Preparing yourself for college expenses is one of the great worries for parents.
And for good reason. The story of young Americans’ staggering college debt burdens is sobering.
The good news? There are ways of negotiating challenges successfully, particularly if you start early.
While it tremendously helps to start planning for the future when your children are very young, it’s never too late to start planning to fund your kids’ college education. Every dollar helps.
But at least one option requires you to act before April’s end.
If you’re new to Florida or new to the world of parenting, a number of opportunities exist to help with your saving and college financial planning. The top three for Florida residents are the Florida PrePaid College Program, the Florida 529 program and the Bright Futures Scholarship Program.
What Does College Cost?
After celebrating the college acceptances of their kids, parents of high school seniors can quickly get heart palpitations when they’re sent a projection of what it will cost the family to send Johnny or Janie off to school.
According to the College Board, the typical 2019-2020 student attending a private, nonprofit four-year college and living on campus had to budget $54,000 annually (with tuition averaging just under $37,000 of the total). The average public four year in-state on-campus student had to budget $26,590.
Because of financial aid, the out-of-pocket amounts vary based on family incomes. Those households making more than $120,000 a year typically paid $25,790 annually for all college costs at public universities and $39,760 for private universities. Homes with incomes between $70,000-120,000 typically paid $21,860 for public and $31,270 for private and homes between $35,000-69,000 paid $18,110 for public and $31,100 for private.
Because individual family income, a student’s academic performance and differing college costs, each family can expect different bills from their choices. For a clear and eye-opening calculation of what you can expect to pay for your applying student at their favored colleges, be sure to check out the Net Price Calculator detailed on pages 26-27.
Florida fortunately is a best buy when it comes to in-state public colleges, with the second lowest tuition and fees annually across all fifty states. Not counting your student’s weekly spending money, the overall costs for attending the University of Florida, Florida State University or other state universities is closer to the $21,000 annual range before any aid, scholarships or grants, with tuition, room and your student’s meal plan representing about one-third each of the total bill.
Over the past 20 years, college tuition at private schools has risen on average 2.2 percent higher than inflation, making it difficult to even find an investment with a similar and steady rate of return.
To pay these big bills, 66 percent of graduates from public colleges had loans and graduated with an average debt of $25,550. Meanwhile 75 percent of graduates from private nonprofit colleges had loans, with an average debt of $32,300. Currently nearly 45 million Americans carry student loans with an average monthly loan payment of $393. With the student loan debt at crisis proportions, the monthly payments are forcing many young Americans to move home with parents. Many struggle to save for home and car down payments.
Understanding the college financial planning opportunities in Florida is key to helping your kids dodge debt in their early adulthood.
Florida PrePaid Program
One saving mechanism—particularly for those comfortable with committing early to Florida’s highly respected public university system (US News and World Report ranks University of Florida #7 of all U.S. public universities and #34 overall in national universities; Florida State University #18 in U.S. public universities and #57 overall and University of South Florida #44 among all U.S. public universities and #104 overall) is Florida’s PrePaid Program.
The Florida PrePaid program offers several plans that allow you to prepay future tuition, fees and even dormitory costs now, locking in savings and guaranteeing that whatever you have purchased (tuition, tuition and fees, or dormitory costs) will be covered regardless of future increases. The plans enable purchasers to pay in one lump sum (which appeals to some grandparents wanting to make a generous gift). Among others, you can pre-purchase plans that will cover a 2-year AA degree, a one-year university plan or a four-year university plan (their most popular). You can pay the costs up front, divide the costs into monthly payments that will run until your child attends college, or pay them over 5 years (55 payments). For a child born in January 2020, the four-year university prepaid program (based on 2019 pricing) would cost roughly $29,500 in a lump sum and cover tuition and fees. Payments for the tuition and fees over five years run roughly $565 per month. Paying it over the 223 payments your new infant has between now and when they head off to college will run you about $187 per month. All plans also offer an option to add a dormitory plan for an additional cost.
If your child opts to go to a university (such as a private our out-of-state university) the plan pays you the going university tuition rate in Florida at the time. If your child wins a scholarship, you can apply for a refund to help offset housing or book costs or apply it to graduate school. Plans can be transferred to another family member (or refunded) if your child doesn’t attend college. And if a job moves your family out of state, under the Florida PrePaid plan, your child would be eligible for in-state tuition costs if they attended a Florida public university.
For more information and a calculator for plan costs of children of different ages (you can buy them for just about any pre-college age), visit www.myfloridaprepaid.com. While you can enroll at any time, each year’s plan costs are released – and the plans take effect – during the open enrollment period (Feb. 1-April 30 of this year). Further, you can’t purchase a plan until you or your child has lived in the state for at least 12 months. Application fees are just $50 and monthly payments can be made by automatic bank transfer or by check.
Another college savings plan that many families use are 529 plans, which operate a lot like Roth IRAs. Funds from them can cover tuition and school fees from kindergarten through college, including graduate school. Just about every state—including Florida—offers 529 plans. These plans allow you or your relatives to make deposits of money in any amount and they will grow within the specified stock and bond investments the plan offers. The plans offer owners the flexibility to pick their own investments with different levels of risk. Less experienced investors can typically opt for age-based portfolios that are tied to their child’s age. As college grows closer, the investments in the plan typically become more conservative to help preserve the fund’s balance.
While historically funds invested in 529 plans have outperformed savings accounts or CDs (which tax earnings), there is always the risk of losing a portion of the principal invested, which is why there are levels of risk involved when saving through 529 plans.
The benefits of a 529 plan are that the investments grow tax free and are paid out without additional taxes. The plans also do not require students to attend particular schools or universities. These plans can be used for in-state and out-of-state schools. Unlike the Florida PrePaid Program, however, they don’t lock in particular tuition prices today.
Like with the prepaid program, if your child doesn’t attend college or if you don’t use the entire amount, funds can be withdrawn (you pay taxes on the earnings) or transferred without penalty to another family member.
The IRS determines what can be paid for out of a 529. Called qualified education expenses, they include tuition, fees, room, board, books and supplies like computers.
One important fact to consider?
Each state’s 529 program designates investment managers—big investment companies—to compile funds and manage them. Here selection of the right investment manager can make a difference on your rate of return. Many investment managers are for-profit, which charges additional fees (you don’t typically see) that lessen a fund’s return. Florida offers Vanguard as an investment manager. A not-for-profit, Vanguard charges some of the lowest fund fees in the business, meaning more of your investment’s return will go to your college costs. When selecting your investment manager, pay attention to their fund fees to maximize your return.
For more information on the Florida 529, visit www.myfloridaprepaid.com.
Florida Bright Futures Scholarship
While Florida offers other grants and scholarships (including one called the Benacquisto Scholarship for National Merit Scholars), the most common scholarships are those offered under Florida’s Bright Futures Program. These require high school community service, as well as particular GPA and SAT score thresholds for eligibility.
The program also offers a scholarship for vocational schools.
If your child is a stolid student who is heading to college, they should visit www.floridastudentfinancialaidsg.org and their school guidance counselor and fill out all forms associated with the Bright Futures Scholarship. If a student fails to apply for the scholarship by Aug. 31 after their graduation, they will not be eligible.
The college scholarships, which are often annually tweaked and adjusted by the Florida State Legislature currently have two levels which can be used at Florida’s public universities and many of its private universities. It is not eligible for transfer out of state. The highest scholarship level can cut total costs for attending a Florida public university by one-third.
The highest level of the Bright Futures Scholarship currently pays 100 percent of tuition and fees and includes a small stipend for books (it does not cover dormitory or meal plan fees). Called the Florida Academic Scholars (FAS), the scholarship requires a weighted GPA of at least 3.5 and a minimum SAT score of 1290 for 2019-2020 graduates, which rises to 1330 for 2020-2021 graduates (students may also qualify with a 29 ACT composite score across four subject areas). Eligibility also requires 100 hours of community service.
The second level of Bright Futures, called the Florida Medallion Scholars (FMS), pays 75 percent of tuition and fees. It requires a weighted GPA of at least 3.0 and minimum SAT scores of 1170 for 2019-2020 graduates and 1210 for 2020-2012 graduates (students may also qualify with a 26 ACT composite score across four subject areas, lowering to 25 in 2020-2021). It also requires the completion of 75 hours of community service.
National Merit Finalists and Scholars, National Hispanic Scholars and International Baccalaureate (IB) graduates qualify regardless of SAT or ACT scores; scholarship levels are determined by service hours in these cases.
For both scholarships service hours may include things like business or governmental internships, work for a nonprofit community service organization, or volunteering for a candidate for public office.
To maintain the scholarships across all four years of college, FAS students must maintain at 3.0 cumulative GPA and take at least 12 credits per term and FMS students must maintain a 2.75 cumulative GPA and take at least 12 credits per term.
Applying for the scholarships requires students to create a student account at www.floridastudentfinancialaidsg.org/SAPPRFILE/SAPPRFILE and then complete a Florida Financial Aid Application (FFAA).
Yes, paying for college can be intimidating. But with these three programs, combined with some smart planning and saving, you can minimize your student’s and family’s college debt.
By Chris Barrett, Publisher