Planning for students attending college, including choosing the right school they will attend and how much you are willing to pay for their education, is becoming more and more important and complicated.

BusinessWeek’s September 5, 2022 issue included an article titled, “College Will Still Cost You.”  In this article, Ryan Craig, managing director of Achieve Partners, “estimates 70% of students currently enrolled in two- or four-year colleges can expect ‘a negative outcome in terms of failure to complete or graduating into Under-Employment.’”

According to Forbes, paying down debt has a very significant impact on the ability to save, invest, spend and plan.¹ Included in this debt is student loan debt. The Center for Microeconomic Data’s (CMD) latest Quarterly Report on Household Debt and Credit reveals total household debt rose by $16 billion to $17.06 trillion in the second quarter of 2023, of which $1.57 trillion in student loan debt. ²

One of the first pieces of advice I give to clients is to go over the financial numbers with their CPA and Certified Financial Planner (CFP^®) because they will know your financial situation and what you can—and cannot—afford.  Once applications are sent into a school, it is assumed the student would attend if it makes sense financially compared to other schools. Therefore, the decision of where the student will end up attending would become a financial decision.

When it comes to reviewing college costs, there are four areas to consider: Cost of Attendance, Inflation, Graduation Rates, and Loan Interest. 

Per the U.S. Department of Education, the cost of attendance includes tuition and fees, room and board, books and supplies, personal expenses, transportation/travel, and the cost of a computer. These costs can be obtained from the school and should be known by the student and parents before a student applies to a school.

According to the College Board, which puts out an Annual Trends in College, in 2022/23 the average published (sticker) tuition and fees for full-time undergraduate students are:

• Public two-year in-district: $3,860, $60 higher than 2021/22 (1.6% before adjusting for inflation). 
• Public four-year in-state: $10,940, $190 higher than 2021/22 (1.8% before adjusting for inflation). 
• Public four-year out-of-state: $28,240, $620 higher than 2021/22 (2.2% before adjusting for inflation). 
• Private nonprofit four-year: $39,400, $1,330 higher than 2021/22 (2.1% before adjusting for inflation).

In addition, the annual inflation rate for the United States was 3.2% for the 12 months ended July 2023, as published on August 10, 2023, by the U.S. Labor Department (Prior Year was 8.3%).³

Regarding graduation rates, according to the National Center for Educational Statistics (www.nces.ed.gov), the six-year graduation rate for first-time, full-time undergraduate students who began seeking a bachelor's degree at a four-year degree–granting institution in Fall 2014 was 64%; that is, 64% had completed a bachelor's degree by 2020 at the same institution where they started in 2014. The College Board also publishes the “College Handbook” and they also include six-year graduation rates.  However, the College Board also has a publication called Four-Year Graduation Rates for Four-Year Colleges in which colleges by state can be found.

Student Debt Interest will vary depending on the type of debt and whether the student or the parent takes on the debt. 

Direct subsidized and unsubsidized student loans, or “Stafford Loans” are 5.50% for the loans disbursed between July 1, 2023 and July 1, 2024. These are loans taken out in the student’s name and are paid back over the standard payback period of ten years starting six months after the student graduates. These loans can be deferred if the student decides to attend other studies such as graduate school.

The site with all the information on student loans can be found at the Department of Education www.studentaid.gov site. Whether you are eligible for a subsidized loan where the Board of Education will pay for the interest of the loan while the student is in school or an unsubsidized loan where the interest accrues while the student is in school will depend on the financial need of the student. There are limits to these loans; you should visit the www.studentaid.gov website for these limits.

Direct unsubsidized loans are available for graduate and professional students (in the name of the student) at 7.05% and Parent Plus Loans are available (Parent Loans) at 8.05%. Parent Plus Loans can also be deferred for six months until after the students leaves school.

There are also fees for these loans. The Stafford loan rates are 1.057% and the Graduate/Professional/Parent Plus Loan rate is 4.236%. These loans and rates will vary per year.

Free Application for Federal Student Aid (FAFSA^®)

One of the major steps in the College Planning Process is to file out on an annual basis the Free Application for Federal Student Aid (FAFSA^®) form.

For the 2024/25 FAFSA^® Form, the launch will be delayed until December 2023 instead of the usual time frame of October 1. This is due to several major changes and improvements made as part of the FAFSA Simplification Act, passed in December 2020, as part of the Consolidated Appropriations Act of 2021. Alongside the FAFSA portion, the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act, authorizes a direct data exchange with the Internal Revenue Service (IRS) to facilitate completing the FAFSA form.

Included in the changes to the FAFSA^® Form include the following:

• Decreasing the number of questions from 108 to 49;
• Introduction of “Contributors” to the FAFSA form;
• A FAFSA onboarding experience for both initial entry and correction entry
• The general look and feel of the FAFSA form;
• Integration to allow users’ federal tax information to be retrieved and transferred directly into the FAFSA form via IRS direct data exchange, replacing the IRS Data Retrieval;
• Replacement of the Expected Family Contribution (EFC) with the Student Aid Index (SAI);
• Required consent from users to retrieve and disclose federal tax information, be eligible for federal student aid, and be eligible to receive an SAI;
• Predictive search results for questions that require city, state, or school lookup;
• Dependent students must invite their parent(s) to contribute to their form if parent information is required;
• Expands the number of colleges to 20 on list (you can go to the school’s website to get the six-digit Federal code for each school);
• The number of children in college at the same time will no longer affect eligibility for need-based financial aid (No Multi-Children Discount);
• Certain exclusions from assets have been dropped.
  • The small business exclusion – The net worth of a business is no longer limited to those with more than 100 full-time employees. Applicants will be asked to report the net worth of all businesses, regardless of the size of the business.
• Exclusion for a family farm on which the family resides;
• When parents are divorced, separated, or never married and do not live together, only one parent must complete the FAFSA
  • This will be the parent who provides more financial support to the student, no longer based on where the student lived the most;
• If this parent has remarried as of the date the FAFSA is filed, the step-parent’s income, assets, and dependents must be reported on the FAFSA;
• Several types of untaxed income will no longer be reported on the FAFSA
  • Cash support and other money paid on the student’s behalf
  • Veterans’ education benefits
  • Workman’s Compensation;
• Elimination of cash support yields certain benefits:
  • Gifts to the student will no longer be reported as untaxed income;
  • Qualified distributions from 529 plans owned by a grandparent, aunt, uncle, etc., will no longer affect aid eligibility;
  • Only 529 Plan Assets of the Student on the FAFSA would be included – 529 Plans for other siblings would not be included.

You still need to create an account at www.studentaid.gov for both the student and the parent who will be filling out the FAFSA^® form. According to the studentaid.gov site, “whether you’re a student, parent, or borrower, you’ll need to create your own account to manage the student loan journey.” See the site below to get started: https://studentaid.gov/fsa-id/create-account/launch.

You will use the account information to not only fill out the FAFSA^® Form, you will need the ID and password for signing your Master Promissory Note (MPN), applying for repayment plans, completing loan counseling, and using the Public Service Loan Forgiveness help tool.

FAFSA^® Checklist

Regarding the 2024/25 FAFSA^® Form, besides your FSA ID and password, you will need the following:

• 2022 Tax Returns for Parent and Student with W2s;
• Colleges to send FAFSA to, and their federal school codes;
• Dependent status (most students will be dependent of parents);
• Come up with challenge questions;
• IRS Direct Data Exchange;
• Current Assets and Investments Valued at the day you are filling out the FAFSA^® Form (529 Plans included in Investments);
• Additional Financial Information [Education Credits, Child Support Paid; Earnings from Need Based Employment (Federal Work Study, Taxable College Grants, Combat Pay)]

There are no areas on the FAFSA^® Form for explanations in case there were any changes to your financial situation such as a loss of a job related to COVID-19.  However, the FAFSA^® Form Student Aid Index can be appealed. You should call the financial aid officer at the school for details.

Once you’ve been accepted to college, what do you do next?

Once you’ve been accepted to a school, you will receive an awards letter indicating the cost of attendance, any financial or merit aid, and any grants or scholarships for the student. 

According to Act.org and Collegeboard.org, once you have received the award letter from the accepted schools, you should read the letter and respond promptly given the instructions in the letter. In addition, you should send in your tuition deposit to keep your spot, send in the final transcript, accept the financial offer (if any) given to the student, and access the Student Portal to see if there are any additional steps needed to be taken by the student.

One of the most important steps is to keep track of deadlines. In addition to the original application deadline, there are deadlines for the FAFSA^® Form being submitted as well as when the tuition deposit needs to be sent in. Check with the Student Portal for deadlines.

Lastly, you should wait for more of the award letters to be received from the other schools before you make a final decision.  As mentioned before, going back to your CPA and CFP^® to compare the award letters to see which school has presented the more financially beneficial package.

Conclusion

According to Education Pays 2023, the latest report from the College Board’s Trends in Higher Education series, a student going to college would have lower unemployment (in 2021, unemployment rate for 25–34-year-olds with a bachelor’s degree was 3.3% compared to 8.3% for high school graduates); would be more likely to be covered by health insurance; and in 2021, median earnings of bachelor’s degree recipients with no advanced degree working full-time were $29,000 (65%) higher than those of high school graduates.

In addition, according to a new report from the Georgetown University Center on Education and the Workforce (CEW),⁴ adults with a bachelor’s degree earn an average of $2.8 million during their careers, $1.2 million more than the median for workers with a high school diploma. In addition, at every additional level of education, workers tend to earn more than those with less education.

However, it will come down to the student and their interests in making the right choice of schools to fit these interests. Student positioning evaluations such as College Major Quiz by Innate (https://www.usnews.com/best-colleges/college-major-quiz) and Student Positioning (https://www.studentpositioning.com/) may be helpful in the search.

Frank J. DeCandido, CPA, CFP®, MBA, is the sole member of a professional limited liability company with a tax, accounting, college planning, and financial planning practice on Staten Island. Frank is a Certified Financial Planner TM (CFP®), is Series 7 Registered, and has his insurance licenses for New York and New Jersey. One of Frank’s expertise is integrating tax knowledge to better serve clients with their financial planning. Frank is also a Certified College Planning Specialist (CCPS) with the National Institute of Certified College Planners and a member of the National College Affordability Group (NCAG). Frank is a former Adjunct Professor of Accounting at Wagner College. Frank was formerly with Prudential Financial for 18 years, mainly in the Finance Division. Frank worked in Prudential's Financial Reporting department and also has had experience with the Securities and Exchange Commission's financial filings (10Q,10K, etc) in regard to Prudential's Limited Partnerships as well as the tax filings for these partnerships. Prior to Prudential, Frank worked with the audit group of Arthur Andersen & Co. in New York. After leaving Prudential, Frank worked for a local CPA on Staten Island, Gregg T. Iliceto & Associates, for five years. Frank is a member of the AICPA and NYSSCPA. Within the NYSSCPA, Frank is a former member of the Technology Assurance and Personal Financial Planning (PFP) committees as well as a former member of the PFP’s sub-committee on financial literacy. Frank is the current president and the former treasurer of the NYSSCPA Staten Island Chapter. Frank is very involved with community work on Staten Island. He is a former Advisory Board Member of the GRACE Foundation of New York, a non-profit organization providing services to children with Autism. Frank is a former member of the Board of Directors and treasurer of Lifestyles for the Disabled, Inc., and a former board member of the Staten Island CYO. Frank is also the former president of the Sports Council at the St. Joseph/St. Thomas/St. John Neumann Parish and former director of the Parish’s Soccer Program. Frank is the Parish’s current bowling director and is also the former treasurer and board member of the S I Y Soccer League on Staten Island. He can be reached at frankd@fjd-cpa.com and at 347-838-6026.

1. Three Tough Financial Decisions You Face (And How To Make Them), Forbes, October 31, 2021. https://www.forbes.com/sites/ryanderousseau/2021/10/31/three-tough-financial-decisions-you-face-and-how-to-make-them/?sh=22dd316f528d
   
   
2. Federal Reserve Center for Microeconomic Data, Q2 2023, https://www.newyorkfed.org/microeconomics/hhdc.html

    

3. Source: https://www.usinflationcalculator.com/inflation/current-inflation-rates/

    

4. Source: https://www.forbes.com/sites/michaeltnietzel/2021/10/11/new-study-college-degree-carries-big-earnings-premium-but-other-factors-matter-too/?sh=7594d1c235cd