as I said before, the vast majorities of families will be eligible for some level of financial aid. To give you an idea, about 174. 4 billion in aid was awarded to students in 2021 2022, and that's not really inconsistent with the figures I've seen over the past 10, 15 years or so.

So that's a lot of, um, money that's given out. Um, so, and it comes in. As I said, two varieties merit based aid. So that's scholarships. A lot of scholars scholarships, most scholarships come from the colleges themselves, but that's gift aid. It does not have to be repaid academic scholarships, athletic scholarships, things like that.

Most of that money though, most of the 174. 4 billion. Is need based financial aid. So it's based on the family's financial needs. So you might have heard of programs like the Pell Grant program, which is a federal program or those federal student loans that have. benefits associated with them that are not there with other types of loans.

These are examples of need based financial aid. Other grant programs, you know, financial aid from the states and from the college is counted in this as well. So, that's a lot of money that's granted every year in financial aid. Most students will not be asked to pay the full sticker price of college. So how do families pay?

First of all, maximize your financial aid, apply for all the financial aid, apply for scholarships. Um, that should be the first thing that you do, accept all the aid that you get. And then once financial aid, except all the aid that you want, um, once you accept your financial aid offer, there's basically three ways to pay past income, present income, and future income.

So past income means your savings. Any savings that you may have, any gifts from relatives, anything like that, anything you can pay out of pocket and put down, um, against the, against the bill. Present income, I'm thinking about, you know, the, this really refers to the money that you're making while you're students in college.

Now I don't know many, if anybody, Who can pay just the tuition of a year or a semester from the money that they have leftover after all the other bills are paid and they're working. Um, but it is worth it to pay what you can out of pocket colleges offer monthly payment plans. Not everybody knows this, uh, but they will go through an outside provider.

And for a small fee, you can get on one of these plans. And if you decide that you can afford to pay. You know, uh, I don't know, 300 a month against tuition, well, over 10 months, that's going to be 3, 000 and all that money goes against tuition. So let's say you got a bill for 20, 000. You could borrow that 20, 000.

People do. Um, but it is worth it to, to pay what you can otherwise before you get there, right? So let's say you can, uh, you have 5, 000 of savings that you can put down. Okay, well now you've got a 15, 000 balance, and then you decide that you can afford to pay 500 a month over 10 months. Okay, that's 5, 000.

Now you decide that you, you can handle a 10, 000 loan, a 10, 000 student loan or educational loan. This is important. Even though 10, 000 is still a lot of money to borrow, um, you know, back in the envelope math suggests that if you're borrowing 20, 000, your monthly payment It's going to be somewhere around 200 a month, so if you're borrowing 10, 000, it's going to be somewhere around 100 a month, and most student loans have a 10 or 15 year repayment, so okay, 100 a month, 200 a month, but this is only year one, so if you're going through four years, if you're borrowing 200 a month, that's 800 a month for a monthly payment after all is said and done, whereas if you're borrowing 100, um, if you're borrowing 10, 000 a year, it's 700 a month.

paying 100 a month, that's only 400 a month. Um, so once you get past, past income and present income, the only thing that's left is future income or loans. And it's not that borrowing is bad necessarily. Just want to be really mindful of the monthly payment that you're going to be paying for years after the student graduates.

And also consider this, that You know, we talk a lot about student loans, um, in, in the country that really leads a lot of people to believe that students can just borrow whatever it is that they might need if they, if they have a 20, 000 bill and the student can borrow 20, 000 and just pay it back after they graduate, you know, most of the time that doesn't work because students can't really.

Students can borrow on their own, in their own name, without a credit check, only for the federal student loans. And those have loan limits associated with them. So students can only borrow 5, 000 a year as freshmen, or 5, 500. 6, 500 for sophomore year, 7, 500 for junior year, 7, 500 again for senior year. Uh, which is great, but that's part of the financial aid offer already.

So if you get a balance after that... any loan that you get is going to have to be approved based on credit. And most students, of course, if they're 17, 18, 19 years old, do not have the credit necessary to be approved on their own without a co applicant. So typically that means parents act as a co applicant for students.

And if a parent is a co applicant on a loan, they are equally responsible to repay that with the student. So what I mean by this is that It's going to matter to you a great deal, whether or not you're, uh, you know, if you're a parent, whether or not you're paying back a 100 a month monthly payment for one loan versus a 200 a month monthly payment, because you've got four years, you're responsible just like the student is for this.

And, you know, just think if you have other, other children as well, not just one student. Uh, so it is worth it to pay what you can out of pocket, save, use monthly payment plan before you start borrowing. I want to leave you with that. Um, so what you can do now, if you have not started saving for college, you can save now.

You can talk to your child about college, about different costs of college. It's really important actually to talk about the cost of college and talk about what your capabilities are in terms of cost and where students can expect. To, you know, look at colleges and, and what kind of expenses you can, uh, uh, take on as a parent that I wouldn't say don't apply to more expensive schools cause you are going to be applying for aid.

Just make sure you have a balance and make sure that the child knows that cost is going to be a factor when you're looking at colleges. Um, I think in the space of no conversation, a lot of anxiety and a lot of expectations build. Um, and that's not a great place to be. You can use online tools to learn more about college costs like the ones that we went over.

We also have Other tools and other content on our site, MIFA. org. Uh, take a look at our webinars, our upcoming webinars on MIFA. org. This is College Savings Month, so we'll be having, um, you know, more, more videos and presentations and, uh, space for conversation about college savings. And our social media, where we post a lot of information about scholarships and, and different things, is right here.

Um, so Facebook, Instagram, Twitter, X, uh, LinkedIn, YouTube, and, and our podcast. Now, uh, I'm here to answer any questions that you may have.

If there are many, we're a small group. I know if you don't have any, um, good luck. I'll be hanging out here for another minute and thank you for coming.

Thanks everyone.