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Archive | March, 2010

Get Your M.I.T. Education For Free

Get Your M.I.T. Education For Free

mit_logoThat is right.. Everyone in the world now has the ability to get an education from the Massachusetts Institute of Technology. There is no entrance exam, no tuition charges, no mandatory attendance, and you don’t even have to change out of your pajamas before going to class (of course most college students seem to be enjoying the pajama wearing, class attending, Starbucks coffee consuming approach to campus learning). The only requirement is that you have internet access and the proper bandwidth to support streaming video.

Sound to good to be true?

Well… it is.. It is all in the wording. Notice I said that you can get your education for free from MIT and not necessarily a diploma or degree (which probably has a more profound impact on your future career path).

However, if you are just looking to get an education and increase the synaptic activity of your brain cells, MIT is happy to oblige by offering over 1900 courses for free online through a program called MIT OPEN COURSE WARE. Through this website, you will have access to lecture notes, exams, and videos direct from MIT. No registration is required and it certainly trumps any program I have encountered at the local public library.

MIT states that it costs between $10,000 – $15,000 dollars to bring a course online to the public for open-sharing. Given that they have 1900 courses, I estimate their total investment to be between $19 and $29 million dollars. KUDOS to MIT for making this available to the masses.

Their course offerings span across the following disciplines of learning. If you see something of interest, check it out!

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Help! I Have Been Selected for Financial Aid Verification

Help! I Have Been Selected for Financial Aid Verification

verificationAh.. the dreaded “V” word. It is a term that you don’t like to hear when going through the financial aid process but the unfortunate truth is that about one third of all families completing the FAFSA are randomly selected for verification. If you happen to complete something wrong on the FAFSA, it WILL increase your chances of being selected for verification. In addition, if a financial aid officer thinks your information is not quite up to snuff, they can flag your file to be channeled through the verification process…so always be nice to the financial aid folk! 😉

The most simplistic definition that I can provide for the verification process is that it is the Department of Education’s systematic approach for auditing the information that you submitted on the FAFSA. Don’t let it scare you though… I have heard some families compare it to an IRS audit but I can assure you that the verification process is much easier and will only consume about an hour of your time (that is including a restroom break and a short snack).

If you have been selected for verification, you will need to complete a worksheet provided by the Department of Education and submit it, along with appropriate documentation, to the financial aid office at your college. You can download a copy of the most current verification worksheet here.

The verification worksheet is going to prompt you for the following information:

  • Student Information- Name, Social Security Number, Date of Birth, etc…
  • Family Information- Name and relationship of everyone living in your parent’s household and even other children that may not live in the household but your parent’s provide more than half of their support
  • Student Tax Information- Copy of tax return (as applicable) or amounts and sources of taxable income, dollar amount and sources of untaxed income
  • Parent Tax Information- Copy of tax return (as applicable) or amounts and sources of taxable income, dollar amount and sources of untaxed income
  • Signature from the Student and a Parent– very important and easily overlooked

Once you have this worksheet completed (and have made a copy for your records), you will submit it to the school with any supporting documentation requested by the financial aid office. The financial aid administrator will compare the information you provided with the information submitted on your FAFSA. If everything checks out, you are good to go. If you forgot something, the school will contact you to let you know that they are missing some information. (You should follow-up to their request ASAP). If the information on your verification worksheet is different than what you put on your FAFSA, the financial aid administrator is required to go in and update your Student Aid Report (SAR). Which could impact (good or bad) the amount of financial aid you receive…

The important thing to remember through the verification process is that you don’t let grass grow under your feet. If you are selected for verification, you need to get the appropriate worksheet completed right away (see link above) and follow-up with the school to make sure there is nothing else required from you. The reason for this urgency is that you will not be eligible to receive any need-based financial aid until the verification process is complete.

Hope this information is helpful. If you think others could benefit from this, please feel free to use the “Share Tab” below to pass it along.

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Internet Browser Issue With FAFSA Resolved

Internet Browser Issue With FAFSA Resolved

FAFSA_iconThe Department of Education recently released an announcement outlining a technical glitch that they were experiencing with the FAFSA website.

Apparently, students accessing FAFSA.ED.GOV with an unsupported web browser were provided an error message and then directed to the 2009-2010 FAFSA submission page and not 2010-2011 (which they were initially seeking). As a result, many of the applicants probably submitted the wrong data to their schools.

The Department of Education states that the browser problem started on February 23rd after a website update. They were notified of the issue on March 11th and the problem was corrected on March 16th. After analysis, they anticipate that fewer than 5000 families (or.2 percent of the 2.8 million applications received) were impacted by the problem. From what I can tell, it appears that more first year students are more likely to be affected in comparison to returning students.

Starting March 26th, the Department of Education is going to be sending an email communication to all families that may have been affected by this technical issue (letters will be sent to those that did not supply valid email addresses). Here is a copy of that letter.

So, if you filed your FAFSA between February 23rd and March 16th, you may want to log back into your account and double check to make sure that you did indeed submit 2010-2011 data and not 2009-2010. If you find that you were impacted by the problem above, you will want to drop a line to the Federal Student Aid Information Center at (800) 4-FED-AID and they will help walk you through the steps to correct your FAFSA information.

Hope you find this information useful. If you know of anyone that may benefit from this, please be sure to use the “Share Tab” below to pass it along.

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Education Tax Credits

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D.C. College Access Program Scholarship Opportunity

D.C. College Access Program Scholarship Opportunity

dccapAs part of our Spotlight Series, I would like to shine our attention to the Washington D.C. College Access Program, also known simply as DC-CAP.

They have been in existence for a number of years and their goal and mission is simple: To encourage and enable DC public high school students to not only enroll but also to graduate from college.

DC-CAP currently has centers and advisers in every public high school and charter school in the Washington D.C. district. They have an eye-popping number (5,300) of students enrolled in their program.

The students work with counselors all four years of high school, and they roll over to the five-year college retention division upon graduation. Upperclassmen are paid additional scholarship money to mentor younger students, said Argelia Rodriguez, president and chief executive.

“We give about $2.7 million in scholarships each year, and we try to find as much money as we can,” she said. “It can be for everything from buying books to having money for food to eat.”

The following are some of the programs offered by DC-CAP:

  • Individual and group counseling
  • College information resource centers
  • College application assistance
  • Financial aid assistance
  • Parent education
  • College student support services
  • “Last dollar” award scholarships

DC-CAP is a non-profit organization that is supported fully by donations and grants from foundations, companies, and individuals. In addition to monetary support, they enlist the help of hundreds of volunteers that help to make all their programs successful.

If you are a family, parent, or student residing or going to school in the Washington D.C. district. I encourage you to utilize DC-CAP as a resource to help make your college dreams a reality. Between scholarship assistance and financial aid education, they should be very helpful in reducing the financial burden that can be attributed to obtaining a college degree.

Also, if you are a philanthropic person looking for a great cause to donate your dollars, DC-CAP looks like a worthy organization if the education of young individuals is near and dear to your heart.

For additional information, you can visit the Washington D.C. College Access Program online here:

or you can contact them at the following:

1029 Vermont Avenue, NW
Suite 400
Washington, D.C. 20005
Phone: (202) 783-7933
Fax: (202) 783-7939

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Should You Use Retirement Savings to Pay for College?

Should You Use Retirement Savings to Pay for College?

collegesavingsIn today’s economic environment, most families are struggling just to keep their heads above water.

As we move left to right on the radio dial, station after station speaks of mass layoffs, yet another “necessary” corporate bailout, cutbacks in state-funded programs, increasing energy prices, representatives of the cabinet saying “give us more money” before the ink has dried on the last “let me reach a little further into your wallet” bill, or a senator saying that the taxpayer doesn’t care about the “porky little items” whose sum is in the billions of dollars. Obviously, this all comes from someone who is not spending their own money! Sheesh!

Amid all of this mess, families struggle with ways to come up with money to pay for college expenses. Prompted by a “sky is falling” mentality, many turn to retirement plans as a source of funds to help with these expenses.

But I implore you to calm down and step away from the retirement nest egg! Before you take a dime of your money out of your retirement accounts, let’s take a look at the very negative impact such a move could have on your family’s financial aid award.

The Use of Your Retirement Plan Money at Work- 401(k) or 403(b) Plans

Many people consider using money stashed away in their 401(k) or 403(b) plans to assist with college funding.

If your employer’s plan permits loans from your retirement accounts, the following facts might just have you leaping for that loan:

1)    Loans are not taxed

2)    You pay yourself interest on the loan

3)    The money is readily accessible

4)    Your plan may allow a maximum loan of $50K

Sounds pretty good!

But don’t forget to take the following into consideration prior to taking the loan:

1)    Repayment terms – most plans call for repayment of entire balance within 5 years of loan.

2)    If you lose your job, most plans call for repayment of the entire loan amount in 90 days.

3)    When you repay the loan, you are paying with after-tax dollars. Remember, most of your contributions (if not all) were pre-tax contributions.

4)    When you begin to receive payments from these accounts to supplement your retirement, the portion that was considered loan amounts will be taxed again. The IRS still considers these as pre-tax contributions and the appropriate tax rate will be applied. Yes, that’s right; you get to pay taxes twice!

5)    You lose the potential growth of the funds in the account along with compounding effects.

Careful thought and consultation with your investment adviser or other qualified professional is highly recommended prior to taking money out of your retirement account to assist with college expenses. Make sure you understand both sides of the equation prior to using these funds.

So, how does the Federal Financial Aid System look at your retirement funds? I’ll give you a hint: some of their perspective may not be for the faint-hearted.

The Good

The balance of your retirement accounts, such as a 401(k), 403(b), SEP, Simple, Roth, traditional IRAs, Keogh or other qualified plans are not considered an investment (assumes financial aid application using the FAFSA; may not be applicable to institutions requiring the CSS Profile) and therefore are not subject to the corresponding (parental or student) asset assessment rate of either 5.65% or 20%.

The Bad

If your plan at work has loan provisions and you are unable to pay the loan back, the entire amount withdrawn (less any amount repaid) will be reportable on your 1040 form, hence increasing your income. This increase in income will not only be assessed by the federal and state governments at the appropriate tax rate, but also by the Federal Methodology formula used to calculate your EFC. Assuming all other variables remain the same, the initial amount the government expects you to pay for your child’s educational expenses (EFC) prior to considering what they will pay, just increased.

For illustrative purposes only, assume you borrowed $20,000 from your 401(k) and were unable to pay back $14,000 of the loan.

If parental income is assessed at 42%, let’s take a look at the before and after:

Before 401(k) loan default After 401(k) loan default

COA        $18,000                                    $18,000

EFC             6,000               plus 5,880 11,880

Need        $12,000                                    $  6,120

Assuming all other variables remain constant, your initial EFC increased by $5,880 ($14,000 x .42) which in turned decreased your need to $6,120. Ouch!

Since need provides the basis or starting point at which the government considers contributing to your child’s educational expenses, you have limited their potential participation by $5,880.

Keep in mind that the financial penalty pain doesn’t end there. You also have to consider the taxes that you will pay on the “withdrawn” amount. If your federal and state tax rate (ordinary income tax) is a combined 21%, you’ll pay $2,940 ($14,000 x .21) in additional taxes.

This does not take into consideration any penalties that may be incurred due to early withdrawal. These penalties may range from a low of 10% to a high of 25% (as is the case with an early distribution taken within the first 2 years from a Simple IRA) and are assessed on the full amount in question.

Using the example above and assuming a 10% early distribution (prior to age 591/2) penalty, an additional $1,400 ($14,000 x .10) would be owed to the IRS. This brings the potential grand total of taxes and penalties to $4,340 ($2,940 + 1,400), thereby eliminating thirty one percent ($4,340/14,000) of the purchasing power from the original $14,000 taken out of the 401(k)- YIKES!

The Down Right Ugly

In order to encourage individuals to save for retirement, the federal government does not tax contributions made to 401(K) or 403(b) plans up to a specified annual limit. Your contributions enter the retirement plan on a pre-tax basis; the tax man gets his cut as money is withdrawn to supplement retirement. If individual income qualifications are met, traditional IRA contributions are also deductible.

However – ah, there’s that dreaded “h” word – the Federal Methodology used to calculate your EFC looks at these contributions in an entirely different way. The financial aid system believes that you can stop contributing towards retirement and apply these contributions to college expenses. They anticipate you playing “catch up” with these contributions after your child graduates.

Accordingly, your pre-tax or deductible retirement contributions, are considered “untaxed income” by the financial aid system and are added back into the EFC calculation and assessed at the applicable rate. This assessment of your pre-tax retirement contributions begins during your child’s “base year” and continues with each year financial aid is applied for.

So let’s assume your family contributes $12,000 to retirement accounts and has a 42% income assessment rate for the year in question. The before and after picture would look like this:

Prior to Retirement Participation After Retirement Participation

COA                $18,000                                              $18,000

EFC                      6,000                    plus $5,040 11,040

Need               $12,000                                             $  6,960

As you can see, the federal methodology increases your EFC by an additional $5,040 ($12,000 x .42) based upon pre-tax or deductible retirement contributions made for the year in question.

However, contributions made on an after-tax basis (non-deductible), such as to a Roth IRA or a non-deductible IRA, may have already been assessed (assuming contribution was made during your child’s base year or beyond) on the income side of the financial aid equation and are reflected in your Available Adjusted Income (AAI). Therefore, your EFC would not increase as in the example above by the assessment of “pre-tax” dollars.

Finally, if you are fortunate enough to work for an employer who has some type of “matching” program contained in your retirement plan, these employer contributions are also not assessed.

Now, before you rush to make changes to your retirement plan, let’s be clear: I am not suggesting in any way, shape or form that you discontinue your retirement contributions in order to pay for your child’s educational expenses. Quite frankly, I am on the other side of the spectrum, but I recognize that it is a personal decision. Therefore, at the risk of sounding redundant, please read the next two paragraphs closely.

As you make decisions regarding college financing versus retirement funding, you should carefully weigh how each decision will impact your wallet, both during your child’s college years and well into the future.

Putting all emotion aside, a possible question to entertain as you struggle with ways to handle college expenses for your child might be this: “How much will my child struggle with assisting me with my retirement?”

Now that you know how the formula used for federal financial aid assesses retirement contributions and withdrawals, you can plan accordingly.

And as always, be sure to consult with a qualified professional prior to incorporating any idea contained in this educational bulletin to insure proper application to your individual circumstances.

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Sallie Mae Extends Banking Services to CD’s and Savings

Sallie Mae Extends Banking Services to CD’s and Savings

salliemaeSallie Mae has been in the student loan business for a long time. Sallie Mae dabbles in other industries of higher education including monthly payment plans, business solutions, bill presentment, online payment processing, and the collection of student loans and tuition debt utilizing collection agencies. Now (as of March 2nd) the organization is expanding their banking services and starting to offer savings accounts and cd’s (certificate of deposit) to existing and new customers.

The following is a statement from Sallie Mae in reference to the new banking services that they will be providing:

The High-Yield Savings Account by Sallie Mae currently offers a 1.35% Annual Percentage Yield (APY) — five times the national average, according to’s October 2009 Passbook & Statement Savings Study, — and an easy-to-get-started no minimum balance requirement. Customers can earn even more by signing up for Sallie Mae’s free Upromise rewards program that enables members to earn money back on eligible purchases from hundreds of grocery stores, online retailers, restaurants and gas stations. Upromise balances of $10 or more may be automatically transferred into the High Yield Savings Account, and customers with a savings account balance of $5,000 or more or a monthly automated savings plan of $25 or more may qualify for an annual match of 10 percent of their prior year’s Upromise rewards.

Certificates of Deposit by Sallie Mae currently offer competitive interest rates, no minimum balance or monthly fees and terms of 12 months (1.50% APY), 36 months (2.20% APY) or 60 months (3.00% APY).

I have been trying to figure out why Sallie Mae is embarking in this new venture of banking services. The only logical justification that I can render is that it is cheaper for them to build up their cash reserves by offering a savings vehicle for their customers as opposed to obtaining/purchasing the reserves from the federal treasury. I am sure there is someone smarter than I out there that can probably chime in with a better explanation.

In the meantime, if you are looking for a “decent” savings approach for college, a home, or that next vacation, you can check out what Sallie Mae has to offer by visiting the following link:

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Recently Ranked as a Top 30 College Info Twitterer!

Recently Ranked as a Top 30 College Info Twitterer!

twitterbirdlogoJust received great news the other day… was identified by Parents Countdown to College Coach, Suzanne Shaffer, as a top information source for families and students looking for substantive college news and tips to help them through the college search process.

I am extremely pleased to see recognized for the information and assistance we provide to families/students.

If you would like to see a list of all those recognized, you can check it out here! You should definitely take a moment to view over the list and identify the sites in which you may have interest. The information they provide is invaluable.

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