CPA Client Bulletin Select August 2017

CPA Client Bulletin Select August 2017

What’s Inside

College Costs Really Are Increasing Again
Start FAFSA Planning Earlier
Asset Allocation in 529 Plans
Outlining the Trump Tax Plan
How Small Business Retirement Plans Compare
Tax Calendar

Factoid: Vacation Destinations 

Among recent vacation home buyers, 36% purchased in a beach location, 21% bought lakefront property, and 20% bought elsewhere in the country.

Did You Know ?

In the 2016–17 academic year, the average undergraduate cost for tuition and fees was $9,650 at public, four-year colleges for in-state residents. On average, out-of-state students paid $24,930. Therefore, the amount paid by out-of-staters at public colleges is closer to the cost for private institutions ($33,480 on average) than to the amounts paid by state residents at their schools.

Source: The College Board

Article: College Costs Really Are Increasing Again 

The College Board reports that the average published charges for tuition, fees, room, and board at private, nonprofit, four-year schools were over $45,000 in the 2016–17 academic year. At public universities, the average charge was around $20,000 for state residents. Both numbers are the highest on record.

Such expenses for higher education are daunting, but the reality may be less onerous. Many collegians receive some form of financial aid that brings down the actual cost. The College Board also reports “net” prices, estimating the true cost of a year in college after recognizing financial aid and the savings from certain education-related tax benefits.

For the 2006–07 academic year to 2010–11, net prices declined in constant 2016 dollars. Even as published prices continued to rise, the average net price at private colleges fell from $24,580 to $23,620.

Since then, however, net prices have begun to move up. In 2016–17, the average figure at four-year private colleges reached $26,080. In-state students at public universities saw average net prices hold steady in the $11,000–$12,000 range from 2006–07 to 2010–11, but shoot up to $14,210 in 2016–17. In recent years, increases in grants have not kept up with rising published prices, creating more expensive net prices for higher education.

For parents of collegians and younger students, the message is that they may have to put more effort into competing for college grants. Some strategies for dealing with the Free Application for Federal Student Aid (FAFSA) can be found on page 2 of this issue of the CPA Client Bulletin. Savvy investing of college funds can also help; on page 3, you’ll find suggestions on how to manage 529 college savings accounts.

Article: Start FAFSA Planning Earlier 

The “new” FAFSA schedule (introduced in 2016) makes summer the time for FAFSA prep. On October 1, 2017, financial aid applications for the 2018-19 school year can be filed. In prior years, students had to wait until January 1 to request financial aid for the coming academic year.

Why is this important? Some observers believe that financial aid may be granted on a first come, first served basis, so the early filer may have more of a chance to receive aid. Also, filing a FAFSA early may increase the chance for merit (not need-based) aid because some colleges require the FAFSA for such grants.

In addition, FAFSA will now have real family income numbers from federal income tax returns, rather than estimates.

Example 1: Mark Thompson will start college in the fall of 2020. In October 2019, Mark can file the FAFSA. He’ll use his family’s income from 2018 based on the tax return filed in 2019. (Even if Mark’s family gets a filing extension from April 15, 2019, the return must still be filed by October 15 of that year, so the 2018 income numbers will be available for a FAFSA filing in October 2019.)

Under the previous FAFSA schedule, Mark would have filed the FAFSA in early 2020, using estimated income numbers for 2019. Then, he would have amended the FAFSA, if necessary, to conform with the actual 2019 numbers. That won’t be necessary now that the Thompsons’ 2018 income will help determine Mark’s need-based aid in the 2020-21 school year.

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