Jonathan Hughes: [00:00:00]

Okay

Yeah, sorry about this. Um, here we go. So this is our Saving for College presentation. Uh, obviously, uh, my name is Jonathan Hughes. I’m here from MEFA. MEFA is the Massachusetts Educational Financing Authority, and we were created back in 1982 by the Commonwealth of Massachusetts to help families to, uh, plan, save, and pay for college and career readiness, and we do that in a variety of ways.

We, uh, were created to offer a loan, which is something that we still do for, for college education. Uh, since 1982, as you may have noticed, the cost of college has continued to rise and rise, and so simply offering that loan was not enough to meet our mission. We added two savings programs, the UPlan Prepaid Tuition Program, which we’ll talk about here, as [00:01:00] well as the UFund Massachusetts 529 Plan, which we will also talk about.

Um, so that’s how we help families to pay and to save for college, and how we help them to plan for college is by doing things like this. Uh, we have a lot of tools, a lot of guidance, a lot of free outreach and education, uh, on, you know, sort of best practices and how you can plan, save, and pay for college.

Um, basically, what, what I want to say is that if you have any questions between now and when your child either goes to college or does whatever they’re going to do after high school, even before, um, we are a free resource for you to use. So go to mefa.org, seek us out on social media, call us. You can make a, an appointment, uh, a virtual appointment for free.

Um, we are a resource, whether you live in Massachusetts or not, to help you with these questions. Um, as far as [00:02:00] the webinar is concerned, as I said, it’ll take us about 45 minutes or so to get through it, maybe an hour. Um, if you have questions, submit them through the Q&A, and, uh, I will get to them either as you submit them or afterwards.

Um, but, um, we’re, I think we’re still a relatively small group at the moment, um, and, uh- want us to be able to, uh To have a conversation. Let me just see. And you can also select the, uh, live transcript feature if you are, um, having a hard time hearing or can’t listen, and you just wanna read what I’m saying.

Um, and otherwise submit questions through the Q&A as the chat has been disabled. So what we’re gonna talk about tonight, why saving for college is important. I think you probably have an idea that it is, and we’ll reinforce that, um, and tell you why exactly it is important to save for college. [00:03:00] We’ll talk about two specific Massachusetts savings options, the ones that I just sort of outlined before, the U.Fund and the U.Plan.

Although, you know, I’m always at pains to say whatever way you do save is better than not saving at all. Um, I’m not trying to necessarily sell you on these particular options. However, there are ways to save for college specifically and, you know, s- ways that are designed to, uh, benefit you a little bit more if used for college, and that’s, um, why we’re gonna talk about these plans.

We’re gonna talk about how folks actually save for college and how they can, uh, strategize and what has worked for some people as they save for college. And then finally, we’re gonna finish with how families actually do pay for college and any other education that they may get after high school. So, um, you know, I have been working at MEFA for 25 years, and the most common question I get is, “How do people do this?”

And so we’re gonna talk about [00:04:00] how they do this, and to g- that will give you a better idea once you understand what your savings goals should be and how you can save. Okay. Starting off with why save? Some myths that we’ve heard about saving for college, and this is the most important thing, so we put it right up front here.

Number one: My savings will hurt my financial aid. So many of you have an idea, not necessarily incorrect, that college is very expensive, or it certainly can be, right? And so, but there’s this other thing to balance it out called financial aid. And so people hope they get a lot of financial aid. I hope you get a lot of financial aid.

But, um, they’re afraid to save because they think a college might look at, you know, if they’ve saved $10,000 and say, “Oh, I was gonna give you $10,000 in financial aid, but I see you have that saved, so that can go to some other student.” That’s not actually how it works. There’s two ways to award financial aid: merit-based financial aid and need-based financial aid.

Merit-based financial aid, think about scholarships [00:05:00] from the colleges, academic scholarships, athletic scholarships, whatever it may be. That is not based on parent or student finances at all. Um, that’s merit-based financial aid. Now, most financial aid isn’t merit-based. It is need-based financial aid. And so they sort of calculate how much money you make, how much money you have, et cetera, and they come up with your financial aid eligibility by determining what your need is.

Now, that’s when you file your financial aid forms in the senior year of your student’s high school, whether it’s the FAFSA, which you’ve probably heard about, or other school-specific forms. You file those forms, you put in all this information, and they determine, uh, what you’re eligible for. In those calculations, savings, assets, uh, particularly of the parent, count for very little.

Um, the main weight of, of that… What was it? The main [00:06:00] determinant in de- figuring out how much you can afford to pay for college for a year is income, not assets. So, um, it has a very minimal impact on financial aid. It will take at most of all of a parent’s available savings or eligible savings or assets to pay for college, anywhere from 0% to 5.6% of that into account.

So think about it. If you have $10,000 that you have saved for college, a college may look at that and not take any of it, or they might look at it and say, “Okay, you saved $5,000. We’re gonna expect you to pay an extra $560 because of that.” Um, so, you know, might it affect your financial aid? It might to a small extent, but if you are expected to pay $560 and you have 10,000, um, you know, I think you’d rather be in that situation than not have anything saved.

So it has minimal impact on financial aid. The other thing that we hear all the time is, “It’s not worth saving for college [00:07:00] if I can’t save the entire cost.” Very few people actually come out and say that, but it’s more of an attitude, and you can see this, and I, and I have experienced this myself. So I remember when my son was born 13 years ago now, um, my colleague at the time said, “Let’s see how much college is gonna be for him when he, uh, graduates and/or when he’s ready to go.”

And of course, we did a four-year private college in New England, and I remember seeing the figure was something like $450,000, some amount. And I thought, “Oh my God, I can never save $450,000.” And do you know what? That’s probably true. I probably can’t save that amount. I certainly haven’t. Um, but I know that that’s not necessarily the goal that you should have in mind, right?

There is financial aid. Uh, that sticker price, the main cost of co- the, the total cost of college without anything taken off from aid is what very few families will have to, uh, pay. Most families will be [00:08:00] eligible for some level of financial aid. And the fact is that even if you are or if you aren’t, the truth is that if you’re not planning to save or if you’re not saving, how are you planning to pay for college, right?

So you can, um… Every bit that you have saved towards college will help you, and it will mean that’s something that you don’t have to borrow. Um, and so the fact is that, uh, many if not most families will have to borrow to get through four years of college. But you just wanna minimize the amount that you’re borrowing So just to h- uh, sort of drive it home, y- savings for college can benefit you by giving you more education options.

You can add more colleges to your college list when you are getting ready to apply to different colleges. You don’t have to look at, you know, just one particular kind, type of college, maybe a, a lower cost college. You can perhaps add in different options. You can also, um, include other types of programs like [00:09:00] study abroad programs or, um, some other types of programs that may not be, uh, eligible to be paid for by financial aid.

Uh, the main thing really is that it reduces or eliminates the need to borrow loans. Hopefully, it eliminates them, but even if it reduces them, that is a huge, huge bonus. Uh, we’ve already said it has a minimum impact on financial aid eligibility. And, um, it… Having saved money is linked to increased attendance and graduation rates, and we know this, um, because there’s been a lot of studies lately on the impact of specifically designed college savings programs, so 529s.

Um, and we’ll talk about 529s in detail in a little bit. Um, but they have found that if money… I- if a child knows that money is set aside for him or for her To use at college, they are three times as likely to attend college and four times as [00:10:00] likely to graduate, and that is not dependent on the amount saved.

That is the case for even fewer than $500 saved in a 529. So, um, and this is true not just for high income levels, but for low and middle income families as well. So, you know, I always say that saving is my favorite thing to talk about because, um, it’s just good. It just helps. If you’re able to save, nobody has ever called, and I mean this, nobody has ever called and said that they really regretted having money saved.

They’re always glad that they have something saved. Maybe they wish that they had saved a bit more, but they’re like, they’re glad that they, um, have s- saved what they have. Um, okay, now I’m gonna talk about two specific plans, as I said before. The first being the 529 plan. Now, 529 plans were created at the federal level back in 1996, and it’s…

They’re called 529 plans because they deal with Section 529 of the tax code. [00:11:00] But essentially they wanted to create a federally tax-advantaged way for families to save for college. And so they did that, and then every state was sort of charged with creating their own 529 program. 49 states and Washington, D.C.

have 529 programs, and there is a national 529 program as well, so there’s a lot. Um, that was 1996. I think as the years and the decades have gone on, um, 529 plans have become really the college investment vehicle of choice for most families. They’re the most well-known and most utilized way to save for college.

Um, this is across the country. Now, as I said, every state has their 529 pro- program, and broadly speaking, 529 programs are very similar, but there may be differences from state to state. So some features that may vary are things like account limits, how much you can have saved [00:12:00] in a 529 before you start to hit a gift tax situation.

Uh, the different investments, so, you know, states will contract with different, uh, program managers, and they’ll often different… offer different investment options. Um, states have their own tax policies regarding 529s. Remember I said that 529s were federally, uh, tax-advantaged. Um, different states may have policies where maybe most…

Now, most states mirror the federal tax policy and, and make it tax-free as well, but not all of them do. And they may have different laws around, you know, withdrawing the funds and, and, um And how you use them, as well as tax incentives to save in their programs. So those things can differ from state to state.

And just because you live in a particular state, it doesn’t mean that you have to choose that state’s plan. You, if you live in Massachusetts and you wanna do Arizona, you can do that. If you live in New York and you want to do, uh, California, you can do that, too. Uh, but there may be [00:13:00] reasons to do your own state, which we’ll, we’ll get into that shortly.

So as I mentioned before, the U.Fund is the Massachusetts 529 plan. It is offered by MEFA. We have contracted with Fidelity Investments to service the accounts and also manage the investments. Um, so they’ve been a very important partner of ours since 1999 when the plan, uh, was introduced. And, you know, we like to say that we are one of only five states with a gold medal rating from Morningstar.

That means that, you know, our investments and, and our servicing and everything is, is rated as high as you can get. So, uh, we’re very proud of that, and that’s been a couple of years back to back, I believe, that we’ve been rated gold by Morningstar. So we’re very proud of that. Um, how the program works. So you open an account at fidelity.com/ufund, and you begin to save.

Now, you can put a, a sum of money in if you want to. [00:14:00] You can, um, you know, put in a little bit every month if you wanted to do that. There’s different ways that you can add funds to the U.Fund. The money is invested in the market, right? Um, so when your money is in the market, as long as the market’s growing, your funds are growing with no taxes.

There’s no annual account minimum. Uh, I’m sorry, there’s no annual account maintenance fee, meaning that there’s no fee that you have to pay out of pocket, uh, to, to participate in the U.Fund. There are fees associated with the U.Fund, but it’s taken out of the earnings. It’s not something you pay out of pocket.

So and I can say as a U.Fund customer for 13 years, um- You know, I, I certainly have paid UFund fees. I don’t know what they are, I, ’cause I, I really don’t look… I’m not at the position yet where I’m looking at the statements very carefully. And again, it’s not something that you have to pay out of pocket.

Um, and there’s no minimum investment to get started. So remember I said you can open an [00:15:00] account with a lump sum of money, or you can, um, sign up for automatic withdrawal every month. You can also just open an account and choose not to fund it yet. Uh, we’re just that… And that is important because we just like to stress that we’re trying to remove any barriers that people might experience, uh, when opening a college account.

So you don’t have to fund it, uh, with a lot of money or really anything at first. Um, now again, you can use these for qualified education expenses when you withdraw the funds, and s- and, and we’ll get into that. But essentially, how the, how the program works, you put the money in, it’s invested, it grows without taxes, and when you use the funds, as long as they’re used, again, for qualified education expenses, you don’t pay taxes on the earnings.

So that is the benefit for using these funds for education. And as I said, I’ll get into that in just a minute. Um, now one part of the application or one part of the process when you’re actually filling out your UFund or 529 app, uh, well, I’ll stick [00:16:00] with the UFund here, um, application, is that you have to choose an investment strategy.

Um, and so we’re not investment professionals here. Fidelity can help you sort of figure out what type of investments you may be comfortable with. Um, but you know, there’s a, a wide array of options to choose from, including managed portfolios, index portfolios, and FDIC-insured options. And savings can be used at any accredited college or university nationwide, even some international colleges.

So just because you’re using the Massachusetts fund doesn’t mean you have to use it at a Massachusetts college. As long as your college is an accredited college that can take US federal funds, whether that’s in the US or outside of the US, you can use your 529 funds there and not be subject to tax. Now, for the UFund, the annual contribution limit is $20,000 per year.

After that, you start to hit gift [00:17:00] tax. Uh, and for a married couple, that, uh, doubles to 40,000, um, per year, and the absolute cap on, uh, contributions comes after $500,000. So no additional contributions are permitted once the beneficiary has a combined account maximum of $500,000. So what that means is if I have, uh, a UFund for my son and my mother has a UFund for my son, both of those accounts together, the balances cannot exceed 500,000.

Or once they do, you can’t put any more funds into it Okay. Now, I said you can use this for qualified education expenses and still not pay taxes on the earnings. So what are qualified education expenses? For college, for higher education, there are things like tuition, fees, housing and food if they’re living, um, on campus or even if they’re not living on campus actually.

Um, books and required [00:18:00] equipment. So there’s a lot of different things that you can use it for, um, in the college realm. But it’s not just limited to college, and this is something that we should talk about. It was originally set up to be used for college back in 1996. However, since that time there have been legislate- legislation that has, uh, expanded the uses of 529s, right?

So you can use 529s now up to $10,000 annually for ex- uh, expenses related to apprenticeships, um, for career credentialing programs and expenses. So, um, you know, it, it gets very complicated as to, to if you… if which ones apply, but I would assume that the vast majority, if you’re looking at a, a training program for a job, would, uh, qualify, uh, for y- 529 benefits.

Um, tuition, [00:19:00] books, tests fees, tutoring, and therapies for K through 12 education, you can use up to $20,000 annually for that. Uh, and then you can take a one-time $10,000 distribution to repay student loans. So there’s a lot of variety in how you can use your 529 funds and still claim that tax incentive.

Now, what happens if you take money out for an ineligible expense? If that happens, there are penalties associated with that because it was set up for education. If you use it for something else, uh, there’s penalties. Uh, but the penalties are only associated with the earnings, not what, not what you put into the account, but, but the earnings.

So the earnings will be taxed at the owner’s rate of income, and there’ll also be a 10% penalty assessed on that amount that you’ve withdrawn. But, uh, [00:20:00] that 10% penalty is waived in the cases of death and disability of the student, which obviously we don’t wanna even think about, uh, but also scholarship. So if the student earns a scholarship and you can’t use the funds again the way you’ve intended to because of that, you’re not assessed that 10% penalty amount, uh, on that scholarship amount.

But even in s- even in those cases, uh, those three cases, death, disability of the student and scholarship, the earnings still are taxed at the owner’s rate of income Um, and then finally, you know, one other option that you might have if, again, you’ve started a 529 plan for, for a child or for someone else and y- and you can’t use them the way that you’ve intended, um, you can roll over funds from a 529 to a Roth IRA for the beneficiary, um, for…

so for their retirement. So, uh, a few rules for… This is something that, that is a few years old, uh, and something that people really, really like ’cause, uh, and I never really [00:21:00] appreciated how much of a, a obstacle that was for people to open a 529 account and thought, “Well, what if he, what if he or she doesn’t go to college?

What am I gonna do with that? I don’t wanna get a tax hit.” Well, if that happens, you know, you have a few things that you can do, um, this being one of them. So you can transfer unused 529 funds into a Roth IRA. The Roth IRA, though, must be, again, for the same beneficiary as the 529. So it has to be for the person that you set up the 529 for.

The 529 account has to have been open for at least 15 years. The transfer amount has to come from contributions made at least five years prior. So you see kind of what they’re getting at. They don’t want people to just open up a 529, put money in, and then right away transfer it over to a Roth IRA. The r- the amount transferred annually is limited to the amount that you can contribute to the Roth IRA, which is $7,000 per year, and the total can’t exceed $35,000.

But again, [00:22:00] um, something really, really important. Um, I wanna mention a couple of other things here, um, an option and some potential questions that I wanna head off. Number one, you can use UFund or 529 funds for graduate school, right? So you can use it for undergraduate school. If you are lucky enough to have funds left over, you can use that for graduate school.

Um, if, you know, the, the beneficiary is not going to go to college, they’re not going to go into a, a, a credentialing program or an apprenticeship, you really can’t use it the way that you’ve intended to, you can transfer those funds over to another beneficiary, um, within the family. So that can be sibling, it can be cousin, it could be parent even.

Um, so that’s something that you can do. Uh, so I’d just like to, like to mention that Again, just [00:23:00] speaking to the variety there. Now Baby Steps is, uh, a program that we’re excited to be a part of. This started back in 2020. It is the first statewide seeded CSA program. What does that mean? Okay, a CSA program is a child savings account program, m- sometimes called a child development program, a CDA.

Um, and the state of Massachusetts, the treasurer’s office, specifically the Office of Economic Empowerment, designed this program to give $50 to every baby born in Massachusetts or adopted in Massachusetts, um, or, you know, babies living in Massachusetts before the age of one. They have money that they have $50 set aside in a UFund, and they have to open up a UFund before the child’s first birthday or before the first anniversary of adoption and claim their $50.

So again, this is happening from [00:24:00] 2020 to 2026 now. Um, it’s been very successful. There’s a lot of states and a lot of, uh, cities doing this as well. Bo- the city of Boston has their own program, the state of Maine has a program, Rhode Island, uh, California has two. The s- this is an idea that, that has really taken off across the country, so we are very happy to, uh, be part of this program.

And as I said, it’s doing very, very well in its sixth year trying to grow not only college savings accounts, but, uh, just a, a culture of Planning for the future, whether that’s college or career programs or whatever it may be, to have some aspirations being grown and being assisted by the Commonwealth, um, is really important.

So if you, uh, know of anyone who this may apply to, if it’s you, if it’s somebody else, uh, look up Baby Steps and, and sign up, um, for an account. And, you know, once [00:25:00] you, once you do that, uh, you’ll be eligible for that $50. Uh, again, the $50 is for, in the Baby Steps program, has to be done before the child turns one.

So we were s- running into a lot of folks who wanted to take advantage of this, but they couldn’t because their child was older or maybe they had a Baby Steps eligible child and then an older child who wasn’t. Well, because of this, then we’ve instituted a new program called Next Steps, um, which is similar to Baby Steps but a little bit different.

Um, it’s for any child who’s a Massachusetts resident and has their first U.Fund account open between the ages of one and three. So they can’t have an account already and have the Baby Steps and then Next Steps. If you missed out on getting that Baby Steps $50 and you’re one, you know, between the age of one and three, you can sign up and it’s a match program.

So, uh, if you contribute $50 in the first year of opening up that account, you get $50 matched through [00:26:00] the Next Steps program The next program that I want to talk about is the UPlan Prepaid Tuition Program, and this is sort of a more Massachusetts centric type of program. And the reason for that is this actually is an older program than the 529.

So this is before 529s were a thing. This is 1995 we instituted this program and we’re one of, mm, I would say less than a dozen states still that, that offer prepaid tuition programs. Um, I will say I really like the UPlan. Bear with me while I explain it because it’s a great program. It’s not as easy to initially understand as the UFund.

It’s not as simple as put money in, it grows and you can use it. But we used to administer this program, the UPlan, in-house so I’m very familiar with it. And so let me explain how it works. Uh, rather than putting funds into the stock market and having it grow without taxes, uh, what this program does is allows you to [00:27:00] prepay up to 100% of tuition and mandatory fees at all participating schools.

So the schools have to be participating in the UPlan. There’s a large network of colleges, they’re all in Massachusetts, and it includes public and private colleges and universities in Massachusetts and we’ll get to that in a minute. Um, so the way it works is you put money in. The money that you put in is invested not in the market, but in general obligation bonds that are backed by the full faith and credit of the Commonwealth of Massachusetts.

Uh, they are not subject to market fluctuation so, um, you know, that, that can be a good thing for people. Uh, people can have feelings about that one way or the other, but just to know that your money is not subject to the whims of the market. Um, you need a $300 minimum to get started. So basically you open an account, you can put in whatever amount you want.

It’s, you know, $10, $50, whatever, um, [00:28:00] much like the UFund. You can do a lump sum or you can do a recurring payment, whatever it is. Um, and what happens is whatever you’ve invested in the UPlan, right There is a yearly bond purchase. Remember I said that the, the funds are, are invested in bonds? We purchase those bonds August 1st.

So if you start a UPlan account in, um, what is it now? September, October, um, and you’re putting in $100 every month, um, and by the time you get to October, um, August, let’s say you’ve got $1,000. I’m not good at math. Um, so then $1,000 will be enough to purchase a UPlan certificate. You need to have $300 minimum to purchase a UPlan certificate and lock in a percentage of tuition.[00:29:00]

Um, but if you don’t have $300, you’re not going to be prepaying any tuition, but, you know, maybe next year if you have $300, then you will lock in a certain percentage of tuition. So you can contribute throughout the year, um, and whatever m- amount of money you put in. So let’s go back to our $1,000 here.

Uh, that is going to buy a percentage of this year’s tuition at every participating college or university, uh, in the plan. And so here is the listing of colleges and universities. So they all have different, um, tuitions, so $1,000 is gonna be a different percentage at every school. So What happens is you put the money in, you receive a statement, it’ll show what you put in plus the interest, and then it will have the list of colleges and will show what percentage you have purchased at each [00:30:00] college.

So again, let’s go back to our example. Let’s say you put in $1,000. That’s gonna buy 10% of tuition at a college that costs $10,000 this year. It’s gonna buy 3% of tuition at a college that costs $30,000. Um, and so you don’t have to make the choice upfront as to which college you’re going to. The only thing you have to do is, you know, put in your…

choose the owner, choose the student, whoever you’re saving for, the amount that you’re putting in, and when you want to use the money. Remember, these are in bonds, so they don’t become liquid or usable until the bonds mature. So you have to pick a maturity date. So if your child is going to college in 2035, you might want to say, “Okay, in tw- let’s have this mature in 2035.”

Um, so again, let’s say they go to that college that you purchased 10% of tuition at. It cost $10,000 this year. Well, by 2035, that may go up from 10,000 to 20,000. So you’ll have 10% of [00:31:00] 20,000 or $2,000. So your $1,000 contribution became 2,000 because it kept pace with the increase in tuition. Um, it locked in that percentage of tuition.

So that’s how that works, and you can con- add to the balance, you know, every year and, and continue to sort of, um lock in tuition and add to the percentage that you have. Uh, so the first obvious question that people have is, what happens if my child doesn’t go to a participating college? How can you know, right, where the child will go?

Um, and that happens. And so if that happens, then you can again transfer funds over to another beneficiary if that’s an option, if you think another child may go to one of those colleges. Or if not, you can always cash out and get what you put in plus the interest. Um, and the interest is at CPI. It’s assessed every August.

Um, and so the really sort of the worst you’re gonna do is you get what you put in plus the interest back. [00:32:00] The interest is not taxable in the state of Massachusetts, nor is it, uh, our bond counsel’s opinion that it is federally taxable. So, um, there’s another benefit there. Um, the UPlan cannot be used for graduate school.

It can only be used for undergraduate degrees. And again, it locks in tuition and mandatory fees only. So that’s tuition and fees that basically every student will have to pay. So, uh, not room and board or not, um, you know, freshman orientation fees or things like that. They’re fees that every student, regardless of their major or their year or where they live, have to pay.

Uh, so mostly that’s tuition. Um, now are there tax consequences for cashing out? There are not. So distributions from the UPlan, whether they’re sent to a college or cashed out to an owner, carry no Massachusetts or federal tax consequences. And again, here’s the participating colleges and universities in the UPlan.

[00:33:00] Um, I’ll take a break just after this slide, but I wanna mention that both of these programs carry Massachusetts tax benefits to them, so, uh, just a spur to help folks invest in college, uh, in their child’s college educations. Uh, contributions to the UFund and UPlan are Massachusetts Income State Tax deductible, up to $2,000 for married filers filing jointly or up to $1,000 for individual filers.

And those limits are per filer, not per account. Okay, before I get into this, I cannot see questions. I thought I’d be able to. I know I have a couple here, so I have to stop sharing, so. Um, all right. So somebody… Whoa, what am I doing? Sorry, folks. Okay. So, um- Let me stop the share really quickly. I’m sorry. So somebody wants to know if you have to report what you’ve saved on 529 plans on the FAFSA.

And yes, for parents. If parents own a 529 [00:34:00] plan, they are expected to list that amount as a parent asset. Remember, parent as- assets, they’re only, uh, taken into account up to a maximum of 5.6%. So you will be asked to list them, um, but they m- should have a minimal impact. Um, if somebody other than the parent owns a 529 plan, it is not listed, um, with the exception of the student.

If the student owns, and sometimes a student… A student really can’t own them because you have to be 18 to own a 529 plan. But, um, but, um, you know, grandparents or any other relative or something like that, it’s not viewed on the FAFSA. Um, okay, covered the 529, uh, transferring to a Roth IRA. So thank you for bearing with me on this.

I’m not used to the new, uh, system. Let me s- share my screen again and pick up where I left off[00:35:00]

Okay. So strategies for saving. How, uh, how have some folks saved and had success there? So The first thing I have to say is start using savings at… Oh, sorry, start saving as early as possible. You want to use time to your advantage. I would never say, though, that it is too late to start saving. Anything… I have to encourage people who have juniors or seniors in high school or even in college right now, sure, save.

Um, you know, anything that you’re saving and setting aside is something that you don’t have to borrow. Start with a goal in mind, um, but don’t let that hamper you. If you don’t have a goal, don’t let that delay you. Um, just start saving. Starting is the hardest part. Once you’re over that, you’ll just feel a lot better, and you’ll be able to really, um, get over that emotional wall and, and really start to maximize your saving.

But we do have a tool that we’ll look at [00:36:00] in just a minute that can help you establish a goal in mind, and, and I’ll talk about that in detail in a few slides. Take advantage of unexpected funds. So tax, um, refunds, inheritances. Um, I remember a few years ago, I won’t mention stimulus checks. We used to get those.

Uh, but, uh, you know, take advantage of unexpected funds. Uh, use some or all. You don’t have to use all, but, but, you know, use some to, to, to strengthen that account. Using automatic transfers is something that, you know, is just such a good idea. I remember I always tell this story, but we opened one up for… We opened up a UFund for my son when, when he was just born, and when he was about, oh, eight or nine months old, you know, I remember saying to my wife, “Oh, we have to, we have to set up our automatic payments.”

And she told me that we did set it up about eight or nine months ago, and we’ve been making contributions to it. I just didn’t realize it because I didn’t see it coming out, right? So, um, [00:37:00] we know most people, that’s how they do it. It’s best. It’s how they pay their bills. It’s how they, they manage their savings, automatic transfers.

I will say, um, it is good, though, to every so often revisit the amount that you are saving, um, through automatic transfers ’cause you get raises. Uh, y- you know, some expenses come up, but some expenses fall off, and maybe you’re able to, uh, adjust that and, and sort of, um, increase that automatic transfer amount.

Get the word out to your family and friends that they can also contribute to these accounts, and this is something that I love talking about. Um, you know, just ’cause you’re the parent, you may own the account, doesn’t mean you’re the only one who can put money into the account. So, um, family and friends can get in.

This, this image that you see here on the right, um, is a picture of our gifting page. Fidelity Investments, who again manages the program for us, um, the UFund has, has designed this. And, [00:38:00] you know, you can set up this gifting page with a picture of the child, uh, the age and enrollment year, what time they’re due to go into college, what they want to be when they grow up, et cetera.

Uh, and you can create a link and just email that out to people, and people can gifts right into the account using that link. And so that’s good for, for birthdays or milestones or holidays or whatever it might be, especially when kids are really young and they don’t know that they’re missing out on their presents.

Um, I would say as the kids get older, that can make a good present for the parents, but, um, but you can do that. Um- And finally, involve your child in the process, right? So, um, let them know that you’re saving for them. We are … We’ve already seen that, uh, having a chi- a child knowing that, uh, co- money is being set aside for him or her for college, um, i- increases their graduation and attendance rates.

Kids like to see big sums of money too, and they might get excited. They might even if you have, um, an [00:39:00] event where they’re, like a milestone where they’re getting gifts or they’re getting money, have them save half and put it in their college fund. Um, you know, the, these, these are good ideas. Um, this tool here is our college cost projector.

This is the one I mentioned earlier in the presentation that scared me. Um, so you can get a feel for what colleges may cost, uh, in the upcoming years. And you can see here there are different types of colleges, so a public two-year community college, a public four-year college, uh, like a UMass type of college.

It’ll give you the in-state and out-of-state resident, um, the … I’m sorry, the in-state resident and out-of-state resident costs associated with that. So if you go to a public college in the state that you live in, you’re gonna pay less. And then of course the private colleges there. Now, I should warn you, again, this is all just sticker price.

This is not aid as well, and this is very … it’s very unlikely that you will asked, you will be asked to pay this full cost. Um, [00:40:00] we also have a college savings calculator, which is a pretty easy one to use. You can put in your initial deposit, say you open an account with $50 and your child is a newborn, you can adjust that to different ages.

Um, and then what you plan to put in every month, and it will give you your savings by the time your child turns 18. Um, and it assumes, uh, a, an annual investment return of 7%. So that may or may not happen, so know that. Um, but this is something that we get from Fidelity. This is something that they feel is realistic over the long term of 18 or so years, whatever that may be, an annual return of 7%.

Um, so, um, I’ll show you another one where you can sort of adjust that as well, but that’s a sort of good, quick, back of the envelope kind of calculation here. And it breaks down the contributions and the interest earned as well. So this is the tool that I mentioned earlier, MEFA’s College Planning Tool.

Um, it is on our website, and [00:41:00] this is designed to meet the question that I would get from time to time from parents of newborn children. Very excited to have a newborn child, of course they should be, and they just wanna do everything for them and set them up, which is great, and they call me and they’d say, “I just had a baby.”

Uh, I want to make sure that by the time she gets to be 18, college is gonna be completely paid for for her. How much do I need to put away every month? And so I love the question, but it’s a really hard question to answer ’cause there’s so many things you just don’t know, right? So, um, what school the child is going to go to, that makes a, a huge difference as to how much you’d need to put away.

Um, how much financial aid you’re going to get, we don’t know that, right? So, um, this is a, a si- this is a tool that we have on our site that sort of can help you with that question. It does a lot more too, but, um, basically you can create an account for your family and your child, and based on the [00:42:00] child’s age, um, it will say, okay, they’re due to start college in this year, and based on the colleges that you’ve selected, and you can select specific colleges, you can go to different types like a four-year public or a four-year private, you can put it in.

It’ll analyze how tuition has been increasing at those colleges and it’ll say, okay, tuition is scheduled to be about this much, uh, by the time that the child is going to college. Okay, so that’s the first thing. What, what are your colleges? How much are they likely to be? The second thing is what are you saving?

So you can put in your saved amount and put in what you are saving on an ongoing basis between now and then, and you can adjust that annual return of, you know, whether it’s 7% to 6% to 5% to 8%, whatever it might be. You can sort of play around with it and do it that way. And then if you put your income in, it will sort of run through the financial aid that you may be [00:43:00] eligible for.

So if you can see in this example here, in this family, they have at their s- you know, presumed college in 20- in the year 2031, a cost of $59,995 per year, so that’s their cost. That’s what it’s looking like, about 60,000. They’re eligible for about $7,073 in financial aid, and based on their savings, they’ll have about $32,000 saved.

So that means that they have a shortfall for that first year that they’re gonna have to come up with of $20,920. Again, this is an estimate, but it’ll give you an idea. So based on this, the family would say, “Okay, we’re doing pretty good,” or, “We need to start saving more,” or, “We need to look at some other colleges,” or, “Let’s see if we can look around and see what scholarships are around,” and you can do that on this site as well.

Lots of different things you can do on this [00:44:00] site, but this to me is, like, the heart of it, right? You can take a… get an idea of what your realistic goal for savings should be and get a feel for how you’re doing along the way to meeting that

All right. Now, we’re gonna take advantage of compound interest. This is something that people should know about 529 plans. It’s not just what you put into the plan, it’s the value that’s being added to that when it’s invested, and then the interest adding on that as well. So compound interest, interest gaining on interest.

So in this example here, Julie starts saving $50 per month in a 529 account when her child is first born. I, the shadow of the illusion here that Jonathan is me, uh, saves 100 per- $100 per month in a 529 account beginning when my child is in the second grade. So I’ve lost out on seven years, but I’m doubling my amount.

So who’s gonna have more money saved [00:45:00] when their child turns 18? Is it me or is it Julie? Now, where’s my poll? ‘Cause I have a poll, uh, that I can do here. Um, or do I?

Okay, I’m gonna launch a poll

Yeah, there it is. We’re gonna launch that poll Who?

Who thinks that I’m gonna have more and who thinks Julie is gonna have more?

Okay

We have some time to do this[00:46:00]

Okay. Yeah, most of you got it. It’s gonna be Julie, right? Um, because she started earlier, and that’s the power of starting early

So goes through some of the specifics right here

And so you can see here

Based on our 10%, uh, sorry, 7%, uh, annual rate of return, Julie is scheduled to have 21,536 by the time her child goes to college, whereas I, I didn’t do too bad, I get 19,798. So she’s got a little bit more, but look at when you break that number down, 10,800 put in from Julie and earned about the same amount in interest, right?

Whereas I had to put in 13,200 and only earned [00:47:00] about $7,000. Actually, it was $6,600 of interest, right? So, um, just that the earlier you start, the more time and the more chance your money has to grow on itself. Um, one other way I want to tell you about that other folks can contribute to 529s, uh, is through the gift of college cards.

So, uh, these are available in Massachusetts at, um, Cumberland Farms, CVS, Stop & Shop. Uh, all across Massachusetts, you can, uh, buy a gift of college card and put in anywhere from $25 to $500 on these cards and give them as a gift, whether it’s birthday, graduation, whatever it might be. You know, you can gift and set up a gifting page and do all that stuff, but if you’d like to show up someplace with an actual gift, uh, with a card, something that people can actually use, um, you can use this gift of college card to, to do that.

Um, you can also use this gift of college card for folks to contribute [00:48:00] to an ABLE account, which is, uh, a 529A account, another type of account that we have that is, works very similarly to a 529 for college, but is for individuals with disabilities. Um, so you can do that. And it can also be used to, for the UPlan prepaid tuition plan and to pay loans.

So a lot of different things and a great option for people to do that. We also have a digital card on our website that you can, uh, use. The … Oh, and I’ll say one other thing as well. If you don’t do the gifting cards, if you don’t do the gifting page and do all that stuff, people can just write a check. I had an aunt who would write me a $25 check every time I went to see her for my son, and you can take a picture on your phone and deposit it into your UFund account that way.

People can send in checks. It’s very easy to contribute to other folks’ 529s. Okay, so I’m gonna finish up here with how families actually do pay for post-secondary education. So [00:49:00] The first thing I want you to understand is that, uh, there are different types of colleges, and they have different price tags.

So if I were to ask you how much you think college costs, you know, you might say sixty thousand, seventy thousand, a hundred thousand dollars a year, whatever it might be. Um, most people have these numbers in their mind because they’ve seen it on the news or they’ve read it somewhere that says it now costs ninety thousand dollars to go to this particular college.

Um, and so they think they have that moment that I had, like, “Oh my God, how can I pay for that?” But, you know, a couple of things to keep in mind about that. The first one, that’s always the most expensive college around that they quote, right? ‘Cause that’s the new noteworthy number. Um, the other thing is there are different types of colleges.

So I’m gonna go through the different types here, and most of this information comes from a, uh, publication from the College Board, the organization that manages the SAT and the AP programs. Um, and the publication is called Trends in College Pricing, and it is a [00:50:00] national survey of how much colleges are charging.

So those types of colleges that you see it now costs a hundred thousand dollars to go to, what have you, those are private colleges mostly. So four-year private colleges. Think about things like Harvard, Tufts University, Brandeis, Boston University, all Massachusetts colleges, but, but we have a lot of four-year private colleges here.

These are typically the highest sticker price colleges. The national average, uh, of these co- of one year for a four-year private college is sixty-five thousand four hundred and seventy dollars. That includes tuition, fees, housing, food, books, supplies, transportation. That’s the entire what’s called cost of attendance.

Okay, so this again is a national average. So if you live in the Northeast, in New England, in Massachusetts It may be higher than this. It’s a good bet that your four-year private college costs more [00:51:00] than this, 65,470. But this is the national average, and again, the most expensive. The next ones are the four-year public colleges, and so this is your UMass colleges, your Bridgewater States, Framingham States, whatever it may be, the four-year public college system.

And again, if you are an in-state resident, so if you go to a public college, a four-year public college in the state that you live in, that you reside in, that you’re a legal resident of, you pay a discounted tuition. If you go to a public college outside of your state, you don’t. You, you, you get charged a higher tuition.

So, uh, national average, 30,990 for in-state residents to go to a four-year public college or university, and 50,920 per year for out-of-state students to go to a four-year public college or university. So you can see already if you’re an in-state resident, to drop down from 65,000 to 30,000. Now, [00:52:00] 30,000 is still a lot, but it’s about half, less than half actually, uh, of 65,000.

So a big change there. Now, vocational school is tricky, um, because we don’t have the same publications for, for that. But, um, the figure that I have is 15,070 for tuition only through a program, uh, through… And this is a, a source, bestcolleges.com, how much does trade school cost? It’s hard with trade school because there’s so many different types of programs.

But, um, this number, you know, can be for the, the tuition only, so it’s not any sort of eq- equipment or anything like that that you may need for it. But vocational programs, again, can really vary. This could be a, a one-year course, it could be the entire education, uh, a- and you could, uh, spend a lot less time in a vocational program than you would a, a four-year program.

And also, a lot of vocational, uh, programs or credentialing programs are run through the two-year public community [00:53:00] colleges as well. Now, the two-year public community colleges are almost always the least expensive yearly option. It says here $21,320 per year. Um, that is higher than I th- I think you’ll pay.

The, I mean, I, I, I don’t think of a two-year public community college as being $20,000 per year. And, um, the reason is because they include, uh, food and housing in this example, and a lot of times community colleges don’t have dorms, and they don’t have food and housing costs. So in Massachusetts, for example, every community college is a commuter college, so you’re looking at about half that cost really in Massachusetts.

Now, so A couple of more points about this. Easy to see different types of colleges, different, uh, levels of expenses, but also, um, you may or may not be paying everything [00:54:00] associated with this. So tuition and fees, you’re gonna be charged tuition and fees. You may or may not be living on campus, so you won’t necessarily be paying for housing and food.

Books, supplies, those things can vary quite a bit. Uh, in fact, a lot of colleges offer open source materials. People are spending about half of what they spent, uh, on books and supplies over the past 10 years. Um, transportation, that can vary too. You might be flying to and from, you might be driving, you might be taking the train.

Uh, there’s lots of different ways, uh, to get at this and to manage costs, right? The other thing, and the important thing I think, is that this is all sticker price, so it doesn’t have financial aid taken out of it yet. So this is only cost. So How much financial aid are we talking about? $205 billion in aid awarded to students in the most recent year that we have data for, which is 2024, 2025.

So that’s a lot of financial aid. [00:55:00] Um, and that has been about where it’s been, right? So that’s not like a fluke year or anything like that. Um, and again, you know, there’s two ways to award it, merit-based aid and need-based aid, and we went over those, those types. So, um, merit is awarded in recognition of student achievement, so scholarships usually from the colleges and universities themselves.

Uh, federal, state, and colleges also give out a lot of need-based aid. Most aid is need-based, awarded on the family’s financial eligibility. So once you get your financial aid offer and you, you know, you’re gonna… This is all gonna happen in your child’s fresh, uh, senior year of high school, and you get your financial aid, you have a balance due, there’s three ways to pay.

So past income, meaning any savings that you have. So once you get to this point, you know, hopefully you have some savings. Um, that’s your past income. Present income, what you’re making when your child is going to college. So payment plans. Colleges offer monthly payment plans, usually interest-free, not al- not always.

But, um, you know, again, don’t [00:56:00] fall into the trap, “If I can’t pay the entire balance due using this, I shouldn’t bother.” Pay what you can out of pocket before you get to future income, meaning your loans. Um, so a lot of parents and a lot of students think that the students can borrow whatever they might need to get through four years of college on their own, um, as long as they promise to pay back.

That’s not actually true. Mostly, students can only borrow a few thousand dollars a year through the Federal Direct Student Loan program, and that is part of their financial aid already. If they have a balance due after that, the approval for that loan is gonna be based on credit or credit and income, and most students can’t meet those requirements without a co-applicant.

Usually, that’s a parent. Doesn’t always have to be, but co-applicants are equally responsible with the student to repay. So MEFA, as a lender, I’ve many, many times over the years gotten calls from parents or from students that said, “I know it’s my… It says me here, but it’s not really my loan. It’s really [00:57:00] their loan.

It’s really the…” If you’re on it as a co-applicant, you are equa-equally responsible, um, with all other parties to pay. So that monthly payment amount, whatever that is, if, if you’re a parent and you’re looking at a $20,000 bill, if you can afford to pay out of pocket $10,000 of that and lower the amount that you’re borrowing from $20,000 to $10,000, that means going from potentially a $200 a month monthly payment on this loan to a $100 a month monthly payment.

And that will mean something, especially after four of those loans, right? So you… $400 versus $800 or $900 is a big difference. So how much that loan payment is, is important to you as well as, uh, the student. So what you can do next, um, start saving if you haven’t started. Continue to save if you have. Take a look at what you’re saving on a monthly basis, see if you can increase that.

Talk to your child about college or whatever they [00:58:00] want to do. If they wanna go to college, if they wanna do something else, um, find out what they’re interested in or get them thinking about what they might be interested in. You can use online tools to learn more about college costs. You can do that on mefa.org.

Um, you can sign up for our emails on mefa.org, and, uh, you’ll be sent an email every two weeks with some information that’s gonna be important to you based on the age of your students. We have more webinars. You can sign up at mefa.org/webinars, and here’s all our social media information here, our Facebook, Instagram, X, LinkedIn, YouTube, and our podcast.

Um, and if you have any questions… I apologize, was a little, um, clumsy tonight. But, um, I’m gonna go and see if you have any questions, uh, that I can answer. This is our, uh, contact information. Please call us, email us with any questions you might have. Okay, so I’m gonna stop sharing. See if you have… Okay, we got some questions [00:59:00] here.

Great. “Are there strategies for lowering your expected family contribution?” Um,

depends on who you ask, I suppose, right? So you can do things to, to, to, to lower your expected family contribution somewhat. It depends on the circumstances. I think a lot of people get hung up on, um, assets, right? And what assets they’re gonna look at and what assets they’re gonna see. Um, and it’s really not usually very, um, useful to do that.

Now every case is different. Um, so, uh, mainly the, your expected family contribution is going to be based on the parent’s income. There’s not a whole ton you can do about that. I would say that, and this is something that we always say, if there are circumstances, ’cause financial aid forms will have [01:00:00] specific questions and, and they, they want you to take line whatever and, and fill that in or, or how much do you have in retirement or whatever, you know.

S- so if things look a certain way o- on the form, but they aren’t a certain way. So if you, if they’re looking at income from 2025, and that’s more than you make now, you have to let the college know that so they can reduce that amount. They can use their professional judgment and make adjustments to that formula.

Um, i- they don’t ask about expenses that you’re paying, right? So if, especially if there are things like medical expenses or, uh, expenses that you’re taking care of relatives or you’re doing some… Things like that, they’re not gonna know from the forms. You need to let them know so that they can, they can adjust that.

It’ll be up to the college whether or not they will adjust that, but it is something that they do. Um- What else? Now, that’s the only thing I would say on a sort of across the board basis. Um, but as I said, every, every situation is different. Um, we do have an, uh, the [01:01:00] EFC is, is, is something they, they used to call it an EFC.

It’s now called the SAI, which is the Student Aid Index. So we have an SAI calcu- calculator on mefa.org you can go and play around with. Um, but a- across the board, that’s what I’d say. And if you have questions about your specific, uh, EFC or SAI, then definitely let us know. Okay, one other question here.

Are the accounts insured? Which accounts may, uh, uh, are these? Um, so accounts being insured, uh, the, the, the UPlan are backed by… They’re not insured necessarily, but they are backed by the, the full faith and credit of the Commonwealth. Um, so I don’t know if you consider that insured, but, uh, the 529s are not unless you’re in the FDIC insured option in which they are insure your, your principal is insured up to 250,000[01:02:00]

Uh, okay. Well, that’s all I have. So I am going to say good night, and, um, thank you for joining me. And again, um, if you have any questions, don’t hesitate to reach out to us. Thank you