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Flashcards in Ch 5 Deck (21):

Have education costs increased more than or less than inflation?

More than.


After completing FAFSA, what does the student get?

Student aid report listing the Expected Family Contribution (EFC)


How much weight are a students assets given over the parents' on the EFC?

Up to six times


Has Federal funding for postsecondary education increased or decreased over the years?



What does CSS (College Scholarship Service) incorporate that EFC does not?

Equity in the family home; value of qualified retirement plans; income and assets of non-custodial parents


What is the benefit to a student being classified as independent?

Only student's income is included in EFC formula.


Primary grant for undergraduate students. It is available to full and part-time students, needs based, and designed for low and middle income students.They can be used for online or vocational programs.

Pell Grants


Needs-based grants that are designed for students with extreme financial need and are administered by the aid office at each school.

Supplemental Education Opportunity Grants


Needs-based student loan where the school is the lender and payments begin and interest accrues after the student leaves the school.

Perkins loan


Needs-based student loan which must be repaid within 10 years. It is the major source of borrowing.

Subsidized Stafford Loans


Non-needs-based loan where interest is charged beginning on the date loan proceeds are received. One can borrow the entire cost of education and graduate students are eligible.

PLUS loan (Parent Loans for Undergraduate Students)


Irrevocable custodial account (parent is custodian) where money is transferred to a minor child. When they reach age of majority the child has full control of the account and can do what he wants with the funds.

UTMA or UGMA account.


Savings vehicle that can be established by parents or custodian where the owner controls the investments and withdrawals. Anyone can contribute but contributions are limited to $2,000/year and are phased-out depending on adjusted AGI.

Coverdell ESA


Education funding vehicle that is sponsored by the state and can be either a prepaid tuition plan or savings plan.

529 Plan.


This education savings plan allows contributions regardless of income, has a high contribution limit, contributions are not tax deductible, and rate of return is based on investments the owner selects. Can only change once per year.

529 Savings Plan


This type of education savings vehicle is considered free of risk. It is backed by government's guarantee that the principal will double in 20 years. Limited to $5,000 per year.

Series EE and I bonds.


What is the downside of Series EE bonds?

They have a fixed rate so they are a poor hedge against inflation.


What is the tax treatment of a US Savings Bond? How about if it is used for education?

They are Federal tax-deferred until redemption but are tax-free if used for education. There is no State taxes on these.


Will a Pell Grant pay for online schools?



Treatment of UGMA or UTMA for the EFC formula.

Considered income of the student.


Tax treatment of UGMA or UTMA.

Taxed at parents' tax rate.