Here is a one-question quiz that is not trivial. If you can answer it, you are in touch with trends that may help your clients with college-bound children save thousands of dollars.

Question: Name the four largest colleges in the U.S. by enrollment.

I’ll help with a hint. Only one of these colleges is a well known institution.

You can check your answer by clicking on the link below.

The question is not trivial because it shows how college planning has changed. Several years ago, financial advisors typically helped parents by setting up education savings plans a decade or more before children headed off to college.

Since then, college costs have soared off the chart.? As paying for college has become more challenging, parents can’t possibly keep up with all the changes and nuances. As a result, college educations can easily wind up costing 20-30% more than they planned.

Today, the most critical year for college planning has become the one leading up to the enrollment decision, usually the student’s senior year of high school. During this year, parents can do serious planning that help to plan expenses, eliminate unpleasant surprises, get straight answers, and maximize financial aid and federal tax credits.

In this column, I’ll offer 15 ideas you can discuss with your clients who have college-bound students. ?Most of these ideas aren’t covered in any textbook. They come from my own experience as a college parent, discussions with other parents, and in-depth study of Department of Education and IRS rules.

At the end of this column, I’ll offer a Bonus Idea, which alone can save parents up to 50% of the cost of a college education.

A Changing U.S. College Scene

As 20 million students head for U.S. colleges in the fall of 2010, the four largest colleges by enrollment are expected to be:

  1. The University of Phoenix, enrollment 220,000
  2. Miami-Dade College, enrollment 57,000
  3. Ohio State University at Columbus, enrollment 55,000
  4. University of Central Florida (Orlando), enrollment 54,000

(Enrollments are based on university reports and growth trends of each school.)

The University of Phoenix is the first national university to blend online education with a network of brick-and-mortar learning centers. Miami-Dade and the University of Central Florida are part of Florida’s expanding community college system. What all three schools have in common is a relatively affordable education, especially in the first two years, leading to an Associate Degree that can cost about $10,000 in total. Their enrollments are rising due to smart decisions cost-conscious parents are making to maximize ‘bang for the college buck.’

For the 2009-10 year, the average cost for tuition, fees, room and board was $35,636 at a four-year private college and $15,213 for in-state students at public four-year colleges, according to the College Board. With books and supplies, transportation and other expenses added, the average annual cost at four-year private schools will surpass $40,000 in the coming school year.

For each year of college, some parents write checks that would buy a new luxury automobile.? They would never think of buying a car without comparison shopping. Yet, few parents even know that they can comparison shop for colleges, let alone how to do it successfully.

For most parents, the real work needs to be done in the year leading up to the enrollment decision. Here is the first of my 15 ideas to help parents navigate this critical year:

Idea #1: The only time parents have real leverage over college costs is when they choose a school. Affordable costs should be one of the most important factors in choosing a college. The costs aren’t always transparent, and parents are much better equipped to evaluate costs than students, in part because parents are more experienced consumers.

Idea #2: To understand what any college really costs, parents should talk to other parents whose students attend the same school. The ‘sticker prices’ that colleges quote don’t always reflect all costs including mandatory activity fees, technology and lab fees, year-abroad surcharges, and housing costs. Some colleges haven’t built enough dorm rooms to keep up with expanding enrollments, so students are forced to look for off-campus housing as early as freshman year. Typically, off-campus housing is for a 12-month lease, not a 9-month school year.

Idea #3: It pays to understand the federal financial aid process. Two laws, the College Cost Reduction and Access Act of 2007 (CCRAA) and the Health Care and Education Reconciliation Act of 2010, have increased the value of needs-based federal financial aid awarded by the Department of Education (DOE). Subsidized Stafford Loans have become the new backbone of college financing, covering up to $19,000 in total over four years of undergraduate enrollment. For the neediest students, federal Pell Grants provide scholarships that can cover up to $5,500 in 2010-11 and don’t ever need to be repaid.

Both types of federal aid are awarded based on results of the Free Application for Federal Student Aid (FAFSA). Parents must file the FAFSA annually between January 1 and June 30 for each following school year. Filing early each year is strongly advised, become some financial aid is first-come, first-served.

Idea #4: Maximize Stafford loans. Parents should understand how valuable these loans have become. ?For subsidized Stafford loans based on financial need, the interest rate is fixed at origination and has become very attractive under recent legislation. For this school year and the next, the rates will be 4.5% and 3.4%, respectively. No payments are due and no interest accrues during a ‘grace period’ that lasts until six months after the student graduates or leaves school.

Contrary to popular belief, these loans don’t always need to be repaid in full after students graduate. Students now may choose an ‘income based repayment’ (IBR) plan under which the monthly loan payment is based on family size and annual income. If the payment does not cover the monthly accruing interest, the U.S. government will pay the interest for up to three years after IBR is chosen. If all required IBR payments are made for 25 years, any remaining loan balance is cancelled.

Under the College Cost Reduction Act of 2007, the federal government will cancel all or part of a Stafford loan if a student works in government service, performs military service, teaches or practiced medicine in certain communities, or performs volunteer, public health or law enforcement work. Forgiveness occurs on any remaining principal after 120 monthly payments have been made while fulfilling public service work.

Idea #5: More students qualify for Pell Grants. Through DOE and the FAFSA, the federal government makes scholarships available to qualifying students under 24 years old. Any student who files a FAFSA is automatically considered for a Pell Grant ranging from about $600 to the maximum of $5,500 per year, based on Expected Family Contribution (EFC). A full-time student generally must have an EFC of $4,650 or less, as shown on the Student Aid Report (SAR). Under CCRAA, the income limits to obtain a zero EFC and full Pell Grant were increased and indexed to the CPI.

Idea #6: FAFSA planning has become more valuable. Parents should not wait until the FAFSA filing deadline to begin planning for needs-based aid. DOE has created an online tool called FAFSA4caster that can be used to preview the FAFSA and model ‘what-if’ scenarios. It can be found at:

Decisions made in the year before enrollment can have an impact on the FAFSA. For example, 20% of assets in the students’ name count toward EFC, while a much smaller percentage of parents’ assets count. (Grandparents’ assets are not included in the FAFSA at all.) Because only assets and income are reported on the FAFSA (not debts), paying down debt can help to reduce EFC and increase financial aid. A PDF document that includes details of the EFC calculation is available at:


Idea #7: Maximize federal education tax credits – Parents may use federal education tax credits, which provide a dollar-for-dollar offset of federal income taxes, to meet as much as

10-15% of total college costs. The American Opportunity Tax Credit, worth up to $2,500 per year for each of the first four undergraduate years, is set to expire on the last day of 2010 but may be renewed. The Hope Credit is worth up to $1,800 per student for each of the first two years. The Lifetime Learning Credit can pay up to $2,000 of costs for any year of undergraduate or post-graduate studies, or even non-degree courses. (Only one federal income tax credit generally may be claimed per student per year.)

All federal tax credits for higher education phase out for higher income taxpayers, so parents may want to manage their Adjusted Gross Incomes during college years. Stretching qualifying education expenses over calendar years can help parents earn five years of federal tax credits during a four-year education. (Avoid paying all qualifying expenses before the final semester.)

Idea #8: Be careful with PLUS Loans – DOE makes federal direct loans available in parents’ names (not students’) through its PLUS Loan program. However, these loans can be expensive, especially for short-term financing. The fixed rate on PLUS Loans currently is 8.50%, and each PLUS Loan incurs a front-end fee of 4% of the loan balance. Some parents may wish to use loans from their 401(k) plans or life insurance policies as a less expensive source of short-term college financing.

Before taking PLUS Loans, parents may wish to ask their CPAs if their income qualifies for a federal income tax deduction on student loan interest. Note: To claim a student loan interest deduction, loans must be used 100% for education and may not be commingled.

Idea #9: Be aware of financial aid bait – Incoming freshmen usually receive a financial aid letter shortly after their acceptance at a college, documenting the financial aid award they can expect in the first year of enrollment. The award usually falls into two categories: 1) direct DOE aid; and 2) campus-based assistance.

Although DOE aid is reliable, campus-based assistance may be subject to availability and school-imposed restrictions. It includes Supplemental Educational Opportunity Grants (SEOGs), Perkins Loans, and Federal Work-Study (FWS). The FWS program has been neglected by the federal government, with bare-bones funding that has not been increased in more than 20 years. As a result, far more students are awarded access to FWS each year than colleges have money to distribute. Even if FWS is awarded, students often must compete for scarce funds and jobs. Although students should pursue FWS opportunity, it should not be relied upon or used as a basis for enrollment decisions.

Idea #10: Don’t pay bookstore prices – The plummeting cost of college textbooks is one area of good news for parents. Several online sites now make a competitive market in most major textbook titles, so it is possible to pay as little as 20-30% of the price charged for new textbooks in college bookstores. The sites include:,,,? and

When my son was a freshman, we didn’t know about these sites and paid $1,400 for a year’s worth of new textbooks. Last year, with help from such sites, our total textbook cost dropped to about $350.

Idea #11: Understand bursar billing – Most students are legally responsible for paying their own bursar bills, although they may authorize parents to access billing information and bill-paying. For budget-minded parents, the problem is that some colleges give students virtually carte blanche ability to sign miscellaneous charges to their bursar bill. On-campus restaurants, travel and entertainment services, concert and event promoters, and many other types of vendors may be given access to ‘bursar billing.’ At worst, the student’s bursar account becomes a high-limit credit line that isn’t subject to federal restrictions on credit extension to minors and students. Basic rights that most consumers have for disputing unauthorized charges (e.g., on a credit card) don’t always exist for bursar accounts. Parents should set clear rules for bursar billing with their children. They also should check to see if their college offers an opt-out for bursar billing of non-essential education expenses.

Idea #12: Understand tuition pricing – Some colleges charge the same ‘flat’ tuition per semester for maintaining a full class load, even if credit hours fluctuate. But if the course load falls outside flat tuition boundaries, per-hour costs can increase dramatically. Again, few colleges feel a need to communicate pricing policies to parents, because students are legally responsible for paying their own bills. Some colleges play a game of ‘gotcha’ with these policies, raising per-hour tuition significantly when students add or drop courses in mid-semester or choose less than a full load.

Idea #13: Don’t fall into the off-campus housing trap – A common complaint of parents is that they are asked to guarantee leases for off-campus shared housing. For example, two students agree to share an off-campus apartment renting for $1,200 per month ($600 each). While that’s not exorbitant, it can become so if the roommate leaves college or runs into financial difficulty. Parents could then be on the hook for the full $1,200 over a 12-month lease = $14,400. When students are forced into off-campus housing, parents should guarantee only their own child’s share of rents – or better yet, avoid roommates. The best policy is to choose a school that has adequate, affordable on-campus housing.

Idea #14: Evaluate student health insurance – When students attend an out-of-state school, health care providers around campus may no longer be ‘in-network’ for the parents’ health plan. Some employer plans will no longer cover students after they reach a given age or drop below a full-time class load. As an alternative, many schools offer affordable student health insurance. Because college students tend to be young and healthy, rates can be attractive, and medical services at campus clinics and hospitals may be fully covered, with no deductibles or co-pays.

Idea #15: Remind parents that 529 Plan losses are deductible – Some parents set up stock-heavy 529 plans for college funding, prior to the 2008 stock market meltdown. You can remind them that any losses in 529 savings plans may be claimed on the owner’s federal income tax return, in the year when the last distribution is made. Total distributions in excess of cost basis may be claimed as a miscellaneous itemized deduction, subject to a 2% of adjusted gross income (AGI) limit. (See IRS Publication 590 for details.)

For parents who have gains in 529 plans, it’s important to plan qualifying education expenses that match or exceed each year’s annual plan distribution. Otherwise, the taxable portion of a distribution is subject to ordinary income tax and also a 10% federal penalty, unless an exception applies.

My Most Valuable Idea

Let’s conclude with a valuable ‘Bonus Idea’ that you can offer college-bound parents. An example helps to explain it:

‘John and Mary’ are parents of Brian, a middle-of-the-road student. When Brian was a senior in high school, they encouraged him to apply to any college he wanted. He chose to attend a private school offering a degree in Sports Broadcasting, with limited on-campus housing and tuition of $35,000 per year. His total annual costs amounted to $50,000.

Brian attended college for five full years, because eventually he realized career opportunities in Sports Broadcasting are limited, and he had to change majors. His parents were bankrupted by his $250,000 total college costs, in part because they didn’t bother to guide his decision, learn about the FAFSA, or request financial aid.

Idea #16: Today’s college decisions are too important and costs too much to be left to 17 year-olds without ‘real-world’ financial experience. Parents must get involved, shop carefully, ask questions and plan well. If they don’t, they may pay the price for the rest of their lives. Or they may saddle their children with student debts that last decades.

You are uniquely qualified to help parents of college-bound students see the new light and take action when it counts.