Week 2: Personal Finance

Week 2: Personal Finance

“Costs: What does Education and Training really cost?”
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  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Costs of Human Capital Investments
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Avatar Video: Anna Maria and Natalia determine college costs
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Avatar Video: Anna Maria and Natalia determine college costs (Part 2)
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Costs - List price vs. Net Price, Out of Pocket vs. Opportunity costs
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 1: Overview
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 2: Types, Process, Terminology
  • Week 2 > Module 3 - Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 3: Common Questions

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Costs of Human Capital Investments

  • ANN WITTE: This is the first of three modules that will allow you to estimate whether a particular education and training program will be worth it for you.
  • As you recall from previous modules, the cost of education and training come in the form of dollars and time.
  • First of all, let’s look at the out of pocket cost, the dollar cost of education and training.
  • The dollar cost consists of tuition and fees, books and tools that you will need, such as information technology, both hardware and software.
  • You may have additional housing costs and transportation expenses.
  • The second part of the cost of any education or training program is the opportunity cost of the time you spend going to class, studying, and participating in any other course related activities.
  • In order to estimate the value, you need to know what you would have been doing with that time had you not been in the education program and where you would have been doing it.
  • Once you know what you would have been doing, where you would have been doing it, you can use Bureau of Labor Statistics data to estimate the opportunity cost of your time in the education and training program.
  • So let’s see how to use the Occupation Employment Statistics to estimate the opportunity cost of your education and training.
  • 50% of waiters and waitresses in the Houston area earn more than $18,000 a year and 50% earn less.
  • We’re going to assume that you would have learned a little under $19,000 a year as a waiter had you not been in the education and training program.
  • If your education and training program lasts more than one year, your costs are likely to increase.
  • College generally lasts four years, and your costs in year one will be lower than your costs in year two, year three, and year four.
  • By how much will they increase? Well, remember that there are two parts to your cost of college.
  • National Center for Education statistics data indicate that your out of pocket costs of college are likely to increase about 3% per year.
  • So the opportunity cost of your college will grow by approximately 4% per year.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Avatar Video: Anna Maria and Natalia determine college costs

  • Getting good information about the costs of different college options is very important to making the right decision about where Natalia should go.
  • Have you gotten information about the cost of those programs? NATALIA: It looks like Wellesley costs almost $60,000 a year, but University of Florida only about $21,000 a year, which seems crazy.
  • These calculators estimate the amount of grant and gift aid that you can expect a particular institution to provide.
  • Institutions provide grant and gift aid for various reasons.
  • An institution like Wellesley is very likely to provide generous grant and gift aid for someone with your characteristics.
  • An institution like the University of Florida is mainly looking for exceptional students, that is, for scholastic achievement, and you will get some grant and gift aid there but much less because states have less money for grant and gift aid then well-endowed colleges.
  • Remember, this is only an estimate, and if you’re really interested in a particular institution, you should always contact that institution’s financial aid office to get a more accurate estimate of what the cost of attending the institution for you will be.
  • NATALIA: OK, I took a quick look, and they want lots of financial information.
  • You will also need information on any real estate that Anna Maria owns.
  • Finally, you will need information on any investments that she has, such as CDs and also information on her bank accounts.
  • Before you start answering information asked by the net price calculators, you should establish a College Board account.
  • By establishing this account, you will be able to save all information that you enter.
  • Colleges’ net price calculators ask for different types of information because they have different types of financial aid.
  • Most of these calculators ask for very similar financial information.
  • Be careful to enter your information in the net price calculators as accurately as possible.
  • It is particularly important that you fill in the right tax information.
  • How much did your parents earn in wages, salaries and tips in the most recent tax year? Where do we find that information? Oh, it’s on line seven on the 1040 form ANNA MARIA: Line seven, $82,500.
  • The next question, how much did parent one earn from work? Is that the same as the last question? ANNA MARIA: This is really confusing and asking for too much personal information.
  • Do we really need to do this? NATALIA: Please tia, my counselor said that the information is secure and confidential, and that this is the best way we can get an idea of what college is going to cost.
  • ANNA MARIA: OK. NATALIA: Next question, how much did your parents receive in interest and dividend income.
  • How much do you have in cash savings and checking accounts? ANNA MARIA: Ave Maria, so much information.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Avatar Video: Anna Maria and Natalia determine college costs (Part 2)

  • AUNT: Natalia, I have the information we needed to finish this.
  • NATALIA: OK. So how much do you have i cash savings and checking accounts? AUNT: $80,000.
  • The Florida state grant depends only on scholastic achievement and community service.
  • You will get through this, and you will have a much better idea of what Natalia’s college education will cost.
  • AUNT: Then what did we have to put all that information for? NATALIA: Maybe the Wellesley net price calculator will use the information.
  • AUNT: OK. Put no for now and let’s see what else they want.
  • Put zero for now and I’ll figure out how much I have in CDs. NATALIA: Do you owe anything on your CDs? AUNT: Of course not.
  • NATALIA: OK. You don’t own a business, right? AUNT: Of course not.
  • NATALIA: Do you have any assets in Juan’s name? AUNT: Why would I put any assets in his name? He can take care of himself.
  • NATALIA: The next question is, “How much did your parents pay or expect to pay in the most recent year for medical and dental expenses?” AUNT: I think I spent $500 last year.
  • NATALIA: Well, I guess I don’t have a lot of finances, except what’s in my savings account.
  • AUNT: OK. I have the information ready to finish the form.
  • AUNT: I know you would like to go to Wellesley but I don’t think we can afford it.
  • 25,000 is a lot of money, and the University of Florida is $10,000 cheaper.
  • University of Florida has a good engineering and great science programs too.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Costs – List price vs. Net Price, Out of Pocket vs. Opportunity costs

  • SPEAKER: You have just seen a video where Anna Marie and Natalia have compared both list prices and net prices for attending the University of Florida and Wellesley College.
  • You need to go to the Department of Education’s portal, and you need to calculate the net price of attending that particular training program.
  • Why is it important to compare net prices rather than to compare list prices when selecting a program? Well, look at the difference between net and list prices for Wellesley College and the University of Florida.
  • The next thing we’re going to do is we’re going to develop a spreadsheet that you can use to estimate the cost of any education and training program.
  • The upper part- the part above the row 8, Net Education Cost, Opportunity Cost, Year One- are assumptions.
  • For example, we used Education Department statistics to estimate that the out-of-pocket costs of education and training will increase by about 3% per year.
  • We used National Longitudinal Survey data to estimate that the opportunity cost of education and training will increase by about 4% per year, which is the average increase in earnings for high school graduates between the ages of 18 and 24.
  • To obtain an estimate for the opportunity cost of Natalia’s education and training, we use the Bureau of Labor Statistics’ Occupational and Employment Statistics.
  • The first thing you need to do is you need to select the state where you would have been living had you not been in the education and training program.
  • Because those opportunity costs increase at 4% a year, her opportunity cost is over $23,000 in year two, over $24,000 in year three, and over $25,000 in year four.
  • Going to the Total Costs column, you can see the increase in the costs of her education as time goes by.
  • Costs start at $40,000 a year and end up at over $44,000.
  • Opportunity costs are usually a major- if not the major- component of your education and training costs.
  • In the case of Natalia, even though she’s attending a state university with relatively low tuition and fees, her education and training is still going to cost $170,000 over the course of the four years of her university education.
  • During the course of her college career, her out-of-pocket costs increase by approximately 9%, and her opportunity costs increase by approximately 12%. About 60% of the total costs of her university education are opportunity costs, and approximately 40% are out-of-pocket costs.
  • The important takeaway here is that opportunity costs are major, and ignoring them can lead to bad educational decisions.
  • Another major takeaway from Natalia’s spreadsheet is that university education or college education- indeed, most education and training programs- cost a lot.
  • Even if you’re attending a state university with relatively low tuitions and fees like the University of Florida, you will still spend a lot on education.
  • So what are the takeaways from this module? The first, I think, is that you want to get as much grant and gift aid as you possibly can for your education and training.
  • You may, like most of us, have to borrow money for your education and training, but you should borrow as little as possible.
  • The next important point from these materials is that, whenever you compare and try to decide between different education and training programs, you should use the net prices that come from net price calculators, not the list prices that appear on education and training websites.
  • Using lists prices can lead to the wrong education and training decisions.
  • Use the spreadsheet that we have developed in this module to let you think systematically about your education and training decisions.
  • One final point is that make sure that you estimate the opportunity costs of your education and training program, not just the out-of-pocket costs.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 1: Overview

  • SCOTT WALLACE-JUEDES: Hi. My name is Scott Wallace-Juedes, and I’m here to share some information about a very important piece of every personal financial plan- how to finance one of your largest and most important investments, a college education.
  • Costs and financial aid are generally the starting point where most families want to jump into the conversation.
  • I would like to take some time and focus our conversation today on some best practices for beginning your college search.
  • In thinking about how you might want to start your college search, I’d first like to encourage you to start building your financial and college list without looking at the sticker price.
  • In 2014, the National Association of College and University Business Officers conducted a survey in which they surveyed 411 private, not-for-profit colleges.
  • Starting off to create your all-inclusive college list, instead of starting with finances and how much it would cost you, I would suggest starting off with other critical factors rather than the published price.
  • What sort of academic programs does the college or university offer, or what are they known for? What about the geographic area? Are you looking to stay close to home, or would you like to go further away? What type of campus setting are you looking for- an urban school or a rural campus? And what type of institution are you looking for- a private, a public, a community college, a liberal arts college, or, perhaps, a minority-serving institution? What size of institution would you be happiest with? Those are all critical factors that you can use to start to build this larger, more comprehensive list.
  • Do you know what the institutional mission and goals are? How do they line up with your own personal goals? Will it be a good fit academically for you? But what about the social aspect as well? Is that something that you need to consider? Can you imagine spending the next three, four, or five years on this college campus? Are you looking for an online program, a completely campus-based program, or some sort of blended learning processes? These are all factors that need to be accounted for in your college list.
  • Now that you’ve created this large, expansive list with all the institutions that you might want to consider, regardless of cost, now it’s time to start paring that group down to the institutions you’re truly interested in and what it might cost you.
  • This estimator is slightly different than the Net Price Calculator in that it’s not going to give you a precise net price, but it’ll give you a cost range and a cost estimate for that individual school.
  • This is a site put out by the US Department of Education and allows you to compare specific data points between institutions.
  • Each institution is required to file this survey, and so the data elements are going to be comparable from institution to institution.
  • To quickly recap, we’ve learned that your personal financial plan must include planning for higher education and college expenses much earlier than most people actually start the process.
  • We learned that finding a good financial fit mean starting early and finding a good academic and social fit, not starting with a sticker price.
  • Follow these basic starting points and I’m sure that you’ll have a financially successful search.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 2: Types, Process, Terminology

  • SCOTT WALLACE-JUEDES: Now that we have talked about how your financial plan for college really relies on starting off with a good, solid college list, I’d like to step into the financial aid world, and I’d like to start talking about the different types of financial aid, the financial aid process and timeline, as well as cover some of the basic jargon that you might hear when discussing a financial aid award.
  • So the first thing that we would need to agree upon is what is financial aid.
  • Financial aid is considered to be any funding that actually helps you pay for your post-secondary degree.
  • Two of the main types of financial aid that I’d like to cover with you today would be merit-based financial aid and need-based financial aid.
  • So let’s start talking about merit financial aid first.
  • Merit-based financial aid is often based off of either a meritorious act, or you have done something to earn those funds.
  • Oftentimes, merit-based financial aid is also renewable, which means that it’s a steady source of financial aid and funding for future years.
  • By contrast, need-based financial aid is based off of your specific family’s ability to contribute towards your college.
  • Need-based financial aid might be in the forms of grants and scholarships, or it may also include items such as work study and your student loans.
  • Both need-based and merit-based financial aid are available from a variety of sources.
  • The first and largest provider of financial aid funds is the US Department of Education, or federal financial aid.
  • For most private colleges or universities, they will offer significant financial aid.
  • Again, some of it is based off of merit and some is based off of need-based financial aid.
  • So now that we’ve discussed the different types of financial aid and the different sources of financial aid that are available, I want to talk a little bit about the timeline.
  • My suggestion is that you begin the process in early fall by reviewing any financial aid application materials that are available.
  • You’ll want to be sure to complete the financial aid application process as soon as you possibly can to ensure full consideration for financial aid.
  • In other words, they’ll continue to receive and process financial aid applications as long as you’re admitted.
  • The first one would be cost of attendance, sometimes referred to as your financial aid budget.
  • It’s not as straightforward as it sounds, as it’s not necessarily what you will ultimately pay due to discounts and financial aid that would be subtracted from your costs.
  • In order to determine the family’s financial need, you would take the cost of attendance, and you would subtract what the family is expected to contribute through the EFC, and you’re left with your financial need.
  • One of the questions that you will want to ask colleges and universities is how exactly will they fund that financial need.
  • Self help is the portion of your financial aid award that is comprised of either work study and/or student loans.
  • So to briefly recap today’s conversation, financial aid processes, as you can tell, can be complex.
  • In order to be successful, I would recommend making sure that you have time to fully research and understand aid programs at every institution.
  • Be sure to understand the type of financial aid that they offer, what the application process is like, and what are the timelines for that specific institution.
  • There is plenty of free help that is available via the financial aid office and other professionals in the business.
  • Oftentimes, I’m asked if family should pay for help in order to complete the financial aid process.
  • I want to assure you that if you’re willing to put in a little bit of time and effort, that generally speaking, paying for additional help does not increase the chances or the amount of financial aid that you’ll receive.

Week 2 > Module 3 – Part 1, Costs: What does Education and Training really cost? > Financial Aid Part 3: Common Questions

  • We’ve also taken a look at some of the financial aid timelines, process, and jargon.
  • One of the most common questions I get from dependent students is, whose information, and what information, will be used to determine my financial aid eligibility? I’d like to take us back and first talk about merit-based financial aid.
  • Merit-based financial aid will not be using your parent or family financial information whatsoever rather, will be based off of another list of criteria that is determined by each individual school or scholarship that’s making the award.
  • Need-based financial aid will be based off of your family’s financial situation.
  • Both a parent and a student contribution are calculated through this formula, and they are based on both the income and assets of parents and students.
  • By applying for federal financial aid through the FAFSA, which is the Free Application for Federal Student Aid, you’ll only be required to provide information regarding your custodial family.
  • If you’re applying for institutional, or state aid, you may be required by each individual college to provide information about this non-custodial family as well.
  • The last question I’d like to explore today is what happens after you receive your financial aid award.
  • The question often is asked, how can I figure out what my out-of-pocket expense will actually be? Do I just take the bottom-line figure off of each financial aid award? That is most definitely not the case.
  • The first thing that you need to understand is what each line item on your financial aid award actually represents.
  • It’s important to understand, is that a federal loan or a private loan? Is it through your institution? And is it for the parent or the student as the borrower? The third type of financial aid fund that you want to be sure to understand is work-study.
  • The important component here is that financial aid work-study is not given upfront but is only paid as any regular job is paid, by the number of hours and your pay rate.
  • In College A, which is the least sticker-priced institution, you can see they also offer the least amount of gift aid, meaning that the real cost for you is somewhere around $15,000.
  • College B, which is a middle-priced institution, offers some amount of gift aid, but ultimately costs you slightly more at $17,000, which still seems like a good deal in this example.
  • College C, which is the most expensive institution on our list, has the most generous gift aid policy of $59,000, bringing the real cost to you down to $4,000 dollars in this example.

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