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College Planning EssentialsA comprehensive guide to saving and investing
INVESTMENTS ARE NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
2015–2016
Section 1 College matters
Section 5 Appendix
Section 4 Saving and investing
Section 3 Financial aid
4 Higher education pays
5 More education, less unemployment
6 Return on a college investment
7 “Major” differences in salaries
8 Good intentions, unexpected consequences
41 Sources of financial aid
42 Financial aid: Types of applications
43 Federal aid methodologies
44 Federal student aid: A sample of grant programs
45 Federal student aid: Loan programs
46 College-related tax breaks
47 Comparing college savings options
48 The 529 plan advantage
49 Checklist: Choosing a 529 plan
50 529 plans: State tax benefits
51 Index definitions
52 Disclosures
26 Comparing college savings vehicles
27 Current saving and investing trends
28 Investing for long-term growth
29 Investing versus borrowing
30 The benefits of compounding
31 Performance pays
32 Invest more, pay less
33 Tax-efficient investing
34 Making college savings a family affair
35 Don’t pay for college with retirement funds
36 Staying diversified over 18 years
37 The power of diversification
38 Asset allocation provided a smoother ride
39 College planning checklist
Section 2 College costs
10 Tuition inflation
11 Rising college costs
12 Future four-year college costs
13 The real cost of college
14 How college costs affect behavior
16 Financial aid overview
17 Financial aid reality check
18 Federal financial aid eligibility
19 Estimating Expected Family Contribution
20 The effect of savings on financial aid
21 Student loan landscape
22 Private loans
23 The burden of debt
24 How college loans affect retirement
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Myth: “ College is too expensive.”
Fact: The return on an investment in college is nearly $1 million more in lifetime earnings.Page 4
College mattersThe value of a college education is growing faster than the cost. Today, a college diploma has become a necessity for anyone seeking increased earning potential, job security and career opportunity.
Common myths and facts
SECTION 1
College Planning Essentials: A comprehensive guide to saving and investing
Myth: “ Not even college graduates can fi nd a job in this economy.”
Fact: The unemployment rate among college graduates is currently just 2.5%.Page 5
Myth: “ College just isn’t worth the student loan debt.”
Fact: A college graduate earns 38% more than a high school graduate, even after factoring in student loans.Page 6
Source: Georgetown University, Failure to Launch: Structural Shift and the New Lost Generation, 2013.
By 2020, 65% of U.S. jobs will require a degree beyond high school, up from 28% in 1973.
65%
20201973
28%
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• Bachelor’s degree holders earn nearly $1 million more over a lifetime than high school graduates. Those with doctorate degrees earn nearly $2 million more.1
• People who attend college but don’t receive a degree earn only 11% more than high school graduates.2
Higher education pays
A college diploma opens the door to a lifetime of higher earnings.
1. Bureau of Labor Statistics, 2014 dollars, based on 2014 earnings projected over a typical work life of ages 25 through 64.
2. Current Population Survey, U.S. Bureau of Labor Statistics, 2014 dollars, U.S. Department of Labor. J.P. Morgan Asset Management. Data are for persons age 25 and over. Earnings are for full-time wage and salary workers.
Average annual earnings by highest degree earned2
DEGREES OF DIFFERENCE $100,000
$60,000
$80,000
$40,000
$20,000
$0
HIGH SCHOOL GRADUATE BACHELOR’S DEGREE PROFESSIONAL DEGREE
$34,736 $57,252 $85,228
65%GREATER
PAY
145%GREATER
PAY
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More education, less unemployment
College graduates enjoy much better job security and opportunity, especially during economic downturns.
BRIGHT JOB PROSPECTS
• The number of college-educated Americans with jobs has increased 18.2% since the beginning of the recession.1
• The unemployment rate for high school graduates aged 20 to 24 was 18.9% in 2014, nearly triple the rate for graduates with a bachelor’s degree or higher.2
• A shortage of 5 million college-educated workers is projected by 2020.3
1. Bureau of Labor Statistics Employment Situation Report, September 2015.2. National Center for Education Statistics, November 2014.3. Georgetown University Center on Education and Workforce, June 2013. Based on current production rate.4. J.P. Morgan Asset Management, Bureau of Labor Statistics, FactSet. Unemployment rates shown are for civilians
aged 25 and older. Data are as of 9/30/15.
Unemployment rates by education levelas of September 20154
19930%
2%
4%
8%
6%
10%
12%
14%
16%
18%
1995 2015201320112009200720052003200119991997
LESS THAN HIGH SCHOOL DIPLOMAHIGH SCHOOL, NO COLLEGE
SOME COLLEGECOLLEGE OR GREATER
7.9%Less than high school diploma
5.2%High school, no college
4.3%Some college
2.5%College or greater
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Return on a college investment
Even students who borrow for college can expect a signifi cant long-term return on their investment.
Estimated cumulative earnings minus student loan repaymentBachelor’s degree versus high school diploma
CUM
ULA
TIV
E N
ET E
AR
NIN
GS
AGE
18 22 26 30 34 38 42 46 50 54 58 62 64$0
$200,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
BACHELOR’S DEGREE
HIGH SCHOOL DIPLOMA
38% RETURN ON INVESTMENT
In this scenario, a college diploma pays for itself by age 36.
The college graduate earns 38% more over a lifetime than the high school graduate, even when factoring in loan repayment of full tuition costs.
Source: College Board, Education Pays 2013. Based on median 2011 earnings for individuals working full-time year-round at each education level and each age. Includes only students who complete degrees; excludes bachelor’s degree recipients who earn advanced degrees. Assumes college graduates borrow $14,352 to cover total first-year tuition and fee charges for 2011–2012 (weighted average of $8,256 average public four-year in-state and $27,883 private nonprofit four-year tuition and fees) for the first year and 5% more each of the next three years. Tuition payments and earnings are discounted at 3%, compounded every year beyond age 18.
36years old
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“Major” differences in salaries
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000
Choice of college major has a signifi cant impact on a graduate’s starting salary.
SALARIES ON THE RISE
• On average, starting salaries for the class of 2015 are 5.2% higher than for the class of 2014.
• If salaries continue rising at this pace, the average child born today would earn roughly $91,700 in the fi rst year after college.
All degrees $48,707
Math and Sciences $44,299
Humanities and Social Sciences $38,049
Engineering $62,891
Computer Science $62,103
Communications $48,253
Business $57,229
Education $40,267
Average yearly starting salaryby college major for the class of 2015
Source: National Association of College and Employers (NACE) Salary Survey Executive Summary, Fall 2015.
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Good intentions, unexpected consequences
Saving for college is one of a family’s top fi nancial priorities, but common mistakes can keep them from achieving goals.
Why save for college
College degree is more important now
STRONGLY AGREE SOMEWHAT AGREE
Source: Sallie Mae, How America Saves for College, 2015.
Part of the American dream
Possible reasons why:
Child will earn more money
An investment in child’s future
53% 31%
52% 26%
89%
84%
49% 34%
83%
78%
59%of parents are not
confi dent about meeting college costs.
• Not having a plan
• Investing too conservatively
• Starting too late
• Using taxable or retirementaccounts
• Overestimating fi nancial aid
• Underestimating college costs
• Not getting others involved
64% 25%
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Myth: “ I know how expensive college is.”
Fact: Many families underestimate just how much college costs and how quickly prices rise.Pages 11 and 12
Common myths and facts
College Planning Essentials: A comprehensive guide to saving and investing
Myth: “ I’m not concerned about college infl ation. It has to slow down at some point.”
Fact: Tuition continues to rise at a much faster rate than other expenses, so your savings need to keep pace.Page 10
Myth: “ I’ll just make a few compromises to help pay for college.”
Fact: Non-savers often don’t realize the sacrifi ces needed to make college affordable.Page 14
Source: Sallie Mae, How America Pays for College, 2015.
College costsSaving for college starts with a plan. And a plan starts with a goal. It’s important to understand college costs so you know how much to save by enrollment time.
SECTION 2
of families have to rule out colleges because of cost.62%
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Tuition infl ation
College tuition costs have increased faster than any other household expense in recent decades.
• Colleges are spending more to attract the best students.
• Colleges are hiring more to reduce student-to-faculty ratios.
• Colleges are receiving less fi nancial support from cash-strapped states.
WHY COSTS ARE RISING
Source: BLS, Consumer Price Index, J.P. Morgan Asset Management. Data represents cumulative percentage price change from January 1983–August 2015.
108%
128%
143%
186%
356%
722%
28%
47%
0% 100% 200% 300% 400% 500% 600% 700% 800%
Sweets
Apparel
Cars
Coffee
Gas
Housing
Medical Care
Tuition
Tuition versus other expensesCumulative percent price change since 1983
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Rising college costs
College savings need to grow at a healthy rate to match or exceed rapidly rising costs.
KEEPING PACE
• During the 2014-15 academic year, families spent an average of $24,164 on college – up 16% from the previous year. This has been the largest increase since 2009-10.1
• If prices increase 5% each year, the cost of college will more than double by 2034.
1. Sallie Mae, How America Pays for College, 2015.2. J.P. Morgan Asset Management using The College Board, 2015 Trends in College Pricing.
Future college costs estimated to inflate 5% per year. Average tuition and fees for the public sector reflect four-year, in-state charges.
2034
Tuition, fees and room and board expenses2
Private
Private
Public
Public
$105,701
$47,045
$43,921
$19,548
TUITION AND FEES
PROJECTED ANNUAL COSTS for 2034
Private$105,701
Public$47,045
ROOM AND BOARD2016
$20,000$0 $40,000 $60,000 $80,000 $100,000
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Future four-year college costs
Source: J.P. Morgan Asset Management, using The College Board, 2015 Trends in College Pricing. Future college costs estimated to inflate 5% per year.
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
Projected cost of a four-year college educationbased on child’s current age
$124,482$112,909
$102,412$92,890$84,254
$279,690
$253,687
$230,101
$208,709$189,305
PUBLIC
PRIVATE
$308,358
$137,241
$339,965
$151,309
$374,811
$166,818
$413,229
$183,917
$455,585
$202,768
The younger the child, the more college is likely to cost. Add up four years per child, and it equals one of a family’s largest expenses.
NewbornAge 18 Age 16 Age 14 Age 12 Age 10 Age 8 Age 6 Age 4 Age 2
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AFFLUENT FAMILIES PAY MOREDue to fi nancial aid policies, higher-income families paid 37% more than lower-income families in 2014–15.1
The real cost of college
Net price is the “sticker price” (full cost) to attend a college, minus any grants and scholarships received. While most families don’t pay the full sticker price, actual costs vary considerably based on household income and the college’s fi nancial aid policies.
1. Sallie Mae, How America Pays for College, 2015.2. The College Board, 2015 Trends in College Pricing. Figures are in 2015 dollars.
NET PRICE STICKER PRICE
REAL COSTOn average, families paid 28% below sticker price at public colleges and 40% less at private colleges in 2015–16. HIGH-INCOME FAMILIES
Income $100,000+LOW-INCOME FAMILIES
Income <$35,000
$0 $10,000 $20,000 $30,000 $40,000
$14,120 –27.8% $19,548
$43,921 $26,400 –39.9%
Public four-year institutions1
Private nonprofi t, four-year institutions1
Cost of college in 2015-161,2
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42%
Student works more
45%
Parent reduces
spending
How college costs affect behavior
To better afford college, many families must choose less expensive schools or change their daily lifestyles.
Source: Sallie Mae, How America Pays for College, 2015.
Actions taken to make college more affordablePercentage of people taking each action
Parent works more
22%
Student changes
major
16%
Student accelerates education
25%
Student reduces
spending
60%48%
Student lives at home
STUDENT ACTIONS PARENT ACTIONS
Elimination of colleges based on cost
0% 20% 40% 60% 80% 100%
OFF THE LISTAfter reviewing their fi nancial aid package, 62% of families ruled out some colleges based on cost, up from 56% in 2009.
2015 62%
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Financial aidSECTION 3
Financial aid can help pay for college, but not all aid is free, and not everyone qualifi es. The more you save now, the less you may have to borrow later.
Myth: “Financial aid is free money.”
Fact: 34% of all aid comes from loans that must be paid back with interest.Page 16
Common myths and facts
College Planning Essentials: A comprehensive guide to saving and investing
Myth: “ I don’t need to save because my child will receive a scholarship.”
Fact: Only 0.3% of college students actually get a full ride. Page 17
Myth: “ Saving for college will hurt my chances for fi nancial aid.”
Fact: Savings generally have little impact on fi nancial aid eligibility when the funds are held in parents’ names.Pages 18 and 20
Source: Edvisors, MarketWatch, "Class of 2015 has the most student debt in U.S. history," May 2015.
7 in 10 college seniors graduated with student loan debt in 2015.
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TOTAL AID IN 2013–14
$184.5 billion
Financial aid overview
Most college students require fi nancial assistance of some kind, but 34% of all aid comes in the form of loans that must be paid back with interest.
AID IS DOWN, TUITION IS UP
• From 2008 to 2014, state and local fi nancing per student declined 23% nationally.
• From 2003 to 2015, tuition and fees increased 69% at state colleges and nearly 31% at non-profi t private institutions.
Undergraduate student aid by source and typein billions, 2013–14
Borrowed
Free money
$62.9
(34%)
(26%)
(21%)
(8%)
(6%)
$47.1
$37.9
$15.6
$10.8
Federal loans
State grants
Private and employer grants
Federal work study$0.9 (<1%)
Federal grants including Pell
Institutional grants
Educationtax benefi ts
Source: The College Board, November 2014 Trends in Student Aid. Percentages may not total 100% due to rounding.
Average aid packagefor full-time undergraduate
students, 2013–14
Federal loans$4,840
Tax credits, deductions and federal work study$1,260
Grant aid from all sources$8,080
Average total aid package
$14,180
(5%)$9.3
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1. Sallie Mae, How America Pays for College, 2015.2. Finaid.org. Based on full-time students at four-year colleges.3. Sallie Mae, How America Saves for College, 2015.
2-year Public22%
4-yearPublic 10%
Private 13%
2-year Public
8%
Private 26%
4-yearPublic13%
Financial aid reality check
Many families expect more free money from grants and scholarships than they are likely to receive.
MORE APPLICATIONS, LESS AID
• Financial aid applicants include 86% of middle-income families and 76% of high-income families. The more people applying, the less aid there is to go around.1
Financial aid expectations3
61%
Grant reality 2014–15 (need-based)
Scholarship reality 2014–15 (merit-based)
45%
46%
Percent of total costs covered by grants
Percent of total costs covered by scholarships
of parents who are not yet saving for college expect
scholarships or grants to cover
the costs.
of families received grants averaging $7,1141
of families received scholarships averaging $8,8431
of college students receive enough grants
and scholarships to cover all costs.2
0.3%
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1. Sallie Mae, How America Pays for College 2015.2. Based on federal methodology for 2016–17 school year.3. Protected amount for parents is dependent upon a number of factors, including household size and number of students in college.
Federal fi nancial aid eligibility
The Department of Education processes the Free Application for Federal Student Aid (FAFSA) to determine the Expected Family Contribution (EFC). This is the amount colleges use to determine how much federal aid you’re eligible to receive.
FEDERAL AID
In 2013–14, 82% of families with a college-bound child applied for federal aid.1
TOTAL COLLEGECOSTS EACH YEAR
EXPECTED FAMILYCONTRIBUTION (EFC)
FINANCIAL AID ELIGIBILITY
GRANDPARENTS/OTHERS
0%of income and assets considered in federal fi nancial aid
formulas. However, withdrawals for college by grandparents or others may be considered student income and must be reported on the following year’s fi nancial aid forms. Such
income can reduce the amount of aid by 50%.
PARENTS
Income
Up to 5.64%
of non-retirement assets above
protected amount, including 529 plans,
investments and savings
Assets
+ 50%of income
above protected amount of $6,400
20%of all assets in bank accounts, CDs, UGMAs/
UTMAs and any other savings
Income
STUDENTS
+
Assets
EFC is not the amount your family will pay for college or
get in federal aid. It’s a number used by schools to calculate how much aid a student is
eligible to receive.
TOTAL EFCHOW EFC IS CALCULATED2
A family’s annual income, including the student’s, counts far more in the formula than savings and investments, especially when held in the parents’ names.
of adjusted gross income above the protected
amount3
22%–47%
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Estimating Expected Family Contribution
1. Based on two-parent household with one child attending college, one child living at home. Assuming no income or assets for each dependent and age 49 for eldest parent. Protected amounts for assets vary based on age and income. These are estimates provided for illustrative purposes only, and they may not be representative of your personal situation and circumstances.
Expected Family ContributionEstimates based on income and assets1
ASSETS (EXCLUDING PRIMARY RESIDENCE AND RETIREMENT ACCOUNTS)
$0
$2,364
$7,200
$15,170
$22,517
$30,257
$37,988
$45,391
$52,741
$60,091
$25,000
$2,364
$7,200
$15,170
$22,517
$30,257
$37,988
$45,391
$52,741
$60,091
$50,000
$75,000
$100,000
$125,000
$150,000
$175,000
$200,000
$225,000
$250,000
$50,000
$2,863
$8,108
$16,236
$23,583
$31,323
$39,054
$46,457
$53,807
$61,157
$150,000
$6,060
$13,666
$21,876
$29,223
$36,963
$44,694
$52,097
$59,447
$66,797
$200,000
$8,299
$16,486
$24,696
$32,043
$39,783
$47,514
$54,917
$62,267
$69,617
$250,000
$11,071
$19,306
$27,516
$34,863
$42,603
$50,334
$57,737
$65,087
$72,437
$300,000
$13,891
$22,126
$30,336
$37,683
$45,423
$53,154
$60,557
$67,907
$75,257
COM
BIN
ED IN
COM
E
Example: If you earn $150,000 in income and have $100,000 of savings, your estimated EFC is $34,143.
$100,000
$4,282
$10,846
$19,056
$26,403
$34,143
$41,874
$49,277
$56,627
$63,977
The Department of Education provides the Expected Family Contribution (EFC) as guidance to colleges on fi nancial aid eligibility in order to help determine the amount a family should pay. Use the chart below to estimate your EFC based on combined income and assets.
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The effect of savings on fi nancial aid
Savings actually count far less than income when calculating your Expected Family Contribution (EFC) for federal fi nancial aid purposes.
529 PLAN ADVANTAGE
• When a 529 account is owned by parents, it has much less impact on federal fi nancial aid eligibility than custodial accounts.
Maximum parental savings considered in federal fi nancial aid formulas.
5.64%
Big difference in college savings, little difference in fi nancial aidFederal fi nancial aid for two families earning the same income and sending a
child to the same college costing $30,000 per year
EXPECTED FAMILY CONTRIBUTION
FEDERAL FINANCIAL AID
$30,000
$20,000
$10,000
$0Smiths
$75,000 saved in 529 plan
WilsonsNo savings
$18,152$16,229
$11,848 $13,771
The Smiths have $75,000 more in savings but get just $1,923 less in financial aid.
Source: J.P. Morgan Asset Management and finaid.org. Assumes both families earn $100,000 annually and 529 plan is owned by the parents. Does not include non-federal financial aid opportunities such as scholarships.
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Student loan landscape
Student loan debt has soared in recent years, putting an increased fi nancial burden on college graduates and their parents.
Subsidized Stafford LoansFor undergraduate students with documented fi nancial need. The government pays interest while the student is in college.
Unsubsidized Stafford Loans For undergraduate and graduate students regardless of fi nancial need. The government does not pay interest while the student is in college.
Grad PLUS For graduate students only.
Parents PLUS For parents only.
Perkins For students with high need at some institutions.
Private Education Loans2 Offered by private lenders, they can either supplement or replace federally guaranteed loans.
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120
2005–06
2009–10
2013–14 t$105.8
t$117.7
t$90.4
Issuance of federal and private loansSelected years, 2013 dollars in billions1
1. The College Board, 2014 Trends in Student Aid.2. Private education includes loans to students from states and from institutions, in addition to private loans by banks, credit unions and Sallie Mae.3. Edvisors.com, May 2015.4. New York Federal Reserve, Wall Street Journal, “5 Things About Grad-School Debt,” August 2015.
Americans carrying at least $100,000 in student loan debt have more than quintupled in the past decade to just over 1.8 million.4
The class of 2015 is the most indebted in history, with an average of $35,051 owed per student.3
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Private loans
With college costs rising faster than the availability of federal aid, many families are choosing to fi ll the growing gap with private loans.
PRIVATE LOANS AT A GLANCE
Private loan defaultsas of 20122
$8 billionin defaulted private loans
850,000distinct loans in default
• Americans currently owe $91 billion in outstanding private student loan debt.1
• Private loans make up 7.2% of the $1.27 trillion student loan market.
• Private student loans tend to have higher interest rates and less flexible repayment options than federal loans.
1. MeasureOne Private Student Loan Performance Report – Q1 2015.2. Private Student Loan Report 2012, Consumer Finance Protection Bureau.
Federal vs. private student loansOutstanding balances (in billions)1
Federal $1,174.492.8%
Private $91.07.2%
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The burden of debt Debt balancesby type of consumer loan (in trillions)2
• Student loan debt more than tripled to $1.2 trillion between 2004 and 2014.2
• The average student borrower graduates with $35,051 in loans.3
• Student loan defaults are at a 20-year high, affecting over 7 million borrowers.4
DROWNING IN DEBT
$0.4
$0.6
$0.8
$1.0
$1.2
’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15
STUDENT LOAN
CREDIT CARD
AUTO LOAN
HOME-EQUITY LOAN
In 2010, student loan debt surpassed credit card debt for
the fi rst time in history.
The debt impacton students and their parents
42% 65% 75% $208,000of recent college graduates
currently live with their parents5of parents expect to support their children for up to five
years after graduation6
of student borrowers say loan payments make it harder
to buy a home7
loss in lifetime wealth due to student loan debt8
1. Pew Research Center. Young Adults, Student Debt and Economic Well-Being Report, May 2014. Households headed by a person younger than 40.
2. New York Federal Reserve, Household Debt and Credit Report, Q2 2015.
3. Edvisors.com, May 2015. 4. U.S. Department of Education, FY 2014, Q3. 5. Accenture, 2014 College Graduate Employment Survey. 6. Upromise by Sallie Mae, 2015.
7. American Student Assistance, “Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans,” 2013.
8. Demos, “At What Cost? How Student Debt Reduces Lifetime Wealth,” August 2013.
Families that don’t save enough for college often have no other choice than to borrow. Today, a record four in 10 households owe student debt.1
• The interest rate on federal parental college loans is 6.84%.1
DID YOU KNOW?
How college loans affect retirement
Parents who borrow for college often spend their critical pre-retirement years paying off loans instead of funding 401(k)s, IRAs and other retirement accounts.
1. Interest rates apply to loans first disbursed between July 1, 2015, and July 1, 2016. 2. Edvisors, U.S. Department of Education, National Postsecondary Student Aid Study, May 2015.3. J.P. Morgan Asset Management. Assumes a 6.84% interest rate and 10-year loan repayment period.4. J.P. Morgan Asset Management. Illustration assumes $356 monthly investments over 10 years and an annual investment return of 6%, without the effects of taxes. This example does not
represent the performance of any particular investment. Different assumptions will result in outcomes different than this example. Your results may be more or less that the figures shown. Investment losses could affect the relative tax-deferred investment advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses. Such costs would lower performance. This chart is shown for illustrative purposes only. Past performance is no guarantee of future results.
If this money were invested for retirement insteadGrowth of $356 monthly investments made over 10 years4
$59,687$42,720 $106,890 $191,424
10 years 20 years 30 years
INVESTMENT GROWTHTOTAL INVESTMENT
Average parental debt at college graduation
$30,867 $356 $42,720Total debt2 Monthly loan payment3 Total cost with interest3
While in an account, 0% of parents’ retirement assets are considered in federal fi nancial aid formulas.
Withdrawals taken to pay for college are treated as student income, half of which may count against federal aid packages.
0 %
50 %
The relationship between retirement savings and college fi nancial aid
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Saving and investingSECTION 4
Choosing the right savings plan and following time-tested investment strategies can help you reduce taxes, increase growth potential and accumulate more for college.
Myth: “ All college savings plans are the same.”
Fact: College savings plans differ in a variety of ways, including investments, tax benefi ts and fl exibility. Pages 26 and 33
Common myths and facts
College Planning Essentials: A comprehensive guide to saving and investing
Myth: “ I’ll just take out a loan if I don’t save enough.”
Fact: It costs more to borrow and pay interest than to invest and earn interest. Page 29
Myth: “ It’s too early to start saving for college.”
Fact: Starting early and saving regularly helps you maximize the power of compounding. Page 30
Source: Sallie Mae, How America Saves for College, 2015.
of families saving for college invest in 529 plans.Only 27%
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27%
Comparing college savings vehicles
Understanding the different tax benefi ts and features of college savings vehicles can help you choose the right one for your needs.
of parents own 529 plans
Source: Sallie Mae, How America Saves for College, 2015.1. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.
529 college savings plan Custodial account (UGMA/UTMA) Coverdell Education Savings Account
• Tax-free investing and withdrawals for any qualifi ed higher education expense1
• Account owner control for the life of the account
• No income limits on contributors
• High contribution maximums
• Low impact on fi nancial aid eligibility
• Funds must be used for the child’s benefi t, not necessarily for college
• Portion of investment earnings taxed at child’s and parents’ rates
• Child assumes control at age of majority, usually 18 or 21
• High impact on fi nancial aid eligibility
• Tax-free investing and withdrawals for any level of education1
• Income limits on contributors
• Age limits on benefi ciaries
• Maximum contribution of $2,000 annually per benefi ciary
• Low impact on fi nancial aid eligibility
of parents own UGMA/UTMA accounts9% of parents own
Coverdell accounts11%
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14%U.S. Savings Bonds
Current saving and investing trends
Half of U.S. families aren’t saving for college. The other half often choose vehicles that don’t maximize their growth potential, such as savings accounts, CDs and taxable investments.
Percentage of families using:
15%CDs
48%General Savings Accounts
27%529 College Savings Plan
17%Investments
11%Trust Fund
12%Prepaid State Plan
23%Checking Account
11%Coverdell Education Savings Accounts
Source: Sallie Mae, How America Saves for College, 2015.
0% 50%10% 20% 30% 40%
9%UGMA/UTMA
FAMILIES DON’T FULLY MAXIMIZE GROWTH POTENTIALMore parents—48%—save for college with low-yielding savings accounts than any other method.
FAMILIES USING A 529 PLAN
FAMILIES USING A TRADITIONAL
SAVINGS ACCOUNT
On average, those parents with a 529 plan save 89% more than those simply using a savings account.
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S&P 500
U.S. 30-DAY TREASURY BILLS
CONSUMER PRICE INDEX
COLLEGE TUITION AND FEES
Investing for long-term growth
Starting a college savings plan early allows more time to hold investments with higher return potential.
$100
$10
$1DEC ’79 DEC ’14DEC ’09DEC ’04DEC ’99DEC ’94DEC ’89DEC ’84
Growth of one dollarDecember 1979 to December 2014
Source: J.P. Morgan Asset Management. Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1980. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index.
STOCKS OUTPACE TUITION INFLATIONWhile short-term investments grew more slowly than tuition costs, stocks delivered high returns to help beat college infl ation and achieve savings goals.
t$59.37
t$12.48
t$5.50
t$3.47
Investing versus borrowing
It costs less to invest now than to borrow later. When you borrow for college, you pay interest. When you invest, you earn interest and other forms of investment returns.
IT TAKES A PLAN
• Without a plan, families run the risk of not saving enough and borrowing too much. Yet 36% of high-income families and 60% of middle-income families don’t have a plan to pay for college.1
529 college savings plan versus student loanInitial investment of $1,000 plus monthly investments of $3002
$200,000
$150,000
$100,000
$50,000
$0College savings plan
over 18 yearsCollege loan:principal and
interest
$119,143
INVESTMENT GROWTH
OUT-OF-POCKET COST
$167,553
$65,800
lower out-of-pocket costwith 529 plan
$101,753
Average parental loan debt at graduation3
$10,000
$17,577
$30,867
$7,799
$0
1994-95
2004-05
2014-15
$20,000 $40,000$30,000
A BURDEN FOR EVERYONEThe average parental debt load has almost doubled in a decade to nearly $31,000 in 2014-15, while the average debt faced by students was more than $35,000 in 2015.4
1. Sallie Mae, How America Pays for College, 2015.2. J.P. Morgan Asset Management. The investing illustration
assumes an initial lump-sum investment of $1,000, subsequent monthly investments of $300 thereafter for 18 years, and assumes an annual investment return of 6% and federal tax rate of 28%. Investment losses could affect the relative tax-deferred investment advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. The borrowing illustration assumes an interest rate of 7.21% and a payback period of 10 years. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. The chart is shown for illustrative purposes only. Past performance is no guarantee of future results.
3. Edvisors, U.S. Department of Education, National Postsecondary Student Aid Study, May 2015.
4. Wall Street Journal, “Congratulations Class of 2015. You’re the Most Indebted Ever (For Now),” May 2015, and MarketWatch, “Class of 2015 has the most student debt in U.S. history,” May 2015.
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The benefi ts of compounding
The sooner you start saving, the more time you may have to grow your college fund through the power of long-term compounding. Even small contributions add up over time.
Total accumulation
in 6 years
Total accumulationin 12 years
Total accumulationin 18 years
$50,000
$100,000
$150,000
$200,000
$0
$100 MONTHLY CONTRIBUTIONS
$250 MONTHLY CONTRIBUTIONS
$500 MONTHLY CONTRIBUTIONS
Start early, small savings add upTotal amounts accumulated over 6, 12 and 18 years
If you start saving $500 per month when a child is born, you’ll earn
$84,214 morethan if you start at age 6.
$8,3
70 $20
,926
$41,
852
$50
,610
$10
1,22
0
$37,
087
$92,
717
$185
,434
$20
,24
4
Source: J.P. Morgan Asset Management. This hypothetical example illustrates the future values of different regular monthly investments for different time periods. Chart also assumes an annual investment return of 6%. Investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. A plan of regular investment cannot assure a profit or protect against a loss in a declining market. The chart is shown for illustrative purposes only. Past performance is no guarantee of future results.
Start early, accumulate more
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Performance pays
Even small increases in investment returns can make a big difference when it comes time to pay for college.
SEEKING HIGHER RETURNS
• Be an investor, not just a saver in low-yielding bank accounts.
• Stay invested for the long haul to avoid the risk of being out of markets during upswings.
• Reduce taxes to keep more of what you earn.
Source: J.P. Morgan Asset Management using The College Board 2015 Trends in College Pricing. This hypothetical assumes an investment of $100,000 over an 18-year period. Different assumptions will result in outcomes different from this example. Investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision.
Investment growth over 18 yearsCalculations assume an initial investment of $100,000 at birth
$350,000
$300,000
$250,000
$200,000
$150,000
$100,00010 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
t$337,993
of $100,000covers a full year’s cost at
public college (in-state)
covers a full year’s cost at
private college
covers a full year’s cost at
Ivy League college
covers two full years’ cost at
private college
initial investment
Slightly higher returns can pay for a full year of college
+$21,485$240,662 +$44,772 +$70,004 +$97,3315.5%5.0% 6.0% 6.5% 7.0%
Difference of
$97,331
t$240,662
6.5% ANNUAL RETURN
6.0% ANNUAL RETURN
7.0% ANNUAL RETURN
5.5% ANNUAL RETURN
5.0% ANNUAL RETURN
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Invest more, pay less
Some savings vehicles, such as 529 plans, allow large contributions that can help you pay for much of college from your investment earnings instead of your pocket.
Source: College Board, 2015 Trends in College Pricing. Based on tuition, fees and room/board costs for 2015–2016 school year. Costs estimated to inflate 5% per year. This example is hypothetical and assumes a 6% annual rate of return and an annual lump-sum contribution of $18,749 over a 12-year period. This example does not represent the performance of any particular investment. Different assumptions will result in outcomes different from this example. Your results may be more or less than the figures shown. Investment losses could affect the relative tax-deferred investing advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses that would be paid by a 529 plan participant. Such costs would lower performance.
$200,000$0 $100,000 $300,000
Average private college cost
$339,965
Lump-sum investment
Annual investments
Out-of-pocketpayment
INVESTMENT GROWTHOUT-OF-POCKET COST
Investing versus paying out of pocketAmounts needed to fund four years of private college in 12 years
$165,776
$232,952
$339,965
Save 31% on out-of-pocket costs
Save 0% on out-of-pocket costs
Save 51% on out-of-pocket costs
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Tax-effi cient investing
A tax-advantaged account, such as a 529 plan, has the potential to grow faster for college than a taxable investment earning the exact same returns.
$15,477 more
with a tax-free 529 plan
$90,000 $120,000$60,000$30,000$0
Taxableaccount
Tax-free529 plan
Lower taxes equal a larger college fundInvestment growth over 18 years2
1. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.
2. J.P. Morgan Asset Management. Illustration assumes an initial $1,000 investment and monthly investments of $300 for 18 years. Chart also assumes an annual investment return of 6% and a federal tax rate of 28%. Investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses that would be paid by a 529 plan participant. Such costs would lower performance. The chart is shown for illustrative purposes only. Past performance is no guarantee of future results.
$103,666
$119,143
STATE TAX BENEFITS
• Many 529 plans offer state tax benefits in addition to federal tax-free investing.1 See the Appendix on page 50 for more information.
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Making college savings a family affair
Getting family, friends and students involved in college savings can increase the size of your account and reduce your share of the expenses.
TALK TO CHILDREN
• Over half (54%) of college savers have discussed education costs with children, compared to just 28% of non-savers.1
Don’t go it aloneParents expect only 5% of college costs to be paid with contributions
from grandparents, friends and family.1
1. Sallie Mae, How America Saves for College, 2015.2. J.P. Morgan Asset Management. This hypothetical example illustrates the future values of regular
monthly investments by the account owner and annual investment by other contributors over an 18-year period. Investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. A plan of regular investment cannot assure a profit or protect against a loss in a declining market. The chart is shown for illustrative purposes only. Past performance is no guarantee of future results.
More contributors create a larger college fundInvestment growth over 18 years2
$36,906
$72,264
$185,434
Family and friends $1,000 annually
Total
Parents $6,000 annually
Grandparents $2,500 annually
$294,604
5%
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Don’t pay for college with retirement funds
Every dollar withdrawn from 401(k)s and IRAs for college can mean several dollars less for retirement, due to years of lost investment earnings and compounding.
A DANGEROUS DECISION
Nearly one in three parents either plans to use or would consider using retirement
funds for college.1
How college withdrawals can jeopardize retirement security2
Pay 10% penalty if under age 59½3
Penalties
Financial aid
Withdrawal treated as student income
More drawbacks of using retirement funds for college
Taxes
Taxes due on amount withdrawn
1. Sallie Mae, How America Saves for College, 2015.2. J.P. Morgan Asset Management. This illustration assumes that assets would have remained in a tax-advantaged retirement account instead of being withdrawn for college, earning 6% annual investment
returns for 20 years. This example does not represent the performance of any particular investment. Different assumptions will result in outcomes different from this example. Your results may be more or less than the figures shown. Investment losses could affect the relative tax-deferred investing advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses. Such costs would lower performance. Shown for illustrative purposes only. Past performance is no guarantee of future results.
3. Distributions from retirement accounts may not be subject to the 10% penalty if used for qualified higher education expenses. Refer to IRS Publication 970 or your 401(k) plan provider for details.
$10,000
$32,071
$25,000
$80,178
$50,000
$160,357
Amount withdrawn for college:
Retirement account reduced by:
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Staying diversifi ed over 18 years
Compare the best, worst and average annual returns for different investments over rolling 18-year periods.
WHY DIVERSIFY?
• A balanced portfolio delivered higher returns than bonds with lower volatility than stocks.
• Even in its worst 18-year period, the balanced portfolio outperformed average tuition infl ation.
• Even in its best 18-year period, short-term cash underperformed average tuition infl ation.
Source: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, BLS, J.P. Morgan Asset Management. Rolling returns shown are based on calendar-year returns from 1978 to 2014. Data are as of 12/31/14. Past performance is not indicative of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
8%
16%
20%
6%
14%
18%
4%
12%
2%
10%
0%
Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual Average annual tuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflationtuition inflation
11.9%
10.9%
3.9%
7.0%
17.4%
14.8%
6.7%
7.2%7.9%
1.5%
18-year rolling returnsAverage annual returns, 1978–2014
Stocks
Bonds
Cash
50-50Portfolio
9.3%
12.2%
6.9%
AverageAverageAverageAverageAverageAverageAverageAverageAverage
Lowest Lowest Lowest Lowest Lowest Lowest Lowest returnreturnreturnreturnreturnreturnreturn
Highest Highest Highest Highest Highest Highest Highest Highest ReturnReturnReturnReturnReturnReturnReturn
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The power of diversifi cation
A more diversifi ed portfolio has historically provided higher returns with lower risk.
S&P 500
MSCI EAFE
Barclays Agg. 55%
15%
30%
Traditional portfolio
27%
22%
13%
9%
8%
8%8%
8%4%4%
S&P 500
Russell 2000
Barclays Agg.
MSCI EAFE
REIT
Equity Mkt. Neutral
MSCI EM
Commodities
Return
Standard Deviation
4.81%
10.74%
Return
Standard Deviation
6.19%
10.19%
More diversifi ed portfolio
Source: J.P. Morgan Asset Management. Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate, International stocks: 15% MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.2% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index. Return and standard deviation calculated using Morningstar Direct. Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. Data as of December 31, 2014.
Portfolio risks and returns2000-2014
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Asset allocation provided a smoother ride
A diversifi ed portfolio of many different asset classes fl uctuated less than any one on its own.
Cash
1.0%
AssetAlloc.13.3%
AssetAlloc.14.9%
REITs
25.9%
Volatil
ity
Annualized
FixedIncome
3.2%
Comdty.
20.5%
HighYield
12.8%
Small Cap
20.5%
DMEquity16.2%
EMEquity18.8%
Large Cap
16.2%
EMEquity–2.3%
Small Cap
38.8%
DMEquity23.3%
2013
REITs
2.9%
Cash
0.0%
FixedIncome–2.0%
HighYield7.3%
Large Cap
32.4%
Comdty.
–9.5%
EMEquity34.5%
EMEquity39.8%
EMEquity79.0%
REITs
35.1%
REITs
27.9%
REITs
8.3%
REITs
19.7%
FixedIncome
5.2%
Small Cap
26.9%
AssetAlloc.
-25.4%
HighYield3.1%
Comdty.
21.4%
Comdty.
16.2%
Comdty.
–35.6%
HighYield
59.4%
DMEquity14.0%
DMEquity26.9%
DMEquity11.6%
EMEquity18.6%
EMEquity32.6%
HighYield
19.6%
20052007
20092006
20102011
20122008
REITs
12.2%
REITs
–37.7%
REITs
–15.7%
Cash
1.8%
Cash
0.1%
Cash
4.8%
Cash
3.0%
Cash
0.1%
FixedIncome
6.5%
HighYield3.2%
Cash
0.1%
FixedIncome
7.8%
Large Cap
5.5%
Comdty.
18.9%
FixedIncome
2.4%
FixedIncome
4.3%
DMEquity8.2%
AssetAlloc.12.2%
DMEquity32.5%
EMEquity19.2%
EMEquity-53.2%
EMEquity–18.2%
HighYield3.6%
Small Cap
–1.6%
Small Cap
18.4%
Small Cap
–33.8%
DMEquity17.9%
Small Cap
–4.2%
REITs
28.0%
AssetAlloc.7.1%
Large Cap
4.9%
HighYield
13.7%
FixedIncome5.9%
Cash
0.1%
FixedIncome4.2%
HighYield
–26.9%
Large Cap
26.5%
HighYield
14.8%
AssetAlloc.–0.7%
Large Cap
16.0%
AssetAlloc.15.3%
AssetAlloc.8.1%
FixedIncome
7.0%
Comdty.
16.8%
Large Cap
2.1%
Small Cap
4.6%
Cash
4.8%
Small Cap
27.2%
Large Cap
15.1%
Small Cap
16.3%
AssetAlloc.13.3%
DMEquity–43.1%
DMEquity–11.7%
Comdty.
2.1%
Comdty.
–1.1%
AssetAlloc.25.0%
Comdty.
–13.3%
AssetAlloc.5.2%
DMEquity–4.5%
REITs
28.0%
FixedIncome6.0%
2014
Cash
0.0%
HighYield0.0%
EMEquity–1.8%
Small Cap
4.9%
Large Cap
13.7%
Comdty.
–17.0%
Large Cap
15.8%
Large Cap
–37.0%
Small Cap
7.8%
Cash
1.5%
EMEquity8.8%
HighYield8.0%
AssetAlloc.5.8%
DMEquity4.9%
FixedIncome
4.7%
Large Cap
7.7%
REITs
8.3%
Comdty.
–1.9%
Asset class performanceRanked in order of annual returns, 2005–14
Source: Barclays Capital, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Barclays Global HY Index, Fixed Income: Barclays Capital Aggregate, REITs: NAREIT Equity REIT Index. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 9/30/15. Annualized 10-yr returns represent period of 12/31/04–12/31/14. Please see disclosure page at end for index definitions.
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College planning checklist
Set a goal
Review and adjustCreate your plan
What type of college should we consider?
What costs should I expect?
What is my family’s fi nancial outlook?
How much of total costs do I want to pay?
What can I afford to save?
What does my fi nancial advisor recommend?
Review plan annually
Make adjustments based on life changes
Compare and choose college savings options
Understand my risk tolerance
Get startedOpen an account and select investments
Set up a schedule of monthly contributions
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College Planning Essentials: A comprehensive guide to saving and investing
AppendixSECTION 5
College Planning Essentials: A comprehensive guide to saving and investing
fafsa.ed.gov
fi naid.org
irs.govIRS Publication 970, Tax Benefi ts for Education
ed.gov/fi naid.html
collegeconfi dential.com
collegesavings.org savingforcollege.com
iefa.org
How to apply for federal fi nancial aid
Guide to grants, scholarships, loans and other aid
Guide to federal income tax benefi ts for education
Information from U.S. Department of Education
Resources to help pay for college
Information about 529 plans
Comprehensive guide to college funding
Aid for students studying in a foreign country
Parents and others can learn more about obtaining fi nancial aid for college through the following websites:
Financial aid resources
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Sources of fi nancial aid
U.S. federal government
TYPES OF FINANCIAL AID DETAILS
Grants and scholarships
Loans
Work study
Allows qualifi ed students to earn money for college expenses
In addition to aid from the U.S. Department of Education, scholarships and loan repayment may be available to qualifi ed students through additional government entities.
Grants and scholarships
May be available even if families aren’t eligible for federal aid
Example: New York offers a Math and Science Teaching Incentive Scholarship to eligible students in approved programs that lead to math or science teaching careers.
Grants and scholarshipsAid may be available for attending a particular college and/or studying specifi c majors.
Grants and scholarships
Private loans
Possible sources include charitable foundations, religious and community organizations, local businesses, ethnicity-based organizations, students’ and parents’ employers, and civic groups and professional associations related to a fi eld of study.
Tend to have higher interest rates and less fl exible repayment options than federal loans.
States
Colleges
Non-profi t or private organizations
Banks, credit unions or other lenders
Source: www.studentaid.ed.gov (U.S. Department of Education).
TYPES OF FINANCIAL AIDGrants and scholarships are free gifts that generally don’t have to be repaid. Grants are typically need-based while scholarships are merit-based. Loans must be paid back with interest.
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Financial aid: Types of applications
There are over 200 institutions that require students to submit the CSS/Financial Aid PROFILE in addition to the FAFSA.1 The PROFILE is an online application that is administered by the College Scholarship Service, the fi nancial aid division of the College Board. The PROFILE is used to determine students’ eligibility for need-based institutional scholarships, grants or loans and is a more detailed assessment of the student’s and parents’ income and assets when calculating EFC.
1. College Board, Participating Institutions and Programs.2. See financial aid office or net price calculator at your desired institution for more information about what is used to calculate awards.
FAFSACSS/FINANCIAL AID PROFILE2
Need-based institutional aid Need-based institutional aid
Standard, universal application
Required by every institution
Looks at assets and income at a high level and uses a standard EFC formula for every applicant.
College-specifi c application
Considers a deeper level of income and assets when calculating EFCApplicants may be asked to report additional assets or income such as home equity, business income and assets under a sibling’s name.
Required by over 200 institutions in addition to the FAFSAMajority of schools tend to be specialized,
highly selective or private schools.
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Financial aid methodologies
These factors are considered when determining the Expected Family Contribution through both the Federal Methodology for federal aid and Institutional Methodology for individual institutional aid.
Federal Methodology - FAFSA Institutional Methodology - CSS/FINANCIAL AID PROFILE
Income and Assets Income and AssetsAllowances and Expenses Allowances and Expenses
Nontaxable income (including social security, child support, and workers’
compensation and disability)
Nontaxable income (including social security, child support, and workers’
compensation and disability)
Number in household Number in household
Number of family members enrolled in college at least half-time
Number of family members enrolled in college at least half-time
Federal income tax Federal income tax
State tax State tax (including sales tax)
FICA tax FICA tax
Employment expense
Employment expense
Medical and dental expense
Income protection allowance
Income protection allowanceAnnual education savings allowance
Annual education savings allowance
Private, elementary and secondary school tuition for siblings
Child support paid
Child support paid
Interest and dividend income Interest and dividend income
Tax credits and itemized deductionsCash and savings
Cash and savingsInvestment and other real estate net worth
Investment and other real estate net worthBusiness or farm net worth (only if
more than 100 full-time employees)
Business or farm net worth
Home equity
Parents’ assets held in siblings’ names
Noncustodial parent information
Student trusts
Student trusts
Source: College Board, FM and IM Differences.
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DETAILS ANNUAL AWARD LIMIT1
Federal student aid: A sample of grant programs
Awarded to undergraduate students with exceptional fi nancial need
Federal Pell Grant recipients receive priority
Not all colleges participate
Funds depend on availability at the college; apply by college’s deadline
For undergraduate, post-baccalaureate or graduate students who are taking or will be taking coursework necessary to become elementary or secondary teachers
Must attend a participating college and meet certain academic achievement requirements
Must agree to serve for a minimum of four years as a full-time teacher in a high-need fi eld, serving low-income students
Failure to complete the teaching service commitment results in grant funds being converted to a Federal Direct Unsubsidized Stafford Loan that must be repaid
Non-need based, this grant is available to any undergraduate student who is not eligible for the Pell Grant and whose parent or guardian died as a result of performing military service in Iraq or Afghanistan after the events of 9/11
Must have been less than 24 years old or enrolled at least part-time at the time of the parent’s or guardian’s death
Generally awarded to undergraduate students in fi nancial need
2015–16 award year
Federal Supplemental Educational Opportunity Grant (FSEOG)
Federal Pell Grant
Teacher Education Assistance for College and Higher Education (TEACH) Grant
Iraq and Afghanistan Service Grant
1. Awards are subject to availability of funds, and recipients must meet certain eligibility requirements. This is for informational purposes only.
up toup to
$5,775$5,775up toup to
$5,775up toup to
up toup to
$5,775$5,775up toup to
$5,775up toup to
up toup to
$4,000$4,000up toup to
$4,000up toup to
up toup to
$4,000$4,000up toup to
$4,000up toup to
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Loan amount based on fi nancial need and availability of funds at college
up to
$5,500(undergraduate)
up to
$8,000(graduate)
$3,500–$5,500 depending on year in school
$5,500–$20,500 (minus any subsidized amount received for the same period), depending on year in school
and dependency status
Cost of attendance (determined by the school) minus any other
fi nancial aid received
Cost of attendance (determined by the school) minus any other
fi nancial aid received
5%
4.29%Student not charged
interest while in school and during deferment periods
4.29%for undergraduates
5.84%for graduate students
Student responsible for interest during all periods
6.84%Student responsible for interest during
all periods
6.84%Parent responsible for interest during
all periods
Federal student aid: Loan programs
FederalPerkins Loan
ELIGIBILITY INTEREST RATE1LENDER ANNUAL LOAN LIMIT
Undergraduate and graduate students with fi nancial need
Individualcollege
Undergraduate students enrolled at least half-time and demonstrating fi nancial need
U.S. Department of Education
Undergraduate and graduate students enrolled
at least half-time
U.S. Department of Education
Parents of dependent students enrolled at least half-time
Parent must not have negative credit history
Graduate or professional degree students enrolled
at least half-time2
Student must not have negative credit history
U.S. Department of Education
U.S. Department of Education
Direct Subsidized Stafford Loans
Direct Unsubsidized Stafford Loans
1. Interest rates apply to loans first disbursed between July 1, 2015, and July 1, 2016.
2. If students have not requested the annual maximum Unsubsidized Stafford Loan amount for which they are eligible, the school must notify them of this eligibility and give them the opportunity to apply.
Direct PLUSLoan for Parents
Direct PLUSLoan for Graduate or Professional Students
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College-related tax breaks¹
1. Must meet certain eligibility requirements. Information as of August 2015. Please consult a tax advisor for additional details.2. Taxpayers cannot claim both credits for the same student in the same year.3. See page 50 for more information.
Some states allow contributions to a 529 college savings plan to be deductible for state income tax purposes. Rules and deductible amounts vary by state.
The maximum deduction is
$2,500 per year.
• The American Opportunity Credit allows eligible taxpayers to claim up to $2,500 in qualifi ed expenses per student per year for the fi rst four years of college.
• The Lifetime Learning Credit allows eligible taxpayers to claim up to $2,000 in qualifi ed expenses per student per year for an unlimited number of years of college.
Contributions to 529 plans, Coverdell Education Savings Accounts, qualifying U.S. savings bonds and other college accounts are not typically deductible from federal taxes. However, they grow on a tax-deferred basis, and withdrawals are generally tax free for qualifi ed expenses.
You can claim a federal tax deduction forthe interest paid on student loans taken out for yourself, your spouse or your dependents. This benefi t applies to all loans used to pay higher education expenses, not just federal student loans.
• You can deduct up to $4,000 for tuition and fees on your tax return. To qualify, your income cannot be over $80,000 if single and $160,000 if married.
• This is available for an unlimited number of years for higher education, and the student must be enrolled in at least one class at an eligible school.
Federal tax credits2 Student loan interest deduction Tuition and fees deduction
Tax-deferred college savings plans State tax deductions3
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Yes
Yes
Yes, to another member of the benefi ciary’s family
Must contribute before benefi ciary turns 18;
must use assets by 30
COVERDELL EDUCATION SAVINGS ACCOUNTS
Yes, for qualifi ed expenses from
kindergarten through college
No
Yes
Yes
No
Yes
Yes, to another member of the benefi ciary’s family
None
529 COLLEGE SAVINGS PLANS
Yes, for qualifi ed higher education expenses
Yes1
Yes1
Yes
Typically more than
$300,000per benefi ciary2
$2,000per benefi ciary per year
Yes
Yes
N/A
Owner must be at least 24 when bond is issued
QUALIFYING U.S. SAVINGS BONDS
Yes, for qualifi ed higher education expenses;
additional restrictions apply3
No gifting involved; bonds must be owned by
parents or guardians
No
No
No
No, counted as student’s assets
No
UGMA/UTMACUSTODIAL ACCOUNTS
No, withdrawals may be taxed at
child’s and parent’s rates
No, if donor is also custodian
None3
Child assumes control at age of majority
(typically 18 or 21)
Comparing college savings options
Tax-free gifts of up to $140,000 per benefi ciary in a single year
Assets intended specifi cally for education
Maximum contribution
Income restrictions to contribute or receive tax benefi ts
Minimal impact on fi nancial aid when owned by parents
Tax-free withdrawals
Flexibility to change benefi ciaries
Assets removed from taxable estate
Age restrictions on benefi ciaries or contributors
1. No additional gifts can be made to the same beneficiary over a five-year period. If the donor does not survive the five years, a portion of the gift is returned to the taxable estate.
2. All contributions are subject to gift taxes where applicable.
3. Consult your tax advisor for more information.
$10,000face value per year, per owner, per type of bond
No, gifts to child are irrevocable
No
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1. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.2. No additional gifts can be made to the same beneficiary over a five-year period. If the donor does not survive the five years, a portion of the gift is
returned to the taxable estate.3 . Sallie Mae, How America Saves for College, 2015.4. College Savings Plan Network 529 Report, September 2015.
A MAJOR SOURCE OF COLLEGE FUNDING
In 2014, Americans contributed over $24 billion to 529 plans and withdrew almost $16 billion to pay higher education costs.3
BENEFIT
Tax-advantaged investing
• Tax-deferred compounding of contributions and earnings• Tax-free withdrawals for qualified higher education expenses1
• Tax-deductible contributions in some states
Estate planning benefi ts
• Contributions and investment gains removed fromtaxable estate
• Option to contribute up to five years of tax-free gifts in a single year —up to $140,000 per beneficiary from couples and $70,000 from individuals2
• The only gift that can be revoked under current laws
Control and fl exibility
• Account owner retains full control over assets• Can change beneficiaries or transfer unused assets
to other family members• Covers any qualified expense at accredited schools
throughout the U.S. and overseas• Minimal impact on financial aid eligibility when
owned by parents
Accessible • No income limits on contributors• No age limits on beneficiaries or contributors
Affordable• Very low investment minimums • High contribution limits, often $300,000 or more per
beneficiary
The 529 plan advantage
WHAT IT MEANS
27%of parents used a 529 plan in 20143
Total investments in 529 plans reached a record level of $258.2 billion in June 2015.4
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Variety of investment choices
Quality of portfolio construction and level of diversifi cation
Investment performance history
Experience and reputation of investment managers
Plan contributions: minimums, maximums, ways to contribute
Rewards program availability
Restrictions on transactions
Online servicing and support capabilities
Checklist: Choosing a 529 plan
In-state benefi ts
Investment options Other plan considerations
Does my home state’s 529 plan offer any tax breaks?
Does my home state’s 529 plan offer any matching programs or scholarships?
Weigh state benefi ts against a plan’s other features and advantages, such as investment options and fees, in order to make a fully informed decision.
FeesLook at all fees and expenses, including program fees, asset-based fees, enrollment or maintenance fees, sales commissions, minimum account balance fees and special penalties for low balances.
Four key factors to consider and compare
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529 plans: State tax benefi ts
Tax benefi ts by state1
Tax-parity statesThese states offer a tax deduction for contributing to any 529 plan, including out-of-state plans that may be more attractive than the in-state option: Arizona, Kansas, Maine, Missouri, Montana, Pennsylvania.
Tax-neutral statesThese states offer no state tax deduction for 529 plan contributions: Alaska, California, Delaware, Florida, Hawaii, Kentucky, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, North Carolina, South Dakota, Tennessee, Texas, Washington, Wyoming.
All other statesThese states offer potential tax breaks on contributions made only to in-state 529 plans.
1. As of August 2015.
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Indexes are unmanaged, and an individual cannot invest directly in an index. Index returns do not include fees or expenses.
The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index.
The S&P MidCap 400 Index tracks a diverse basket of medium-sized U.S. firms. A mid cap stock is broadly defined as a company with a market capitalization ranging from about $2 billion to $10 billion.
The S&P SmallCap 600 Index invests in a basket of small cap equities. A small cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.
The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The MSCI® EAFE (Europe, Australia, Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indexes, representing the developed markets outside of North America.
The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (e.g., a beta of zero).
* Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy and are based on a December 8, 2008, published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.
The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors—the great majority being pension funds. As such, all properties are held in a fiduciary environment.
The FTSE NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE, the American Stock Exchange or the NASDAQ National Market List.
The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis.
The HFRI Equity Market Neutral Index is an equally weighted performance index. The HFRI is broken down into 33 different categories by strategy. The strategy of this index seeks to profit by exploiting inefficiencies between related equity securities, neutralizing exposure to market risk by combining long and short positions. In many cases, portfolios are structured to be market, industry, sector and dollar neutral. One example of this strategy is to build portfolios made up of long positions in the strongest companies in several industries and take corresponding short positions in those showing signs of weakness. Due to the mutual agreements with the hedge fund managers listed in the HFRI database, the index is not at liberty to disclose the particular funds behind this index.
The Merrill Lynch Global Government Index tracks the performance of investment-grade sovereign debt publicly issued and denominated in the issuer’s own domestic market and currency. In order to qualify for inclusion in the Index, a country (i) must be an OECD member; (ii) must have an investment-grade foreign currency long-term sovereign debt rating (based on an average of Moody’s, S&P and Fitch); (iii) must have $50 billion (USD equivalent) outstanding face value of Index qualifying debt (e.g., after imposing constituent level filters on amount outstanding, remaining term to maturity, etc.) to enter the Index; (iv) must have at least $25 billion (USD equivalent) in outstanding face value of Index qualifying debt in order to remain in the Index; (v) must be available to foreign investors; and (vi) must have at least one readily available, transparent price source for its securities.
The Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below-investment-grade rating (based on an average of Moody’s, S&P and Fitch) and an investment-grade-rated country of risk (based on an average of Moody’s, S&P and Fitch foreign currency long-term sovereign debt ratings).
The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies.
The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents 19 separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc.
Index defi nitions
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Past performance is no guarantee of comparable future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise.
The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods of time.
Small-capitalization investing typically carries more risk than investing in well-established “blue-chip” companies since smaller companies generally have a higher risk of failure. Historically, smaller companies’ stock has experienced a greater degree of market volatility than the average stock.
Mid-capitalization investing typically carries more risk than investing in well-established “blue-chip” companies. Historically, mid cap companies’ stock has experienced a greater degree of market volatility than the average stock.
Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.
International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations.
Investments in emerging markets can be more volatile. As mentioned earlier, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.
Securities rated below investment grade are called high-yield bonds, non-investment-grade bonds, below-investment-grade bonds or junk bonds. They generally are rated in the fifth or lower rating categories of Standard & Poor’s and Moody’s Investors Service. Although these securities tend to provide higher yields than higher rated securities, they may also carry more risk.
Disclosures
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Disclosures
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
Before you invest, consider whether your or the benefi ciary’s home state o� ers any state tax or other benefi ts that are only available for investments in that state’s qualifi ed tuition program.
The Comptroller of the State of New York and the New York State Higher Education Services Corporation are the Program Administrators and are responsible for implementing and administering the Advisor-Guided Plan. Neither the State of New York nor its agencies insures accounts or guarantees the principal deposited therein or any investment returns on any amount or investment portfolio.
Ascensus Broker Dealer Services, Inc. and Ascensus Investment Advisors, LLC serve as Program Manager and Recordkeeping and Servicing Agent, respectively, and are responsible for day-to-day operations, including effecting transactions. J.P. Morgan Investment Management Inc. serves as the Investment Manager. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. JPMorgan Distribution Services, Inc. markets and distributes the Advisor-Guided Plan. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC.
New York’s 529 College Savings Program includes two separate 529 plans. The Advisor-Guided Plan is sold exclusively through fi nancial advisors who have entered into Advisor-Guided Plan selling agreements with JPMorgan Distribution Services, Inc. You may also participate in the Direct Plan, which is sold directly by the Program and offers lower fees. However, the investment options available under the Advisor-Guided Plan are not available under the Direct Plan. The fees and expenses of the Advisor-Guided Plan include compensation to the fi nancial advisor. Be sure to understand the options available before making an investment decision.
For more information about New York’s 529 Advisor-Guided College Savings Program, you may contact your fi nancial advisor or obtain an Advisor-Guided Plan Disclosure Booklet and Tuition Savings Agreement at www.ny529advisor.com or by calling 1-800-774-2108. This document includes investment objectives, risks, charges, expenses, and other information. You should read and consider it carefully before investing.
The Program Administrators, the Program Manager and JPMorgan Distribution Services, Inc., and their respective affi liates do not provide legal or tax advice. This information is provided for general educational purposes only. This is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specifi c state law requirements.
November 2015
529–CPE
New York’s 529 Advisor-Guided College Savings Program®
Entrust your college fund to one of the world’s largest, most respected financial institutions. The Advisor-Guided Plan is the only 529 plan offering you full access to the insights and investments of J.P. Morgan.
• Investment options from J.P. Morgan Asset Management and State Street Global Advisors
• State tax deductions for account owners living or working in New York1
• High contribution limit of $375,000 per beneficiary
• Upromise® rewards program turns everyday purchases into funds for college
1. Deductions may be subject to recapture in certain circumstances, such as rollovers to another state’s plan or non-qualified withdrawals.
2. As of 6/30/15.
Investment choices
• One age-based portfolio with six different asset mixes between newborn and college age
• Seven asset allocation portfolios pursuing different risk/return objectives
• Sixteen individual portfolios for building your own custom-tailored investment solution
Broad diversification
• Access to asset classes and investment strategies not often found in 529 plans
• Potential for higher returns and lower risk than less diversified portfolios
Expert management
Oversight by J.P. Morgan’s Multi-Asset Solutions Group
• Dedicated team of more than 100 professionals2
• More than $177 billion in global assets under management2
• Builds Plan portfolios, selects investments and makes adjustments as market conditions change over time
To learn more, please consult a financial advisor, visit ny529advisor.com or call 1-800-774-2108.