Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions.
Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of four bestselling books about scholarships and financial aid, including Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship.
Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association.
Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation.
Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis.
Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.
If parents don’t talk to their children about college affordability and student loans, who will? Talking to your children about paying for college and student loans can be an uncomfortable subject. Parents sometimes struggle to have these conversations with their children. However, it’s best that your children hear about these topics from you first, rather than learn the hard lessons that come with enrolling at a high-cost college and borrowing too much money.
Not all college costs appear on the college bill, which is often limited to tuition and required fees. Sometimes room and board will be included, if the student is living in campus housing. But, hidden college costs can add hundreds or thousands of dollars of unanticipated expenses each year. Most students should budget for an additional $300 to $500 per month for extra costs.
Scholarships used to pay for tuition and textbooks are tax-free, but scholarships used to pay for other expenses, such as room and board, are treated as taxable income to the recipient. A change in the Kiddie Tax enacted by the Tax Cuts and Jobs Act of 2017, however, triples the tax rates on such scholarships.
Scholarships used to pay for tuition and textbooks are generally tax-free, while scholarship amounts used to pay for other college costs, such as housing, meal plans and transportation, are taxable. The student must also be a degree candidate for the scholarships to be excluded from income. The scholarship also cannot be fee for services, with a few exceptions.
Interest rates on federal student loans decrease by a bit more than half a percentage point for new loans made on or after July 1, 2019. The new interest rates are 4.529% for Federal Stafford loans for undergraduate students, 6.079% for Federal Stafford loans for graduate students and 7.079% for Federal PLUS loans.
Senator Marco Rubio (R-FL) proposes to replace interest with a fixed financing fee that is added to the loan balance. The financing fees will be 25% for Federal Direct Stafford Loans and 38% for Federal Direct PLUS Loans. Financing fees may be easier for borrowers to understand than level amortization of traditional student loans.
Sometimes, an out-of-state 529 plan may provide a better financial value than an in-state 529 plan. When saving for college, always consider your own state’s 529 college savings plan, if the state offers a state income tax deduction or tax credit based on contributions to the state’s 529 college savings plan. But, an out-of-state 529 plan may offer lower fees. Which option saves more money?
The Savingforcollege.com 5-Cap Ratings provide an independent and objective evaluation of direct-sold and advisor-sold 529 plans. The 5-cap ratings, updated quarterly, help consumers consider their college savings options and choose the best 529 plans. We are pleased to share the top rated plans from our latest quarterly analysis.
The Free Application for Federal Student Aid (FAFSA) is an application for financial aid from the federal government,state government and most colleges. The FAFSA application season officially starts on October 1. Students should file the FAFSA ASAP to maximize the amount of financial aid for which they are eligible.
Interest on certain U.S. savings bonds is excluded from income if the savings bonds are used to pay for qualified higher education expenses or rolled over into a 529 college savings plan, prepaid tuition plan or Coverdell education savings account. The process for reporting a savings bond rollover can be a little confusing, but nevertheless is straightforward.
A review of guidance published by the U.S. Department of Education demonstrates that the U.S. Department of Education discriminates against zombies in the awarding of federal student aid funds. The guidance also uses insensitive language that offends the undead, such as repeated references to “living expenses.” This is despite the fact that some senior members of the administration may, in fact, be zombies themselves.
Students should borrow federal first, because federal student loans offer superior benefits as compared with private student loans. Federal student loans are better than private student loans. Parent loans and private student loans should be considered only after the student has reached the loan limits on federal student loans.
Income-driven repayment plans base the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. Generally, if a borrower's total student loan debt at graduation exceeds their annual income, they will have a lower loan payment under an income-driven repayment plan.
Revised pay-as-you-earn repayment (REPAYE) is an updated version of the pay-as-you-earn repayment (PAYE) income-driven repayment plan. It eliminates the eligibility restrictions in the PAYE repayment plan. As with the PAYE plan, loan payments are based on 10 percent of discretionary income. But, loan payments are not capped at standard repayment and there is a marriage penalty. Also, the repayment term is 300 payments (25 years) instead of 240 payments (20 years) if the borrower has any graduate student loans.
Pay-as-you-earn repayment (PAYE) is an income-driven repayment plan that bases student loan payments on 10 percent of the borrower’s discretionary income, which is defined as the amount by which adjusted gross income exceeds 150% of the poverty line. The remaining debt is forgiven after 240 payments (20 years). Generally, borrowers whose debt at graduation exceeds two-thirds of their annual income will have a reduced monthly payment under PAYE.
Income-based repayment (IBR) is an income-driven repayment plan that bases student loan payments on 15 percent of the borrower’s discretionary income. The remaining debt is forgiven after 300 payments (25 years). Generally, borrowers whose debt at graduation exceeds their annual income will have a reduced monthly payment under IBR.
Income-contingent repayment (ICR) was the first income-driven repayment plan. Income-driven repayment plans base student loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. Income-driven repayment plans are intended to be a safety net, in case the borrower graduates with too much student loan debt.
When faced with complicated decisions, such as a choice among many possible 529 plan portfolios, consumers often choose the first option listed. Since portfolios are typically listed in alphabetical order, this can lead to a preference for portfolios with names that begin with letters earlier in the alphabet, called alphabeticity bias.
Senator Lamar Alexander has proposed automatically deducting student loan payments from borrowers’ paychecks. This is an elegant idea that would save the federal government about $1 billion a year in collection costs. Payroll withholding of student loan payments isn’t as simple as it might seem initially, but the problems aren’t insurmountable.
Federal and private student loans are reported to the three major U.S. credit bureaus. Like any other debt, delinquencies and defaults will affect the credit history and credit scores of the borrower and the borrower's cosigner, if any. But, there are also several ways in which student loans affect credit scores differently than other types of debt.
When a married couple gets divorced or separated, who is responsible for repaying the student loans and parent loans? The answer depends on whether the loans were borrowed before or during the marriage, whether the couple lives in a community property state, whether there is a prenuptial agreement and whether the ex-spouse cosigned the loans.
Differences in performance of age-based investment glide paths are attributable to several key characteristics in the asset allocations. Savingforcollege.com analyzed 180 age-based investment options offered by all 85 of the 529 college savings plans for which data was available in Q3 of 2018. The report, Characteristic Differences among Age-Based Investment Glide Paths, identifies eight key characteristics that contribute to differences in investment performance.
The loss of the personal exemption in the tax cut legislation implicitly creates a new tax on college students. Although the Child Tax Credit was doubled to compensate for the loss of the personal exemption, the tax credit is available only for children under age 17. The new tax credit for other dependents does not fully compensate for the lost personal exemption for college students, since it is worth less than half as much.
High-yield savings accounts offer higher interest rates than traditional savings accounts. High-yield savings accounts are good options for college students, parents and recent college graduates. But, how do you choose the high-yield savings account that best meets your needs?
If you didn’t get enough financial aid, you can always ask for more. The worst that can happen is the college financial aid administrator says “no.” But, to increase the chances of a successful appeal, it is important to understand how the appeals process works. Appealing for more financial aid depends on presenting the college financial aid office with adequate documentation of special circumstances that affect the family’s ability to pay for college.
The earnings portion of a non-qualified distribution from a 529 plan is subject to income tax at the beneficiary’s rate, plus a 10 percent tax penalty. There are, however, several exceptions in which the 10 percent tax penalty does not apply, such as death or disability of the beneficiary and receipt of a qualified scholarship by the beneficiary.
The Higher Education Act of 1965 is the legislation that authorizes most federal student aid programs. Major changes in student aid policy occur when the Higher Education Act of 1965 is periodically reauthorized. The Higher Education Act is supposed to be reauthorized every 4-5 years, but the delay between reauthorizations has been increasing with each successive reauthorization. The Higher Education Act of 1965 is overdue to be reauthorized.
Student loan repayment begins six months after the student graduates or drops below half-time enrollment. There are several steps that student loan borrowers should take during the grace period, before the start of repayment, to ensure that the repayment begins smoothly.
If a college closes while a student is enrolled or soon after the student withdraws, and the student is unable to complete the educational program at another college, the student and parent may be entitled to a discharge of their federal student loans that were borrowed to pay for the closed school.
Federal student loan borrowers who are undergoing active treatment for cancer may defer repaying their Federal Direct student loans for the duration of treatment and for 6 months afterward. Interest does not accrue on any Federal Direct student loans during the active cancer treatment deferment, not even on unsubsidized Federal Direct Stafford loans.
More than 15,000 children are diagnosed with cancer each year. An even greater number of parents of college-age children die of cancer. Cancer is a source of stress on a family, both financial and non-financial. Cancer drains family resources that otherwise could help send their children to college. Cancer scholarships can help alleviate some of that stress.
Philanthropist Michael R. Bloomberg, 76, is giving $1.8 billion to his alma mater, Johns Hopkins University, to support need-blind admissions and a no-loans financial aid policy. This is the largest gift ever made to a college or university.
More than six dozen U.S. colleges and universities have adopted no-loans financial aid policies. These policies eliminate loans from the financial aid packages of low-income students, replacing them with grants and work-study. Some of the colleges have extended their no-loans financial aid policies to also include middle-income students and some to all student aid recipients, not just low-income students.
A 529 plan may be used to pay for the beneficiary’s graduate school or professional school education. A distribution to pay for qualified higher education expenses at a graduate school or professional school will be considered a qualified distribution and therefore tax-free.
There are six steps that can improve your odds of being approved for a refinance of your private student loans, sometimes called a private consolidation loan. These include maintaining stable employment, ensuring sufficient income to repay the debt, keeping a low debt-to-income ratio, having a very good or excellent credit score, getting a creditworthy cosigner and shopping around for the best interest rates and fees.
You cannot use a 529 plan to pay for travel and transportation costs. The earnings portion of a distribution from a 529 that is used to pay for travel and transportation expenses will be considered a non-qualified distribution. Non-qualified distributions are taxable at the beneficiary’s rate, plus a 10% tax penalty, as well as recapture of state income tax benefits attributable to the distribution.
In a sign of renewed cooperation between Republicans and Democrats in the Senate Health, Education, Labor and Pensions Committee, a bipartisan group of Senators introduced legislation to enable sharing of IRS data with the U.S. Department of Education. The sharing of IRS data will help students who are applying for federal student financial aid.
Mississippi State Treasurer Lynn Fitch wrote a letter to the IRS on November 5, 2018, asking the IRS to include preschool tuition as a qualified expense for 529 plans. The Tax Cuts and Jobs Act of 2017 expanded qualified expenses to include up to $10,000 per year per beneficiary in tuition for elementary and secondary schools. The IRS has proposed regulations that would limit the definition of elementary and secondary school to K-12, excluding Pre-K.
Each quarter Savingforcollege.com analyzes the investment performance figures for thousands of 529 portfolios and ranks the 529 savings plans from best to worst for 1-, 3-, 5-, and 10-year investment performance. Our 529 plan performance rankings include plans that consumers can enroll in directly, as well as those sold through brokers and fee-based financial planners.
National STEM Day, which occurs annually on November 8 (NOV8 = en-o-v-ate = innovate), presents an opportunity to explore scholarship opportunities in math, science, engineering and technology. Some of the most generous scholarships are available to students who are interested in math and science.
If a 529 plan distribution is used to pay for room and board, it is a tax-free qualified distribution in certain circumstances and a taxable non-qualified distribution in other circumstances. The student must be enrolled as a regular student on at least a half-time basis.
Morningstar Inc. has released a research paper about family use of 529 plans, New Lessons about 529s. The paper shows that getting middle-income families to shift college savings to 529 plans will yield increased investment returns. The paper also provides practical ideas for getting more families to invest in 529 plans.
A 529 plan is a tax-free way of saving for college costs. Money in 529 college savings plans also has a minimal impact on the student’s eligibility for need-based financial aid for college. Since 2018, 529 plans can also be used to save for elementary and secondary school tuition.
All children born or adopted in Massachusetts in 2020 and beyond will be eligible for the SeedMA Baby program. This program deposits $50 to the Massachusetts 529 plans of newborn and recently adopted children in the state. A Massachusetts 529 plan must be opened by the baby’s first birthday or within one year of the child’s adoption.
Saving and paying for college involves some scary statistics. A 4-year college education could cost as much as $500,000 when today’s newborn children are ready to enroll. But, even if you think you’ve got the costs covered, you may make a mistake that ruins your child’s future.
The Free Application for Federal Student Aid (FAFSA) shelters a portion of parent assets using an asset protection allowance (APA). The asset protection allowance has dropped significantly since peaking in 2009-2010 and continues to decline. If current trends continue, the asset protection allowance will evaporate entirely in the next five years.
Every investor wants to find a magical method for speeding up savings and increasing the return on investment. With college tuition inflation rates averaging about 6% to 7% over the last few decades, there is even more pressure on parents who invest in 529 college savings plans. Here are our favorite secret solutions for accelerating the growth of 529 plans.
Consumers can obtain free credit freezes for themselves and their underage children starting on Friday, September 21, 2018, due to the passage of a federal consumer protection law earlier in 2018. Getting a credit freeze can help protect you from identity theft. Parents and graduate students should be aware of the possible impact of credit freezes on applications for the Federal PLUS loan.
There are several steps that students and parents can take in advance to prepare for filing the Free Application for Federal Student Aid (FAFSA). The FAFSA is a free form that is used to apply for financial aid from the federal government, state governments and most colleges and universities.
The online Free Application for Federal Student Aid (FAFSA) provides space for applicants to list up to ten colleges. So, how do you use the FAFSA to apply for financial aid at more than ten colleges? This is one of the most common questions about the FAFSA.
The House Ways and Means Committee released legislative language for Tax Reform 2.0 on September 10, 2018. Among other provisions affecting 529 college savings plans, the legislation proposes to allow families to use 529 plans to repay student loans.
The Gerber Life College Plan by Gerber Life Insurance promises guaranteed growth and the flexibility to use the money to pay for college or other expenses. But, the investment earnings are taxable and do not keep pace with college tuition inflation. The Gerber Life College Plan also offers inferior performance as compared with the return on investment available on FDIC-insured Certificates of Deposit and 529 college savings plans.
The age of majority is the age at which a minor child legally becomes an adult. The age of majority may differ from the age of trust termination, when a child gains control over a custodial 529 plan account and UTMA accounts. The age of majority and the age of trust termination vary by state.
Several credit cards offer cash back to help families save for college. These credit cards automatically contribute the cash rewards to linked 529 college savings plans. Each 529 credit card has a different percentage cash back and a different set of linked 529 plans.
Income share agreements are an alternative to student loans in which the borrower agrees to pay a percentage of their income for a specified number of years after graduation. Income share agreements are also known as ISAs. The total payments under an income share agreement may be higher than the total payments under federal and private student loans.
The IRS issued a proposed rule on August, 23, 2018 that may unintentionally eliminate much of the funding for school voucher programs. The new rule is intended to block attempts to circumvent a cap on federal income tax deductions for state and local taxes.
There are several reasons why a family might want to review their life insurance coverage when starting a 529 college savings plan, such as providing peace of mind and protecting family finances from unforeseen events. Your term life insurance policy should have sufficient coverage to fund the amount of future college expenses you plan to pay for.
There are several reasons why a family might want to get life insurance coverage when starting a 529 college savings plan, such as providing peace of mind and protecting family finances from unforeseen events. A term life insurance policy is sometimes necessary to protect a 529 college savings plan account.
Some students graduate with leftover money in their 529 college savings plan and would like to use this money to pay off all or part of their student loan debt. Unfortunately, student loans are not considered to be a qualified higher education expense for 529 plans under current law.
Refinancing private student loans can be challenging, with few borrowers qualifying for a private consolidation loan. Approval depends on credit scores, income, debt-to-income ratios and other factors. Nevertheless, there are a few steps borrowers can take to increase their odds of being approved to refinance their private student loans.
Selective colleges charge college admission application fees of $40 to $90 each. With the addition of admissions testing fees, the total can be as much as $107 per college. That can easily add up to thousands of dollars if the student applies to an excessive number of colleges. So, it is not surprising that parents might want to use 529 plan funds to pay for college application fees and admissions testing fees.
A 529 college savings plan is a specialized savings account that is used to save money for college. The money in a 529 plan may be used to pay for the college expenses and K-12 tuition of the beneficiary, tax-free. Many families find that 529 plans work well, helping them achieve their college savings goals.
A Roth IRA can be used to pay for college, but there are some advantages and disadvantages when compared with using a 529 college savings plan to pay for college. Although a Roth IRA may offer some tax advantages, distributions from a Roth IRA can hurt eligibility for need-based financial aid.
Distributions from 529 college savings plans can be used tax-free to study abroad, subject to certain restrictions. In particular, the distribution must be used to pay for qualified higher education expenses at an eligible educational institution. Eligible educational institutions include colleges and universities that are eligible for Title IV federal student aid.
There are several important differences between federal student loans and private student loans, besides just the source of funds. These differences include cost, eligibility criteria, repayment options and safety nets. Generally, federal student loans are cheaper, more available and have better repayment options than private student loans.
Consider the tradeoffs between home equity loans, home equity lines of credit and cash-out refinance, which may provide cost savings as compared with student and parent loans, and the greater risks if the borrower encounters financial difficulty.
A student’s grade point average (GPA) can have an impact on money for college. Grandparents might reward good grades with contributions to the grandchild’s 529 college savings plan. Eligibility for private scholarships might be based on the student’s GPA. Great grades and test scores can affect a student’s admissions chances at the most selective colleges and universities.
Some advisor-sold 529 college savings plans have up-front sales charges. For example, Class A shares may involve a sales charge of as much as 5.75%, but also involve lower annual expenses. A breakpoint reduces the sales charge on new investments when the total investments exceed a specified threshold.
Lenders that refinance private student loans often advertise that borrowers save tens of thousands of dollars by refinancing their student loans. The savings figures are based on the average estimated reduction in total payments over the life of the loan. Are these savings real, or is this just a marketing gimmick?
The snowball and avalanche methods pay down debt quicker by making extra payments. The snowball method applies extra payments to the loan with the lowest loan balance. The avalanche method applies extra payments to the loan with the highest interest rate. The avalanche method is more effective for student loans.
The IRS Data Retrieval Tool (IRS DRT) allows applicants to transfer income and tax information from their federal income tax returns into the Free Application for Federal Student Aid (FAFSA), simplifying the FAFSA. Both students and parents may be able to use the IRS Data Retrieval Tool.
Increases in average student loan debt at graduation have slowed, based on an analysis of recently released federal government data. But, don’t start celebrating just yet. Borrowing has shifted from students to parents, especially at higher-cost colleges, because more students are reaching federal student loan limits.
Applicants who file the Free Application for Federal Student Aid (FAFSA) and who indicate that they or their parents will not file a federal income tax return may be required to obtain a Verification of Nonfiling Letter if their FAFSA is selected for verification.
Now that you’ve graduated from college, it’s time to get started on the rest of your financial life. Tips on repaying student loans, building an emergency fund and saving for retirement will help you manage your money. But have you considered starting to save for your children’s college education?
Student loan debt may be cancelled through one of several loan forgiveness, loan discharge and loan repayment assistance programs. While it’s better to use college savings than student loans to pay for college, getting someone else to repay your student loans is almost as good an option.
Scholarships provide free money for college. To win a scholarship, you must demonstrate some skills, such as chasing round objects on a field, creating a prom costume out of duct tape or getting great grades. But, before you can win a scholarship, you must find some scholarships. There are several free online scholarship matching services that can provide a targeted search for scholarships.
Some scholarships are so generous that they cover a big part of college costs. Every qualified student should consider applying to these scholarships. If they win one of these scholarships, they can afford to attend even the most expensive colleges and still graduate with little or no student debt. These scholarships eliminate cost as a barrier to college access.
The Federal PLUS Loan is an unsubsidized federal education loan for graduate students and for parents of dependent undergraduate students. The Federal PLUS Loan, also known as a Federal Direct PLUS Loan, is available after the student exhausts eligibility for Federal Stafford Loans.
Grants and scholarships are both types of gift aid. Gift aid is money that does not need to be earned or repaid, unlike student employment and student loans. Although the words grant and scholarship are often treated as synonyms, there are important differences. Grants tend to be based on financial need, while scholarships tend to be based on merit.
The U.S. Department of Education has announced how borrowers who were in the wrong repayment plan may qualify for Public Service Loan Forgiveness (PSLF). The second chance opportunity for loan forgiveness, called Temporary Expanded PSLF (TEPSLF), is available on a first-come, first-served basis.
According to a report published by the American Association of University Women (AAUW), Deeper in Debt, women owe about $1 trillion in student loans, nearly two-thirds of the total outstanding student loan debt. Gender differences in college savings may contribute to the disproportionate student debt burden.
Private scholarship providers may award scholarships as contributions to the recipient’s 529 college savings plan, instead of writing a check to the college or recipient. This practice will minimize scholarship displacement, expand the tax-free treatment of scholarships to include room and board, and allow scholarship money to grow tax-free.
If your state offers a state income tax benefit for contributions to a 529 plan, you can get a discount on tuition costs by making a contribution and taking a distribution the next day. This loophole can save you 3% to 10% of college costs, depending on the state.
Opening a 529 college savings plan normally requires the Social Security Number of Taxpayer Identification Number of the beneficiary, which prevents parents from saving for college before the baby is born. However, a parent can set up the 529 plan and change the beneficiary after the baby is born.
When using money from a 529 college savings plan to pay for your child's college education, should you spread the money out equally across all four years, or spend as much of it as possible during the first few years? Each strategy has a different impact on eligibility for need-based financial aid and education tax credits.
If a 529 college savings plan is owned by a dependent student or the dependent student's parent, it has a minimal impact on the student's eligibility for need-based financial aid. But, if the 529 plan is owned by anybody else, such as a grandparent, aunt or uncle, it will hurt aid eligibility. There are, however, a few solutions that will address the potential harm.
Learn how to increase the limits on qualified distributions from a 529 college savings plan. Appeal to the college financial aid office to increase various allowances in the cost of attendance to match actual costs, such as allowances for textbooks, transportation, dependent care, off-campus rent and the cost of a computer.
5-year gift tax averaging lets you contribute five times as much money to a 529 college savings plan in a single year. There are, however, a few tricks that let you give even more money without incurring gift taxes, such as 6-year gift tax averaging, giving to the parents, giving the gap and giving to a different beneficiary's 529 plan.
Even an amicable divorce can cause problems with a child’s college savings plans. Divorce attorneys are not financial aid experts. They may not be aware of all of the potential consequences of divorce on a child’s eligibility for financial aid or the nuances of need-analysis formulas.