Personal Finance:
a Gospel Perspective
Financing Education
Objectives

A. Understand how education relates to
financial goals.
 B. Understand the priority of money for
financing school.
 C. Understand how to save for your children’s
education.
 D. Understand how to reduce the cost of
education and sign up for aid.
A. How Education Relates
to Financial Goals
Level of Education
Annual Earnings
Not a HS graduate
$21,314
High school graduate
30,560
Two-year vocational
36,833
Associate
38,118
Bachelor’s
49,334
Master’s
57,676
Doctorate/Professional $71,573
Lifetime Earnings
$852,577
1,222,396
1,473,335
1,524,703
1,973,760
2,307,025
$2,862,914
Source: “Give Yourself the Gift of a Degree: Vocational Education Worth
Almost $1.5 Million Over Working Lifetime," an EPF News Release from
the Employment Policy Foundation.: December 19, 2001, Washington,
D.C..
Does Education Pay?
• Does education pay?
• The numbers indicate that education is a great
investment for young people and parents, alike.
• Is education a good investment?
• President Gordon B. Hinckley said:
• “Now is the season to train your minds and your
hands for the work you wish to do. Education
can prove to be the wisest and most profitable
investment you will ever make.” (Tambuli, Sept.
1989, 49.)
• What do our leaders say?
• “Get as much education as possible.” (“The Purpose of
the Aaronic Priesthood,” Aaronic Priesthood: Deacon, Fulfilling Our
Duty to God, 2001, 7.)
Does Education Pay?

President Hinckley further counseled:
• Get all the schooling you can. Education is the key
that unlocks the door of opportunity. God has
placed upon this people a mandate to acquire
knowledge “even by study and also by faith” (D&C
88:118). (Gordon B. Hinckley, “Some Thoughts on Temples,
Retention of Converts, and Missionary Service,” Ensign, Nov. 1997,
49.)
Is Education Cheap?

Cost Facts:
• Average medical school debt in 1997 was $80,402
and rising.
• Average top 50 MBA programs: $27,714 (the price
varies between universities)
• Average cost in tuition, fees and lost salary:
$126,700
• Average annual budget for students of Western
United States programs: $24,781
• Average annual budget for students of BYU in
2003: $17,0581
 Education isn’t cheap, but the cost of ignorance is even
higher!

1. Average between undergraduate and graduate and LDS and non-LDS from BYU Student Financial Aid
Office
Should Your Children
Pursue an Education?
President Hinckley said:
• “You young people, the little decisions that you make
can so affect your lives. Shall I go to school or not?
Shall I continue on with my education? That is a big
decision for some of you. Our doctrine suggests,
although there may be some circumstances that would
affect that decision, that the more education you
receive the greater will be your opportunity to serve.
That is why this Church encourages its young people
to get the schooling that will qualify them to take their
places in the society in which they will become a part.
Make the right decisions. Take a long look.” (Pocatello, Idaho,
regional conference, Idaho State University, 4 June 1995).
B. Understand the Priority of Money
for Education

Is there a priority of money for financing
school?
• Priority of Money for School
• A. Free Money: Scholarships and grants
• B. Family Money: Personal savings and family
help
• C. Employment: Employment during school and
work-study
• D. Loans: Student loans, both federal and
private, subsidized and unsubsidized
• E. Credit Cards: A rarely recommend last resort
• Credit cards and private loans are last on the list!
a. Free Money

Scholarships and Grants
• This is free money which is not paid back
• Note: If you have to pay money to get a
scholarship or grant, it is generally a scam!!
• Grants are different; generally based on need.
• Pell Grant: Based on need, from approximately
$400-$4,000 per year. Fill out a FAFSA
• Scholarships from schools and private sources
• You may need a supplemental application
• Find out which ones you are eligible for on a
scholarship search engine and apply for each
• Armed Forces Scholarships: See the recruiting office
b. Family Money
• Personal Savings and Help from Parents
• If you pay for your education, you will likely use
your resources more wisely, as its your money you
are spending.
• Start the process of financial self-reliance as soon as
you can.
• Do as much as you can, then ask for help!
• If your parents can help, that is wonderful.
• Regardless, be very appreciative of anyone who
helps!
c. Employment

Employment
• While there is not a federal work-study program
here, there are plenty of employment opportunities.
• There is a trade-off
• Be careful not to spend so much time at work
that you cannot give schooling the time and
effort it deserves.
• You will likely make more money after your
schooling than you will during your
schooling.
• Be careful that you don’t short-change your
education.
d. Loans

Federal Financial Aid Options
• Must be a US resident, over 18, high school grad,
be enrolled at BYU in a degree-seeking program
and filled out a FAFSA. Other requirements:
• Be a citizen or eligible non-citizen with a valid
social security number
• Have a high school diploma, (GED), or have
passed an approved "ability to benefit" test.
• Enroll in an eligible program as a regular student
seeking a degree or certificate.
• Register or have registered for Selective Service
for males.
• Have a result of Eligible or Partially Eligible on
the Drug Conviction question (Question 31).
Loans (continued)


• In addition to the federal requirements, you must:
Pell Grant Eligibility
• 1. Be admitted as an undergraduate to a BYU
degree-seeking program for a current or future
enrollment period during the academic year.
• 2. Not already have a baccalaureate degree.
Stafford Loan Eligibility
• Be a U.S. citizen, permanent resident, or other
eligible non-citizen with a high school diploma or
equivalent.
• Be admitted to BYU in a degree-seeking program.
• Be making satisfactory academic progress, and not
be in default on a federal student loan or grant
Loans (continued)
 Subsidized
Federal Loans
• Subsidized Stafford Loans: Variable rates which
cap at 8.25%, loan fee repayment begins 6 months
after graduation, government pays interest while
student in school. Loan amounts range from $2,625
to $5,500, depending on class standing. If you are
an independent or graduate, loan limits increase.

Unsubsidized Federal Loans
• Unsubsidized Stafford Loan: Variable interest rate
which caps at 8.25%; loan fee; student responsible
for interest that accrues. Funds range from $2,625
to $5,500, depending on class standing. Loan limits
increase for independent or graduate students.
Loans (continued)
 Subsidized
Private Loans:
• •Woolley Law Loan (law) - Available for full-time
law students. No interest while in school; payments
begin 9 months after graduation or discontinuance of
full-time status
• •Marriott School of Management Loan (business) –
Available for full-time MSM graduate students. No
interest while in school, payments begin six months
after graduation or discontinuance
• •BYU Short-Term Loan - Available for part-time and
full-time undergraduate and graduate students
admitted to a degree-seeking program. Full amount
must be repaid within the same term or semester loan
is received.
Loans (continued)
 Unsubsidized private
loans
• PLUS Loans: Parent Loans for Undergraduate
Students are available for parents of dependent
students to help with school-related expenses. The
FAFSA does not need to be submitted.
• Parents are the borrowers, interest rates are
variable with an interest cap at 9%; parents can
borrow up to cost of education less financial aid
the student receives, and repayment begins 60
days after the loan is disbursed.
Loans (continued)
 Unsubsidized Private
Loans – steer clear
of these
• GAP Loans: These are regular loans offered by US
banks with all the constraints intact (be careful).
• These loans have higher interest rates, higher
up-front fees higher, and may require a
cosigner.
• Read the fine print VERY CAREFULLY.
e. Credit Cards
 Credit
Cards
• The most expensive way to borrow
• They give you the least flexibility
• They require you to pay it back immediately
• There is no help in the payment of interest
• The interest rates are extremely high and you are
in school
• This is the least advisable way to finance schooling
and is usually the result of poor planning!!!
Consolidating Student Loans



If you are getting out of school, it may make sense to
consolidate your student loans through UHEAA.
Consolidated loans are at a fixed rate and interest rates
are at an all-time low (until July 1, 2005).
• Loans designated as part of the Federal Family
Education Loan Program (FFELP) qualify for
consolidation.
Benefits
• If automatic payments are retrieved from savings
or checking accounts, UHEAA will reduce the rates
by 1.25%.
• After 48 payments on time, UHEAA rates will be
reduced by 1.0%.
Contact UHEAA at 800-663-1662 or www.uheaa.org.
Heads Up! Deadline Approaching!





June 30, 2005 Deadline: In-School Stafford Consolidation
with the Current Low Rate. Thereafter, students may continue
to consolidate Stafford Loans while in school, but at a higher
interest rate.
The U.S. Department of Education announced a new policy
that may reduce the monthly payments and interest paid by
Stafford Loan borrowers.
Individuals may now consolidate Stafford Loans while they
are still in school, IF they have an outstanding balance of at
least $7,500.
Today’s Stafford Loan interest rates are the lowest in 40 years.
Stafford Loan interest rates will go up significantly on July 1,
2005.
Heads Up… Stafford Loan Dates

Note: Be aware of this!!!!!
• Individuals who consolidate their Stafford Loans by June
30, 2005, can secure a fixed, weighted-average interest
rate that is very low by historical standards.
• Students, whose oldest Stafford Loan was taken out in
1993, or thereafter, will have a 2.875% rate. That rate can
be reduced to 1.625% per year, IF the student sets up
“automatic repayment” AND faithfully makes payments
on time. After four years of faithful automatic repayment,
the rate can then be reduced to 0.625% per year.
• Students with loans borrowed before 1993 will have a
weighted-average interest rate that is somewhat higher, if
they choose to consolidate.
Heads Up …Utah Lenders & UHEAA





Interested individuals with a Stafford Loan from a Utah lender
should contact Utah Higher Education Assistance Authority
(UHEAA) at (877) 336-7378, or WWW.UHEAA.ORG to learn
and carefully evaluate all relevant details before making a choice
regarding consolidation.
To consolidate through UHEAA, students must complete, sign
and submit both the “In-School Consolidation Program Request
for Immediate Repayment” and “Federal Consolidation Loan
Application and Promissory Note” to UHEAA no later than June
30, 2005 to take advantage the current low interest rate.
FAX transmissions are not acceptable. Only original signatures
on the original consolidation applications will work.
Individuals who do not have a Utah lender should contact their
respective guarantee agencies.
(This message is not intended to be legal or financial advice.)
Heads Up … Grace Period

Students with only Stafford Loans will lose their six-month grace
period upon consolidating. However, those who graduate and do
not immediately have full-time employment may request a sixmonth “lack of full-time employment deferment” that will serve
the same purpose—until they secure full-time employment or
three years passes, whichever is longer.
 Students with at least one Direct Student Loan are free to
consolidate both Direct and Stafford Loans with the U.S.
Department of Education at any time to lock in a low interest
rate. Students with a Direct Student Loan who consolidate with
the Department of Education will NOT lose their six-month
grace period. These students may also check with UHEAA to
see whether or not, after they have consolidated under the Direct
Loan program, there may be a way to consolidate again with
UHEAA in order to take advantage of UHEAA’s generous
borrower benefits, which include reduced interest rates for
automatic repayment. (This may require taking out a new,
UHEAA Stafford Loan at the end of the process.)
C. How to Save for
Your Children’s Education
 College
Savings Plans
• Major ways to save for college:
a. Custodial Accounts
b. Series EE and Series I Government bonds
c. Education IRA
d. 529 Prepaid Tuition Plan
e. 529 Savings Plan
Custodial Accounts
Advantages:
• Not considered the parents income after the child
reaches age 14.
• Can be invested in all types of financial
instruments, stocks, bonds, mutual funds, etc.
• Can be used for any educational or other expenses,
including missions.
Disadvantages:
• No tax advantages.
• Is considered the child’s money as soon as the child
is of age—it cannot be taken back by the issuer.
Series EE and Series I Bonds
•
•
Advantages:
• Earnings are tax-free if used for paying tuition and
fees
• Earnings are not taxed until bonds are cashed.
• Interest rates are competitive.
• Can be purchased in small denominations and on
credit cards.
Disadvantages:
• 3-month penalty on early withdrawal before 5
years, with minimum holding period of 1 year.
• $30,000 per year maximum in 2004.
• Can only be used for tuition and fees, not other
Education IRA
•
Advantages:
• Distributions are tax-free (even beyond 2011).
• You choose your investments.
• Can be used for eligible elementary, secondary and
post-secondary education expenses.
•
Disadvantages
• Contribution limits of $2,000 per year, which may
phase out as your income increases beyond specific
limits ($95k single, 190-220k married filing jointly).
• Funds must be used by age 30 (but can be
transferred to other students).
529 Prepaid Tuition Plan
Advantages:
• You know tuition will be covered, regardless of
raises in costs.
• May be useful if you think you will not be eligible
for financial aid.
Disadvantages:
• May not be offered in the state you/your child wants
to attend.
• Does not allow you to choose your investments.
• Your children are young, so you could be more
aggressive with your money, resulting in higher
returns.
• Assets in this plan reduce financial aid dollar for
dollar.
529 Savings Plan
•
•
Advantages:
• Control of the funds resides with the contributor,
who chooses the assets within options provided.
• Distribution limits are higher.
• Are not considered assets of the student, which
increases aid.
• May offer tax deductions for contributions to your
local 529 funds (check by state).
• Distributions are tax-free - up to 2011. (We assume
the tax deductibility will be renewed).
Disadvantages:
• May not cover all college expenses.
College Savings Plans Comparison Chart Coverdell
and 529 information From Robert Brokamp, the Motley Fool.com, May 1, 2002
College Savings Plans Comparison Chart
C ustodi al Account
Highlight s
Can be open by anyone
Offered by…
Brokerages, mut ual
fund companies, banks
Cont ribut ion limit
Se ri e s EE/I
C ove rde l l ESA
529: Pre pai d Tui ti on
529: Savi ngs Pl an
An invest ment account
Cont ribut ions t oday are
available t o cont ribut ors guarant eed t o cover
who earn less t han $110K t uit ion cost s in t he fut ure.
(for single filers) and
$220K (for joint filers)
A st at e-sponsored
invest ment account for
t he benefit of anyone -your child, your cousin,
your neighbor, yourself
US Government
Brokerages, mut ual fund
companies, banks
St at es
None
$30,000 per year for
EE and I bonds
$2,000 per st udent per
year
Depends on plan and age
of st udent
T ax t reat ment of
wit hdrawals
No favorable t ax
t reat ment
T ax-free if used for
qualified expenses and
if your income is
wit hin t he government
set limit s. T axes may
be eit her paid annually
or when redeemed.
T ax-free if used for
qualified expenses
T ax-free if used for
qualified expenses
St at es (usually wit h help
from a financial services
companies)
Depends on plan -- varies
from $100,000 t o
$305,000
T ax-free if used for
qualified expenses unt il
2010 (dist ribut ions will
count as income t o t he
st udent in 2011 and
beyond unless Congress
ext ends t he current law)
Qualified expenses
None
T uit ion, fees, supplies
and special needs.
Room and board are
not qualified expenses.
T he amount of
qualified expenses are
reduced by scholarships
and ot her aid.
T uit ion, room, board,
fees, supplies, and special
needs relat ed t o t he
at t endance of a qualified
element ary, secondary, or
post -secondary
inst it ut ion
T uit ion at a college
wit hin t he plan (some
plans will also cover
room and board)
T uit ion, fees, room, and
board at qualified highereducat ion inst it ut ions
www.Tre a s urydire c t.go v
Mot leyFool.com
Mot leyFool.com
Mot leyFool.com
Source of Informat ion: Charles Schwab
College Savings Comparison
(continued)
College Savings Plans Comparison Chart
C ustodial Account
Se rie s EE
C ove rde ll ESA
529: Pre paid Tuition
T ax-deductibility
None
None
None
Investment flexibility
Assets can be invested
in stocks, bonds,
mutual funds, and cash
equivalents.
Investments can be
bought and sold as
often as desired.
Bonds must be held at
least 5 years for full
interest. An interest
penalty of 3 months
will be assessed on all
bonds cashed before 5
years.
Assets can be invested in
stocks, bonds, mutual
funds, and cash
equivalents. Investments
can be bought and sold as
often as desired.
Ability to transfer
account
None
None
Account may be
Depends on plan
transferred to other
brokerage or mutual fund,
or to a 529 plan, subject
to fees and penalties.
Interaction with Hope
and Lifetime Learning
Credits
None
None
Credits can be claimed in
the same year as tax-free
withdrawal provided that
the distribution is not
used for the same
expenses for which a
credit is claimed.
MotleyFool.com
Source of Information: Charles Schwab
www.Tre a s urydire c t.go v
Some states allow
contributions to be
partially or completely
deductible.
Plan administrators
invest all assets.
Credits can be claimed in
the same year as tax-free
withdrawal provided that
the distribution is not
used for the same
expenses for which a
credit is claimed.
MotleyFool.com
529: Savings Plan
Some states allow
contributions to be
partially or completely
deductible.
Assets are professionally
managed. Depending on
the plan, participants can
choose from two to
almost 30 mutual fundtype investments.
Investment choice may
be changed once every 12
months.
May transfer to another
529 plan once every 12
months
Credits can be claimed in
the same year as tax-free
withdrawal provided that
the distribution is not
used for the same
expenses for which a
credit is claimed.
MotleyFool.com
College Savings Comparison
(continued)
College Savings Plans Comparison Chart
C ustodial Account
C ove rde ll ESA
529: Pre paid Tuition
Assets are considered
to be property of the
account owner, which -unless the owner is also
the beneficiary -means only a small
portion of the assets
will be considered in
the finanical aid
calculation
Control of the account In most states, account In most states, control
assets become property of account will always
of the student at age
remain with
18.
contributor.
Must use funds by…
No age limit
No age limit
Considered to be an asset
of the student, which
means a large portion of
the assets will be
considered in the
financial aid calculation
Considered to be the
student's resource and
thus reduces financial aid
dollar-for-dollar
In most states, account
assets become property
of the student at age 18.
In most states, control of In most states, control of
account will always
account will always
remain with contributor. remain with contributor.
Age 30
Varies by plan
Varies by plan
Assignability to other
relatives
Immediate family,
including cousins, steprelatives, and in-laws
Earnings are taxed as
ordinary income to
contributor, plus a 10%
penalty
T ax-filing deadline for
the year of the
contribution
MotleyFool.com
Immediate family,
including cousins, steprelatives, and in-laws
Earnings are taxed as
ordinary income to
account owner, plus a
10% penalty
Depends on the plan
Immediate family,
including cousins, steprelatives, and in-laws
Earnings are taxed as
ordinary income to
account owner, plus a
10% penalty
Depends on the plan
MotleyFool.com
MotleyFool.com
Effect on financial aid
Se rie s EE
Considered to be an
asset of the student,
which means a large
portion of the assets
will be considered in
the financial aid
calculation
Penalty for nonqualified withdrawals
None
Selling before 5 years
results in a 3 month
interest penalty
Contribution deadline
None
None
Source of Information: Charles Schwab
www.Tre a s urydire c t.go v
529: Savings Plan
Assets are considered to
be property of the
account owner, which -unless the owner is also
the beneficiary -- means
only a small portion of
the assets will be
considered in the
finanical aid calculation
D. How Do You Reduce the Cost of Your
Kid’s Education and Sign up for Aid?


1. Encourage parents to begin planning early.
• We will discuss various vehicles later in this class.
2. Fill out the FAFSA (Free Application For Federal
Student Aid) on the net at www.FAFSA.ed.gov
(remember your PIN number).
• Follow the instructions and do it early (usually after
your tax forms are completed). You may submit the
FAFSA as early as January 1 for the fall term. The
amount of your award is based on the FAFSA and
credit hours, not when you apply.
Signing Up for Aid (continued)
 3.
Talk with the Financial Aid Office at
BYU.
• They will guide you in the process and help you in
determining your eligibility for aid
www.financialaid.byu.edu
 4.
Look for other available aid on the
web.
• View the following sources and utilize them:
Helpful Websites Containing Information
about Financing School

www.byu.edu select <students>, <financial
links> and then <financial aid> or
<scholarships>
• BYU Financial Aid Office 801-378-4104. Now is
when to apply. To have your federal aid in place by
fall semester, it is wise to submit the FAFSA by
June 1 the same year, unless you are planning to
marry; make an appointment with a counselor if
you have questions.
• BYU Scholarship Office 801.422-2146. Check
www.byu.edu/scholarships for deadlines. If you
miss the scholarship deadline, you will not be
considered for that time period.
Resources for Financing School (continued)

www.fafsa.ed.gov - Free Application for
Federal Student Aid. This form must be filled
out for any federal financial aid.
 www.fastweb.monster.com – matches student
profiles to a database of scholarships.
 www.collegeboard.com– connects student
profiles to a database of scholarships,
internships, and loans.
 www.srnexpress.com – contains resources on
scholarships, fellowships, internships, and loan
forgiveness programs.
Resources for Financing School (continued)

www.estudentloan.com/loanfinder - search for
available loans.
 www.wiredscholar.com – a good website for
college preparation and information.
 www.finAid.org – a comprehensive site that
has information on loans, scholarships and
savings plans.
Review of Objectives

A. Do you understand the importance of how
education relates to your financial goals?
 B. Do you understand the priority of money
for financing school?
 C. Do you understand how to save for your
children’s education?
 D. Do you understand how to reduce the cost
of education and sign up for aid?