What’s New in the World of Higher Education?
Provided By: Duane J. Silbernagel
If you’re a parent or grandparent of a college student or soon-to-be college student, you might be interested to learn what’s new in the world of higher education.
Higher college costs
Total average costs for the 2015/2016 school year increased about 3% from the previous year: $24,061 for public colleges (in-state), $38,855 for public colleges (out-of-state), and $47,831 for private colleges.
Total average costs include direct billed costs for tuition, fees, room, and board; and indirect costs for books, transportation, and personal expenses. Together, these items are officially referred to as the “total cost of attendance.” Note that the cost figure for private colleges cited by the College Board is an average; many private colleges cost substantially more—over $60,000 per year.
Higher student debt
Seven in 10 college seniors who graduated in 2014 (the most recent year for which figures are available) had student loan debt, and the average amount was $28,950 per borrower. It’s likely this amount will be higher for the classes of 2015 and 2016.
Student loan debt is the only type of consumer debt that has grown since the peak of consumer debt in 2008: balances have eclipsed both auto loans and credit cards, making student loan debt the largest category of consumer debt after mortgages. As of September 2015, total outstanding student loan debt was over $1.2 trillion.
Reduced asset protection allowance
Behind the scenes, a stealth change in the federal government’s formula for determining financial aid eligibility has been quietly (and negatively) impacting families everywhere. You may not have heard of the asset protection allowance before. But this figure, which allows parents to shield a certain amount of their nonretirement assets from the federal aid formula, has been steadily declining for years, resulting in higher expected family contributions for families. For the 2012/2013 year, the asset protection allowance for a 47-year-old married parent was $43,400. Today, for the 2016/2017 year, that
$1,415 decrease in a student’s aid eligibility ($25,100 x 5.64%, the federal contribution percentage required from parent assets).
New FAFSA timeline
Beginning with the 2017/2018 school year, families will be able to file the government’s financial aid application, the FAFSA, as early as October 1, 2016, rather than having to wait until after January 1,
change is to better align the financial aid and college admission timelines and to provide families with information about aid eligibility earlier in the process.
One result of the earlier timeline is that your 2015 federal income tax return will do double duty as a reference point for your child’s federal aid eligibility–it will be the basis for the FAFSA for both the 2016/2017 and 2017/2018 years.
American Opportunity Tax Credit now permanent
The American Opportunity Tax Credit was made permanent by the Protecting Americans from Tax Hikes Act of 2015. It is a partially refundable tax credit (meaning you may be able to get some of the credit even if you don’t owe any tax) worth up to $2,500 per year for qualified tuition and related expenses paid during your child’s first four years of college. To qualify for the full credit, single filers must have a modified adjusted gross income (MAGI) of $80,000 or less, and joint filers must have a MAGI of $160,000 or less. A partial credit is available for single filers with a MAGI over $80,000 but less than $90,000, and for joint filers with a MAGI over $160,000 but less than $180,000.
New REPAYE plan for federal loans
The pool of borrowers eligible for the government’s Pay As You Earn (PAYE) plan for student loans has been expanded as of December 2015. The new plan, called REPAYE (Revised Pay As You Earn), is available to all
borrowers with federal Direct Loans, regardless of when the loans were obtained (the original PAYE plan is available only to borrowers who took out loans after 2007).
Under REPAYE, monthly student loan payments are capped at 10% of a borrower’s discretionary income, with any remaining debt forgiven after 20 years of on-time payments for undergraduate loans and 25 years of on-time payments for graduate loans. To learn more about REPAYE or income-driven repayment options in general, visit the federal student aid website at studentaid.gov.
Note: Tools for students
The Department of Education and the Consumer Financial Protection Bureau have launched the “Know Before You Owe” campaign, which includes a standard financial aid award letter for colleges to use so that students can better understand the type and amount of aid they qualify for and more easily compare aid packages from different colleges. In addition, to help students search for and select suitable colleges, the Department has launched its College Scorecard online tool at collegescorecard.ed.gov.
1 College Board, Trends in College Pricing 2015
2 The Institute for College Access and Success, Student Debt and the Class of 2014, October 2015
3 Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, November 2015
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This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Waddell & Reed does not provide legal or tax advice. This information is prepared by an independent third party, Broadridge Investor Communication Solutions, Inc. and is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation. Please consult with a tax professional regarding your personal situation prior to making any financial related decisions. Also note that the information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Neither Waddell & Reed, Inc., nor its Financial Advisors give tax, legal, or accounting advice. Nothing contained herein is intended as a solicitation or an offer to buy or sell any product or service mentioned and they may not be suitable for all investors.
Duane Silbernagel is a Financial Advisor in Lincoln City, Oregon offering securities through Waddell & Reed, Inc., Member FINRA and SIPC. He can be reached at (541) 614-1322 or via email at DSilbernagel@wradvisors.com.
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