Many options to pay for college

This was originally published on Monday, May 21, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Many students enrolled in college are using some form of financial aid — from a relative or a scholarship or grant. Many different entities, including the federal government, local government, schools and private nonprofit organizations offer scholarships or grants.

Scholarships often are awarded based on one’s accomplishments, merit and need. Grants tend to be based on financial needs.

  • Pell Grant. Depending on financial needs and school costs, undergraduate students may receive up to $6,095 for the 2018-2019 award year. You don’t need to pay back the Pell Grant and it can only be used to earn your first bachelor’s degree. Part-time students can utilize the Pell Grant, but they receive less than full-time students.
  • Federal Supplemental Educational Opportunity Grant.This grant is given to undergraduates with exceptional financial needs, the award ranges from $100 to $4,000 per year. This campus-based aid is administered by a college’s financial aid office, but isn’t offered at all schools.
  • Teacher Education Assistance for College and Higher Education Grants. This program provides grants of up to $4,000 a year to students studying to become teachers. Recipients of this grant must agree to teach certain classes, such as math, science, special education, foreign language or bilingual education, at a school that serves low-income families for a designated period of time.

Educational savings accounts

Other ways of paying for college are educational savings accounts. They differ from regular interest-earning savings accounts because they usually aren’t taxed.

  • Coverdell Education Savings Accounts.Formerly called an education IRA, this account allows families to set aside $2,000 per child each year to be used tax-free for educational purposes.
  • 529 plans. These allow you to choose from a selection of investment options, including mutual funds, stocks or fund portfolios, and earn interest on these investments tax-free.
  • Brokerage accounts. Brokerage accounts allow you to purchase and sell investments, including stocks, bonds and mutual funds, through a brokerage firm. You can take money out for educational expenses, but you’re taxed on any investment profits.

Student loans to help meet financial gap

Sometimes scholarships, grants and savings may not cover your complete costs. Taking out a student loan may help meet the financial gap.

  • Federal student loans.These loans are backed by the federal government and offer a low, fixed interest rate. Federal loans provide protection for borrowers, such as the ability to postpone or reduce payments during periods of financial hardship. A Free Application for Federal Student Aid form must be completed.
  • The William D. Ford Federal Direct Loan Program. This loan is funded by U.S. Department of Education and is one of the largest federal student loan programs. Loans may be subsidized — the government pays the loan interest while you attend school — or unsubsidized, in which the loan interest is deferred while you’re enrolled in school and later added to your loan balance. There is a PLUS loan that is awarded to graduate and doctoral students, or parents of undergraduates, to pay for college costs not covered by other financial aid.
  • Federal Perkins Loan Program.Not all schools participate in this loan because the school is the lender. Your payments are made to your school or their loan servicer.
  • Private student loans. These are offered through banks, credit unions, financial institutions, state agencies or schools. They’re a good way to pay for educational expenses not covered by other means. The interest rates depend on the borrower’s credit score and usually come with a higher interest rate.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

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Consider upfront costs of a higher education

This was originally published on Monday, May 14, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Higher education is a goal for many, whether they are graduating from high school or have been working for some time and want to position themselves for a promotion.

Education isn’t cheap. Over the years, the cost of education has steadily increased. Even before you start classes there are several upfront costs you should consider.

Fees for getting into college

Testing. Many colleges require SAT or ACT test scores. It costs money to take both tests. For both tests, you are able to send your score to four colleges. If you send them to more than four, you will incur the cost for each additional institution.

Transcripts. Whether it is high school transcripts or college courses you previously took, you will need to send them to the institution to which you are applying. The cost to send them varies, but each school you are applying to will need an official copy. Some schools will accept an email version of your transcripts if they come from a third party, which means more fees.

Application fees. The average application fee is about $42, according to a study by U.S. News & World Report. This fee is used to process your application.

Deposits. Once you are accepted and decide which school to attend, you may incur some fees. A tuition deposit may be needed to confirm your enrollment. If you are going to be living on campus, you may be asked for a housing deposit to reserve a dorm room or other quarters. If you are living off campus and renting a dwelling, you may have to pay a security deposit and sometimes the first and last month’s rent.

Once you’re in college

Books. College books aren’t cheap. Some books can cost more than $100 and some classes may require more than one book. Consider purchasing pre-used books, renting or downloading an e-version. You can also sell your books once you are done to help pay for the next semester’s book costs.

Tuition and fees. Tuition can be the largest expense you may have to consider. Costs vary depending if you are an in-state or out of state student. Your area of study can also determine how much your tuition costs. Some additional fees are parking, library, computer, dining hall, medical insurance and other campus services. Many institutions have monthly payment plans for your tuition.

Other costs. There are other costs you may have to consider, including  a computer, the cost to furnish your room and food.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

Things to consider when sending a child to college

This was originally published on Monday, May 7, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Q: Next year my daughter will be starting high school. Her goal is to attend college off-island directly after graduating. My husband and I have not started saving for her college and I am worried that we may not be able to afford her educational dreams. I don’t want her to miss out or change her goals because we didn’t plan it financially.

A: It is no secret that the cost of living has increased and continues to increase yearly.  You can see this in the cost of food, housing, and the price of fuel. Unfortunately, the cost of education has risen as well. According to a study done by CollegeBoard.orghere are some staggering facts about college trends in 2017:

  • Averaged published out-of-state tuition and fees at public four-year institutions rose by $800 (3.2%), from $24,820 in 2016-2017 to $25,620 in 2017-2018.
  • Average published tuition and fees at private nonprofit four-year institutions rose by $1,220 (3.6%), from $33,520 in 2016 – 2017 to $34,720 in 2017 – 2018.
  • More than 70% of full-time students receive grant aid to help them pay for college.

Identify aspects in types of colleges

There are significant financial decisions between the types of colleges. There are certain characteristics that should be considered before deciding which college to attend. Identify the goals and consider cost, class size, culture, and environment.

  • 2-year college – these are typically technical or community colleges and provide skills in a specific job in the workforce such as a nurse or mechanic. Costs are usually lower than a 4-year institution and allow students to achieve an associate’s degree. Credits can be transferred to a 4-year institution.
  • 4-year public school – these institutions typically offer a range of majors and student organizations. The student body is typically larger with larger class sizes.  Tuition ranges depending on whether it is in-state or out-of-state tuition. Some out-of-state colleges offer tuition reciprocity (a discount on tuition) to residents of certain states.
  • 4-year private school – tuition at these colleges tend to be higher but students can benefit with smaller class sizes and privately-funded facilities. Many 4-year private schools are religious based.

Know the difference before spending

Though both nonprofit and for-profit colleges can offer an equal level of education, there are some things you need to keep in mind. Their focus of education slightly differs as their goals for success are measured differently as well. This doesn’t necessarily mean that one is better than the other. Know the difference before spending money. Another aspect to look at is if the institution is accredited and if the accreditation is national or regional. Use due diligence when choosing a school and the quality of the education offered.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Money matters: Choosing beneficiaries of your life insurance

This was originally published on Monday, April 30, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No one likes thinking about death, but it is very important to be prepared when it happens. It’s important that you understand your insurance policy and the parameters within that policy.

After you make an informed decision on the type of policy, the next thing you want to consider is who will be your beneficiaries. Selecting a beneficiary is a very personal decision. When choosing a beneficiary, ask yourself a few questions. Who will be bearing the costs of your funeral? Who counts on you financially?

Take time when choosing your beneficiary. When choosing your beneficiaries, there are several points to consider.

Family. For most, this is  top  priority  because they are financially dependent on you. Family members could include your spouse or partner, children, parents or siblings. You can choose multiple family members as your beneficiaries. You can designate branches of a family or lineage and the proceeds are divided equally among the beneficiary and/or their surviving children.

If you named your son and daughter as your beneficiaries, they would receive 50 percent each of the proceeds. If your son passes before you, his children will split his 50 percent equally and your daughter still receives her 50 percent. If your son had two children the proceeds will be divided equally between your son’s children and your daughter.

Legal guardian. If you are appointing a minor or someone who is not mentally or physically able to care for themselves as your beneficiary, you may be required to name a legal guardian.

Estate. You may choose your estate to be your beneficiary instead of a person. You must have your last will and testament drawn and the executor of your will receive the proceeds from your life insurance policy. The executor will have to carry out the terms of your will.

When you name your estate as the beneficiary, it will be the sole beneficiary of your life insurance policy. Talk with your accountant to discuss the taxes associated with your estate becoming your beneficiary. Speak to a lawyer to ensure that your will follows the local laws. If you don’t, your will may end up in probate court and a portion of that estate may go to pay legal and court fees. Also during the probate hearing, creditors have the opportunity to dispute the will to pay off any outstanding debts.

Trust. A trust is a legal agreement that allows a third party, or trustee, to hold assets on behalf of the beneficiary or beneficiaries. You can make the trust your life insurance beneficiary. You can specify the terms of a trust controlling when and to whom distributions may be made. A trust can also protect your estate from your heir’s creditors or from beneficiaries who may not be adept at money management.

Charity. You can name a charity to receive some or all of your proceeds.

Mortgage. You can make your mortgage institution a beneficiary of your life insurance policy. Be very specific about the amount and account number when doing so.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Different types of life insurance policies: What best suits you?

This was originally published on Monday, April 23, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Question: My wife and I just had our first child and I want to make sure that she is taken care of in case something happens to me. I know that life insurance will ensure this, but I am not sure what type of life insurance I should purchase.

Answer: Congratulations on your new baby! Once you become a parent your priorities change. You are no longer focused on you but on the well-being of your children and family. Thinking about your future is a must.

Life insurance is a great way to cover any lingering health or burial costs or to make up for the loss of income. Be careful; not all policies are created equally. There are different types of life insurance and you should shop around to find one that best fits your needs.

Term life insurance

Term life insurance is sometimes referred to as “temporary” life insurance. It is typically the most affordable and simplest life insurance because premiums are usually lower.

It offers protection for a specific number of years. Most policies are usually for 30 years. The annual premium remains the same throughout the life of the policy.

Whole life insurance

Whole life insurance is permanent for the entire life of the insured. Your premium payments are divided among the insurance, administrative fees, death benefits and the investment or dividends that your policy incurs.

Withdrawals that you make toward your policy are tax-free up to the amount of premiums you paid, minus the dividends paid out and previous withdrawals. You can use the dividends and cash buildup to pay the premiums of the policy.

These policies have a higher premium payment because they are permanent and provide not just death benefits but cash.

Universal life insurance

Universal life insurance is also known as flexible life insurance. Like a whole life insurance policy, it’s permanent and provides cash value.

The premiums, level of protection, and the cash value can be adjusted as needed. The amount of cash values can be guaranteed to earn a specific minimum. The cash value also is tax-deferred just like the whole life insurance.

Life insurance is a great way to have peace of mind that your loved ones will be protected when you pass. It should be reviewed annually and you should take the time to understand the coverage.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Tips to help make your retirement less stressful

This was originally published on Monday, April 16, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

When you retire, you may find it difficult to survive on a fixed or limited income. Many people feel they don’t have enough money saved to live comfortably during their golden years.

How much you will need to retire comfortably differs for everyone. There are several strategies you can practice to increase your future income.

Debt. One of the largest expenditures is debt. Paying down debt, whether it’s a mortgage, credit card bills or other money you have borrowed is important. Debt can weigh you down and it certainly eats into your limited income. Retiring with a large amount of debt will restrict you from enjoying life and making other necessary payments.

If you can pay off as much debt as you can before retiring, you can use that money for things you want to do.

Diversify. Many people think Social Security and their 401(k) will be enough for retirement. It is for some, but a little extra income won’t hurt, especially for those who are closer to retirement and are playing catch up.

Add to your portfolio with dividend-paying stocks. Dividends may not be guaranteed, but if you diversify your investments you may have a better chance of additional income.

Postpone retirement. You may want to continue working into retirement age to help generate extra cash. Even a part-time job will bring in some money. Something as simple as a cashier at the local grocery store or an administrative assistant can bring in additional cash.

Many retirees become bored sitting at home. This may be a way to keep a schedule and structure. It’s also an opportunity to turn a hobby into a small business. Baking, woodworking or tutoring can bring in extra income and you get to set your schedule.

Bonds. You can make bonds work for you by buying a variety of bonds that mature at different times.

Cost of living. When you retire, stretch your money. Consider the cost of living where you live. Will a hundred dollars buy you food for a week or for a day? You may want to consider moving to a location where the cost of living is lower.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

How to bolster your 401(k) retirement plan

This was originally published on Monday, April 9, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No matter if you are 20 years away from retirement or five, having something set aside for your golden years is important.

There’s good news for those who are investing their retirement funds in a 401(k) account. In 2018, your contributions limits are rising. By avoiding certain fees and penalties you can ensure to maximize your 401(k).

Here are a few ideas on how to maximize your plan:

  • Tax breaks. Saving for your retirement can qualify you for several different types of tax breaks. Some will let you defer, or postpone, paying income tax on your retirement savings and others help you avoid taxes on the investment gains.

In 2018, the amount in which an employee can contribute from his or her paycheck increased by $500. The maximum yearly contribution for 2018 is $18,500. A worker who falls in the 25 percent tax bracket who maximizes the contribution could reduce his or her tax bill by $4,625.

Let’s say you are 30 years old in 2018 and earn 7 percent on invested funds. By the time you turn 65, that extra $500 a year will have a value of $5,338. The taxes on the contributed money won’t be taxed until the money is withdrawn from the account.

Workers who earn less than $31,000 ($63,000 for couples) in 2018 may qualify for a saver’s credit. That credit could be between 10 percent and 50 percent of their 401(k) contributions up to $2,000 ($4,000 for couples).

  • Take advantage. If you have been previously contributing the maximum amount into your 401(k), reset your contribution by an additional $41 a month to take advantage of the new increase. For those who want to start maximizing their contributions, it will require contributing about $1,542 a month, $2,041 for those 50 years and older.
  • Catch-up contributions. Catch-up contributions are made in addition to the maximum limit of $18,500. Employees age 50 and older are allowed to make catch-up contributions of an additional $6,000, for total contribution of $24,500. An employee in the 25 percent tax bracket who contributes the maximum catch-up limit could reduce his or her tax bill by $6,125.
  • Max your match. Even if you can’t afford to maximize your contributions, be sure to at least match your employer’s maximum contribution. This will at least double your contributions. Be sure to read the conditions of the plan carefully, in order to receive your employer’s maximum contribution, you may have to be with that company for a required amount of time.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.