The Impact of Divorce on College Planning

The Impact of Divorce on College PlanningThe Impact of Divorce on College Planning Taming the High Cost of College Taming the High Cost of College!!!!. Taming the High Cost of College

The Impact of Divorce on College Planning

The Impact of Divorce on College Planning

Taming the High Cost of College Taming the High Cost of College!!!!

Presented by:

Brad Baldridge, CFP®

Baldridge College Solutions, LLC

10521 W Layton Avenue Suite 200

Greenfield, WI 53228 414-529-9400 Ext 107 Brad@BaldridgeCollegeSolutions.com

www.BaldridgeCollegeSolutions.com

Taming the High Cost of

College!

Registered Representative, Securities offered through Cambridge Investment Research, Inc a Broker/Dealer,

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Registered Investment Advisor Baldridge Wealth Management and Baldridge College Solutions are affiliated

Cambridge and the Baldridge companies are not affiliated 09-12

Brad Baldridge

Baldridge College Solutions, LLC

10521 W Layton Avenue

Suite 200 Greenfield, WI 53228

(414) 529-9400

www.BaldridgeCollegeSolutions.com

The Ingalls Family

Charles, age 50, Mill Worker, Salary $45,000

Caroline, age 52, Office Manager, Salary $40,000

Mary (2014) age 17, Junior

#2 in her class

GPA: 4.4

ACT 32

Interested in Math or Engineering

SCHOOL LIST: MIT, Northwestern, Madison, MSOE, Bradley, Valparaiso

Laura (2015) age 16, Sophomore

Strong Student (not quite as strong as Mary), the writer in the family

GPA: 3.7

Laura wants to go to South Dakota State with her boyfriend Almanzo Wilder

Carrie (2018) age 13, 7 th grade

Straight A’s

Strong soccer player – top 5 of all 7 th graders in the state.

The Huxtable Family

Cliff, age 54, self employed doctor , Salary $75,000

Additional $100,000 as draws from the medical practice

Clair, age 52, office manager, at medical practice,

Salary $40,000

Theo (2012) age 19, College Freshman at Madison

Biology major….doing well.

Vanessa (2015) age 16, Sophomore

GPA: 3.87

ACT: 29

Class Rank: 19/225

Musician

SCHOOL LIST: Dreams of Juilliard, considering Lawrence University,

NYU, Boston College, Carroll, Carthage

Rudy (2019) age 12, Sixth grade

Good kid

Will go to college

The Connor Family

(divorced 10 years)

Sarah, age 47, works two jobs, Salary $35,000

Bill, age 49, Sales Rep in Texas, Salary $50,000

$25,000 behind in child support

John (2014), Age 17, Junior at Marquette High School

GPA: 3.9

ACT: 29

Class Rank: 15/225

SCHOOL LIST: Marquette University, Carroll

Grandpa has $40,000 in an UTMA at Vanguard Grandpa

is the custodian and John is the owner.

Late Stage College

Planning

College finances

– Financial aid planning

– Financial aid forms

– Offer letters

– The appeal process

– Saving and investing

– Tax planning

– Cash flow

College selection

– College visits

– College fairs

– Finding the “good fit” school

College testing

– ACT

– SAT

– PLAN/PSAT

Athletics

– Division I, II, III

– NAIA

– Marketing

Academics – High school curriculum – GPA

– Class rank Career/life planning – Choosing a major – Career planning – Learning life skills Admissions – Applications – Essays – Recommendation letters – Early decision/early action Scholarships

– Need-based scholarships – Merit-based scholarships – Institutional – Private

2011-12 College Costs

• Average cost of public school:

$21,447 per year*

• Average cost of private school:

$42,224 per year*

Includes: Tuition and fees, room &

board, transportation, books &

supplies and personal expenses (COA)

* Based on data from The College Board, Trends in Pricing, 2011

Cost of Wisconsin

Colleges

• Alverno College $33,216

• Lawrence University $50,370

• Marquette University $46,644

• University of WI-Madison $23,774

* Based on data from College Board, Fall 2012, living on campus

College Costs

• Does everybody pay the

same price for College?

• Who Pays Less?

Which Would You

Prefer

Attending the Best School

-or-Attending the Best School for your

Student

Finding a School that

is a Good Fit

• College Visits

• College Fairs

• College Reps at the High School

• Websites

• Social Media

Divorce Issues with

High School Students

• Who does all the leg work i.e., testing,

visits, research?

• Who participates in the decisions or has

veto power?

• Who will pay for all pre-college expenses?

This process can overwhelm a

single parent!

Selection Criteria

• Academics

• Majors

• Distance from Home

• Urban, Suburban or Rural

• Large or Small

• Finances

Advanced Strategies

• What can the student do to

increase the odds of receiving

admission or scholarships?

Common Financial Aid

Myths

• We earn too much

• Our child has poor grades

• We have too much equity in our

home

• There is nothing we can do We

will pay for college ourselves

• Financial aid is easy to

understand

Where is the money

going to come from?

• Current Income

• Savings / Investments

• Financial Aid

• Loans

• Scholarships

• Reductions in other expenses

• Taxes

• Interest Expenses

• Unnecessary Expenses

• Life Style / Retirement

Financial Aid

• Need based Aid

Income and Assets

Parents and Student

• Merit Aid

Academics

Talents

Geography

Others

Three Types of

Families

Type 1: Those families who will qualify for

large amounts need-based aid.

Type 2 : Those families who qualify for

some need-based aid Good planning may

increase the amount of aid received.

Type 3: Those families who will not

qualify These families need to focus their

planning on other areas (i.e Tax, Merit-aid,

Athletics, Cash Flow, Investment)

Need-based Aid

Cost of Attendance

- Expected Family Contribution

=Financial Need

COA - EFC = FN

Top 5 Need-based

Aid Factors

• Student Income

• Student Assets

• Parent Income

• Parent assets

• Number of Students in College

Who’s my Parent?

Free Application for Federal Student Aid

(FAFSA)

“If your parents are divorced or

separated, answer the questions

about the parent with whom you

lived more during the past 12

months.”

Download the fact sheet at www.studentaid.ed.gov/pubs 2012-13

Income

• Based on taxes from the prior

year (AGI)

• Un-taxed income is added to

AGI

• Student income is assessed

more heavily than parents

Divorce Issues

Income

• If recently divorced or separated,

tax return may be joint.

• Reconstruct as if you were single.

• Child support, family support, and

alimony are all forms of income that

may be assessed.

Assets

• Values reported are the values

on the day you sign the forms

• Not all assets are assessed

• Student assets are assessed

more than parent assets

Divorce Issues

Assets

• Prior to finalizing divorce,

probably divide things done the

middle, 50/50

• Post divorce – the assets belong

to whoever received them from

the divorce

Divorce Issues

Assets (continued)

• Who should own 529 accounts

• What’s the proper mix of

assessable versus non assessable

assets for each spouse

• Who should have control of the

college assets

2 Need-based Aid

Systems

• Federal Aid System

FAFSA- Free Application for

Federal Student Aid

• Institutional System

CSS Profile

Approximately 300 Colleges

CSS Profile Schools

(Non Custodial Parent

Form Required)

• Northwestern University, IL

• Principia College, IL

• University of Chicago, IL

• Saint Mary's College, IN

• University of Notre Dame, IN

• Wabash College, IN

• University of Michigan, MI

• Carleton College, MN

• Macalester College, MN

• St Olaf College, MN

• Lawrence University, WI

See CSS Profile handout for the entire list or visit

http://student.collegeboard.org/css-financial-aid-profile

Examples of Federal EFC

FAMILY #1 FAMILY #2 Parent Income $75,000 $150,000

Student Income $0 $0

Parent Assets $20,000 $20,000

Student Assets $1,000 $1,000

EFC (Est) $10,500 $31,500

*Hypothetical example for illustrative purposes only

The 6 Federal

Programs

• Pell Grant

• Supplemental Education Opportunity

Grant (SEOG)

• Work-Study

• Perkins Loan – 5% fixed

• Stafford Loan –Subsidized 3.4% fixed

Unsubsidized 6.8% fixed

• PLUS Loan – 7.9% fixed

Increase Your Need

• Are there things that you can

do that will increase your need?

YES !

How Does Your

Family Apply for Aid?

• The FAFSA

• The CSS Profile

• The College’s Own Institutional

Forms

• Additional Forms:

Business / Farm Supplement

Non-Custodial Parent Form

When Do You Apply for Aid?

• The first FAFSA application is generally due in

February of the senior year of high school

• Each college sets their own deadline.

• You will apply every year.

• You cannot file the FAFSA before January 1stof

each year.

• The CSS Profile form can be filed before the end

of the year.

When do you plan for

Need-based Aid?

• When would you like to know

how much aid you can expect?

• Before the Base Year

• NOW !!

Merit Aid

• From the Colleges

Mostly Private

Some Public Schools (out of state)

• Who gets Merit Aid

Students in the top ~25%

Students the College wants

• Athletes

• Musicians

• Diversity

Merit Aid

• Usually has an impact on

need-based Aid

• May need to be earned year

over year

Athletic Performance

Maintaining grades

Cash Flow

• College expenses can be more

than we can afford in any one

year

• We may need to spread 4 years

of college expenses over 6 or

more years to make them

manageable

• Multiple students make things

worse

Cash Flow

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Saving

Parents

• Retirement

• Taxable

• Other

Student

• UTMA

• Retirement

• Other

Gifting Assets

• Gift assets that have appreciated

to your children or grandchildren

Stocks

Real Estate

Mutual Funds

Parents’ Capital Gain $10,000

Capital Gains Rate x 15%

After:

Child’s Capital Gain $10,000

Child’s Effective Rate X 0%

Gifting Assets

Shifting Income

• Pay your student from your

business or rental property

• The student must do meaningful

work

Shifting Income

Income Shifted $5,000

Parents’ Tax Rate (Fed & State) x 31%

Tax Avoided $1,550

versus Shifted Income $5,000

Child’s Tax Rate X 0%

Child’s Tax Liability $ 0

equals Tax Savings $ 1,550

American Opportunity

Credit

• $2500 Credit

• Must pay $4000 in Qualified

education expenses

• Phases out $160,000-$180,000

Married

• Phases out $80,000-$90,000

Single

Divorce, College & Taxes

• American Opportunity Credit goes with

who claims the student as a dependent

• Other tax breaks are based on qualifying

child rules (head of household, low

income tax credits)

• Financial aid and the American

Opportunity Credit are currently not in the

MAC Davis or DFS tax calculation

software

Please fill out the

Evaluation

We offer a

College Funding Report

• Determine the cost of college

• Recommendations of dos & don’ts in

the divorce settlement relative to

college

• Need-Based aid analysis

• Merit aid analysis

• Address questions and concerns

Thank You!

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