Education

The Benefits of a College Education

The best reason to go to college is to learn more about the world you live in. You may have put off going to college because you were not ready or couldn't afford it. Now, as you think about college again, a college education offers other benefits.

Getting a college degree is a career necessity in today's business world. College graduates earn nearly twice as much during their working years as high school graduates. Information from the U.S. Census Bureau 2008 report reinforces the value of a college education: workers 25 and over with a bachelor's degree earn an average of $60,954 a year, while those with a high school diploma earn $33,618. Workers with a master's degree make an average of $71,236, and those with a doctoral degree earn an average of $99,995, and a professional degree earns an average of $125,622. Looking at it from a different view, over an adult's working life (45 years), high school graduates can expect, on average, to earn $1.5 million; those with a bachelor's degree, $2.7 million; and people with a master's degree, $3.2 million. Persons with doctoral degrees earn an average of $4.5 million during their working life, while those with professional degrees do best at $5.6 million. College graduation will qualify you for many jobs that would not be available to you any other way. Your career advancement should be easier because some job promotions require a college degree.

Skill Development
A college education will help you develop your skills in reasoning, tolerance, reflection and communication. These skills will help you resolve the conflicts and solve crisis that come up in the course of a personal or professional life. A college education will also help you understand other people's viewpoints and learn how to disagree sensibly.

A satisfied life depends upon the rational resolution of conflicts and crises. Of course, these critical skills can be developed without going to college, but the college environment has proven to be a good place to practice, learn and polish skills that will last you a lifetime.

College and Networking
Many college graduates feel that the greatest benefit of their college years is the expansion of their social horizons. Meeting new people, making new friends, companionship and sharing new experiences lead to personal growth. The skill of meeting and sharing information with people is known as networking. College graduates say that contacts they made in college often helped them find the job they wanted. Others report that friends in college were tied to their own career climb. College graduates describe the value of these networks as having expanded their horizons from the tribal village to the global village.

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Skill Development

A college education will help you develop your skills in reasoning, tolerance, reflection and communication. These skills are of great benefit in resolving the conflicts and crisis that arise in the course of a personal or professional life. A happy life may depend upon the rational resolution of such conflicts and crises. Of course, these critical skills can be developed without going to college, but the college environment has proven to be a good incubator for developing these unique human skills.

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Value of Networking

Survey results indicate that many college graduates feel that the greatest benefit of their college years was the expansion of their social horizons—the personal growth that results from meeting new people, making new friends, companionship and sharing new experiences, frequently referred to as networking. Many report that they were aided in finding the job they wanted or in the advancement of their career by help they got from friends made during their college years. College graduates describe the value of these networks as having expanded their horizons from the tribal village to the global village.

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Costs of a College Education

In the last century, most colleges in the United States were small, private, church-related institutions that prepared a small percentage of the college-age population for the ministry, law or medicine. Now, America is filled with large, predominantly public universities and colleges that provide courses of study for every career choice to students of a variety of backgrounds. The only barrier to going to college may be cost, but there are ways to remove even that barrier.

College Enrollment Trends
America's technological advancements demand more and more college-educated people for a fast-paced workforce. The percentage of the U.S. population (2009 data) over the age of 25 who had completed a bachelor's degree is 19%. Over the past decade, the number of adults with a bachelors's degree has increased by two percent points.

Trends in Cost of Tuition
College tuition and room and board is not cheap, and the costs have been rising steadily for the past 20 years—with some schools costing twice as much.

When asked about importance, more than 80 percent of Americans said that having a college degree is important to getting ahead; in fact, a college education has become as important as a high school diploma used to be!

Actual Costs of College: Academic Year 2008-2009
College costs vary widely depending on individual schools. Private colleges or universities are more expensive than public colleges or universities because they receive less support from state governments.

The two- or four-year college or university in your home state will probably be the least expensive school to attend.

The table below gives detailed information on average costs for the 2008-2009 academic year compared with the 2009-2010 academic year (in-state charges).

COMPARING COLLEGE COSTS
Four-Year Public Academic Year
2008-2009
Academic Year
2009-2010
    Tuition and Fees     $6,585     $7,202
    Room and Board     $7,707     $8,193
Four-Year Private Academic Year
2008-2009
Academic Year
2009-2010
    Tuition and Fees     $25,243     $26,273
    Room and Board     $8,996     $9,363
Two-Year Public Academic Year
2008-2009
Academic Year
2009-2010
    Tuition and Fees     $2,402     $2,544

The average surcharge for out-of-state or out-of-district students at public institutions is $11,528 at four-year colleges. You can get current cost data for all colleges and universities from collegeboard.com.

Even if you choose a lower-cost school, you can save even more if you chose cost-saving plans that lower the costs of your room, meals and books.

Books and Supplies
The national average at four-year public colleges in 2009-2010 is $1,122.

Personal Expenses
The costs for things like laundry and telephone fall under personal expenses.  The national average for four-year public colleges (on-campus students) in 2009-2010 is $1,974.

Future Cost of Tuition and Fees
College tuition and fees are not likely to drop any time soon. The best that can be hoped for is that as our economy improves, state funding of colleges and universities will increase, allowing tuition charges to stabilize.

Don't let costs stop you from getting an education that translated into a lifetime opportunity. Instead, take a look at the different ways you can finance your college education.

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Paying for College

Developing Your College Financial Plan
Most people don't pay for college in cash. Financial aid is available and most American community colleges provide an associate degree program that is the equivalent of the first two years of a bachelor's degree. That means you can transfer to four-year college or university after you graduate from a two-year community college. That alone will save you the higher tuition and room and board of a four-year school.

The final two years can be financed with a plan that includes Federal Student Aid, Federal and State Education Incentive programs, Federal student loan programs, college savings programs, and earnings. Tell your parents, grandparents and other family members or family friends of your financial plan; your support system is much more likely to donate supporting dollars when they see that your ambition to get a college education has determination and a plan behind it.

Step 1: Select Your College Choices
The first step in your plan is to decide where to go for your education. Your first choice should be based on where you think you will get the best preparation for your chosen career.

Put that private college first on your list, if that is where you really want to be. Next should be top-rated public colleges for your chosen field. About two-thirds of all full-time undergraduate students receive grant aid. In 2009-10, estimated aid in the form of grants and tax benefits averaged about $3,000 per student at public two-year colleges, about $5,400 at public four-year colleges, and about $14,400 per student at private four-year colleges, according to The College Board. Finally, consider back-up colleges such as larger public universities or nearby community colleges. The benefits of a community college is that you can live at home, keep costs low, attend smaller class sizes and transfer to a senior college or university to complete your degree program.

Step 2: Get Cost Information for the Colleges You Have Chosen
Get realistic costs from each college you want to consider. That means including housing, lab and books costs. If you are planning on going in two years, check out how much costs have risen over the past two years. That keeps your costs realistic.

Step 3: File Your Free Application for Federal Student Aid (FAFSA)
After you have a list of colleges and costs, you are ready to file the Federal Student Aid application. It's an important part of your future, because it will give you the amount of financial help you can apply for.

The FAFSA Formula
When you file your FAFSA, you will be asked to report income, savings, family size, family assets, and number and identity of family members attending college, among other details. The information you provide on your application is plugged into a formula maintained by the U.S. Congress that gives you the dollar amount you and your family are expected to pay. You'll also know the dollar amount of eligibility you have for student aid during the year you apply.

This figure is called the expected family contribution (EFC). Your financial need or eligibility for student aid is the difference between the cost of attending the college of your choice, as calculated by the college, and your calculated EFC.
Here's the formula:
Cost of college - expected family contribution = financial need

The best and the most efficient way to file your FAFSA application is to use the FAFSA Web site, http://www.fafsa.ed.gov. This Web site includes everything you need to know about the application. There is a four-page pre-application worksheet that you can use before you attempt to file your FAFSA. The worksheet exercise lists all of the financial information that you must know before you can begin your FAFSA application. It will define who is considered a parent, what assets should or should not be included, what income should be included, and details regarding income taxes. After reviewing the worksheet, you are ready to file the real application. It's easy and convenient to file it on the Web.

The Benefits of Filing on the Web

You'll need to file a FASFA for each year you attend college. If anything happens after you file that affects your expected family contribution, such as loss of employment, divorce or disability, you can update the information.

Your FAFSA becomes your Student Aid Report (SAR), a copy of which is sent to the colleges you are considering attending. When the college student aid office receives your SAR, they put together a student aid package that will meet your financial need. Your FAFSA is also an important part of the document chain for student loans.

Step 4: Determine the Financial Shortfall for Meeting College Costs
Your SAR tells you how much money you are expected to make each year and how much in student aid you can expect. After all the financial support and student aid opportunities are considered, you are likely to discover that you still have to provide some additional money to pay for college. There are a number of ways to cover the costs, including working, but student loans are the first choice of many college students.

Step 5: Consider Student Education Loans
How much you rely on loans to cover your college expenses is your decision. Weigh the amount of the loan against your post-graduate earnings to see when and how fast you can pay back the loan. Over the past two decades, there has been a 70-percent increase in federal student loan debt for the average graduate of a public college.

Step 6: Identify Other Resources, If Necessary
You could also consider private loans, perhaps from family members. You may be able to cover college costs by cutting your room or board expenses. Consider part-time employment, but be careful about too much work the first year. It's often the hardest academically, so don't expect to be able to work a tough schedule while you go to school full time. Getting grades that lead to graduation is your main concern.

Step 7: Matching Your Choice of School to Your Financial Plan
Now that you have a good idea of how much money will come from you, your family, loans and financial aid, take another look at your school choices. If your first choice is too expensive, look to your other choices to see if you get more financial aid.

What if You Still Can't Afford College?
If you still can't enroll in a four-year plan, consider a two-plus-two program. These programs allow you to get the first two years of a four-year degree program at a community college that has a joint-transfer agreement with a four-year bachelor's degree college.

Visit the college where you plan to transfer for your junior and senior years. Make sure you know the courses you must take at the community college to make the transfer work. Save all you can in the first two years at the lower-cost community college. If you can live at home while attending the community college, you should be able to save even more. It may not be your first choice, but it works. Your goal is to graduate from college, even if you have to live at home for two years.

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Education Planning

Planning and Paying for Higher Education

The more time you have before you begin paying for higher education, the more opportunities you have to accumulate and save money to reach your goal.

If you can accumulate funds for higher education on tax-free or tax-deferred basis, you may benefit by delaying or never paying taxes on your earnings and gains on investments. There are also ways to "lock in" the cost of higher education, protecting your family from future tuition increases.

Education IRAs or Coverdell Education Plans
Coverdell education savings accounts (ESAs) used to be known as education individual retirement accounts (IRAs). The name was changed because these accounts have nothing to do with retirement. However, the ESAs have many of the same features of IRAs in terms of how much you can save, tax benefits and penalties.

Any individual (with modified adjusted gross income of less than $110,000) can contribute up to $2,000 a year to an ESA that will benefit any person under age 18. In fact, a child may contribute $2,000 to his or her own ESA. Since there is no limit on the number of ESAs that can be established for a minor, the money can really add up if you get family members to contribute. ESA withdrawals that are used to pay for qualified education expenses are tax free. Qualified education expenses include tuition, room, board, fees and supplies related to attendance at a qualified elementary, secondary or post-secondary (college) institution. The money must be used by the time the beneficiary reaches age 30. However, the account can be transferred to a relative under that age.

There are some negatives to consider. No tax deduction is allowed for contributions to an ESA. Earnings withdrawn from an ESA and not used for qualified education expenses are subject to tax and a 10-percent penalty. Finally, the money in an ESA is considered part of the assets of the beneficiary. This will generally reduce the amount of need-based financial aid that will be available to the student.

You can open a Coverdell ESA at most banks, credit unions and other financial institutions.

Qualified Tuition Plans (529 Plans)
Qualified Tuition Plans, also called "529" college savings plans, are established by individual states, but most are available through financial services companies. You do not have to open the account in your state of residence or the state in which the beneficiary will attend school, so it's best to shop around for the best plan. Many financial services companies offer plans from a number of states.

Main advantages of 529 college savings plans Main disadvantages of 529 college savings plans
  • no adjusted gross income limits—anyone, even the beneficiary, can contribute to these plans
  • education expense restrictions—to get the tax benefit, the funds can be used only for higher-education (college-level and above) expenses
  • very high contribution limits—depending on the state, amounts as much as $100,000 to $300,000 can be contributed
  • penalties—if you use the funds for purposes other than higher education, you will pay taxes on the earnings and pay a 10-percent penalty
  • tax-free earnings—gains and income on the funds are tax free if used for qualified higher education expenses
  • state taxes—you may not get a deduction if you are not a resident of the state that established the plan
  • professional management—the money is managed in mutual fund-type investments that participants choose
  • costs—the fees for setting up and maintaining the plans can add up; be sure to shop around before investing
  • flexibility—the funds can be used to pay tuition at colleges in other states some states allow state tax deductions for contributions
  • financial aid—large amounts of funds in a 529 college savings plan may disqualify a student from need-based financial aid (but it may not be available, otherwise)
  • some states allow state tax deductions for contributions

 

Savings Bonds
Savings bonds are an excellent way to accumulate funds for education expenses because the interest earned over the life of the bonds can be tax-free if you plan properly. For those in the 15 percent federal tax bracket, this means that 100 percent (instead of just 85 percent) of the interest earned on the eligible bonds will be available to pay tuition and fees for you and your family.

Interest earned on Series I and Series EE Bonds issued after 1989 and used to pay for education may be partially or fully excluded from Federal income tax, provided that certain conditions are met. You do not have to designate the bonds for education when you purchase them. This gives you the flexibility to use the bonds for retirement or other purposes if it turns out that they are not needed for education. It also allows you to use bonds that you already own—for education expenses that you would have paid from other funds—to take advantage of the tax benefit.

Qualifying for the full interest exclusion
For the 2009 tax year, if your modified adjusted gross income is less than $104,900 on a joint return (or $69,950 for single taxpayers), you may qualify for the full interest exclusion. The exclusion is then phased out gradually until it is eliminated at income levels above $134,900 (joint) and $84,950 (single).

You must use all of the proceeds from cashing the bonds to pay qualified education expenses in order to receive the full benefit. If your qualified education expenses are less than the proceeds of eligible bonds, then the interest exclusion is pro-rated.

Summary of the fine print for using Savings Bonds for Education

If it appears that you can take advantage of this tax benefit, see the instructions for IRS form 8815 at http://www.irs.gov/pub/irs-pdf/f8815.pdf for complete details.

To be eligible for the education interest exclusion:

  • Series I and Series EE Bonds must have been purchased in 1990 or later.

  • You must have been at least 24 years old in the month in which the bonds were purchased.

  • If you use the bonds for your dependent child's education, the bonds must be registered in your name or your spouse's name. (The bonds may not list your child as owner or co-owner. However, the child may be named as a beneficiary of the bond).

  • If you use the bonds for your own education, they must be registered in your name.

  • If you are married, you must file a joint return; you can't file as Married Filing Separately.

  • Payments for education expenses must be made to a college, university, or post-secondary vocational school that qualifies for federal assistance.

  • Education expenses include tuition and fees only, not books or room and board. Scholarships or any form of tuition assistance must be deducted from your expenses.

  • Tuition for sports and hobby-related courses can be included only if they are required for a degree or certificate.

  • Education expenses must be paid in the same year that the bonds are cashed.

As the time approaches for payment of tuition bills, you should consider what financial aid may be available, which funds to use first, and whether you will need to borrow money.

Paying for Higher Education
When you or a family member is ready to start in college or another institution of higher learning (or if someone has already started), your first step is to investigate the financial aid for which you may be eligible.

A reliable and objective source of information about all types of financial aid for education is The College Board. Their "Pay for College" section has comprehensive information on scholarships, financial aid and loans, as well as calculators and tools for decision-making. The site even has links to apply for financial aid and loans.

The Free Application for Federal Student Aid (FAFSA) is a standard financial form used to apply for federal and state student grants, work-study and loans. After your FAFSA is processed, you will receive a Student Aid Report (SAR). The most important number on the SAR is the Expected Family Contribution (EFC).

Your EFC is the amount of money that you are expected to provide for the next year of education. The EFC is often more than most families expect. Although you may receive more aid than anticipated from some sources and you may be able to appeal the EFC, it is best to start thinking about which financial resources you will tap.

It is usually preferable to first use any funds earmarked for education, such as Education IRAs and 529 Plans. Since funds in these accounts must be spent on education (in order to avoid taxes and penalties) they are your initial source to pay upcoming tuition bills. The only exception would be for situations in which you decide to re-designate some of these accounts for family members that will enter college later.

Next, you should look to funds that may be withdrawn without tax consequences. These would be

After all the above sources are used, you still have options.

A good source of information about various plans is http://www.collegeboard.com/article/0,1120,6-29-53-8851,00.html?orig=sub.

One of the best Web sites for comparing 529 plans is http://www.savingforcollege.com.

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