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Archive for February 13th, 2008

Health Insurance: Are You Covered?

February 13th, 2008 by Matthew C. Keegan | 1 Comment | Filed in Personal Advice

As a college student, it is easy to overlook medical coverage when considering college costs. After all, you are young and vibrant and if you come down with strep throat or a fever, a trip to the college infirmary will take care of you.

Welcome to reality! Your college isn’t responsible for your care and even if they do have a medical plan for students, it may not suit your needs. Accidents do happen and some illnesses can quickly set you or your family back thousands of dollars. Read on and we’ll take a look at some ways you can get the right insurance coverage while attending college.

Your Parents’ Plans — Many students are covered on their parents’ health plan for the entire time that they are in college. Your parents will probably have to pay extra to keep you covered, but that amount should be a lot less than what you could get on your own.  Most have a specific cut off age, such as 23 1/2 or 25, even later.

Your College Health Plan — Some universities offer discounted health care coverage for students. One plan may offer year ’round coverage while another one may only cover you except during summer break. Don’t let any gaps in coverage catch you unawares!

Your Student Health Service — If you are planning to live on campus,  some schools will include access to the Student Health Service department. There, you can get limited health care assistance, counseling, information and advice. Some are staffed by a variety of medical professionals, but you’ll still need separate hospital insurance if you require special care.

Your Choice of Plans — Insurance for just $30 per month sounds like a bargain until you learn what it covers (or doesn’t). Some plans are called health assurance meaning you’ll get a discount for visiting a doctor or maybe save a few bucks on prescriptions. You want either an HMO or PPO plan, one that provides coverage for doctor’s visits, hospital stays, prescription medicines, etc.

Your Right to Be Seen — Hospitals are required to take you in through their emergency room whether you have insurance or not. Just don’t expect to be seen right away and you still may be saddled with a big bill afterwards. Some students may be eligible for state or federal Medicaid which can cover most health needs.

You Can Do Your Part

Finally, you can do your part to encourage good health by eating right, getting enough sleep, exercise, avoid over drinking, refrain from smoking, and getting your annual flu shot. Your healthy lifestyle along with a decent health insurance plan can protect you and ensure that your college years are healthy ones.


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The EFC Formula (for Students)

February 13th, 2008 by Krayton M Davis | 1 Comment | Filed in FAFSA Form Tips

Last week, we reviewed the EFC Formula for Parents of Dependent Students.  With this posting, we are going to review the formula used for students.

EFC is a measure of the family’s financial strength and the amount of resources the family has available to pay for education. Colleges and other aid institutions use the EFC to determine how much financial aid assistance to grant the student.  The lower the EFC, the more likely you are to receive financial aid assistance.

 Note that a high EFC does not preclude you from federal and private student loan programs.  You can borrow money for school regardless of your financial aid position. However, you should try to manage your finances to lower the EFC so that aid assistance such as grants, scholarships and other college aid can be made available. 

It is best to have available your paper work for the FAFSA form submission to review this EFC formula. You can take the numbers from the form and enter them into examples below. The numbers in RED are examples to help explain how the formula is used.

EFC Formula: Student Calculation

29: Student’s Adjusted Gross Income

(this number is from the FAFSA form #35). Adjusted gross income is also from your filed 1040 tax returns.

For use in this example (or enter your own number): let’s enter $10,000

Note: it is always advisable to file returns even if your income is zero.  The added documentation will strengthen your position as a student with limited contribution.

30: Income Earned from Work

the formula reviews how much of the Adjusted Gross Income is earned from work.  This number is from FAFSA form #38.

For this example: let’s enter $10,000

31: Taxable Income

enter the number from Line (29) or Line (30). If the student filed tax returns in 2007, you will enter Line (29).

number: $10,000

32: Untaxed Income and Benefits

32a) enter the total from Worksheet A, Line #40. This would include all earned income credit, child tax credits, welfare benefits, and social security benefits.

for our example: enter $0

32b) enter the total from Worksheet B, Line #41. This would include contributions to tax-deferred pension plans, 401-K plans, IRA plans, child support, VA benefits and other non-tax benefits.

for our example: enter $2,000

33: Taxable and Untaxed Income

sum lines 31 and 32: $12,000

34: Total from FAFSA Worksheet C, Line #42.

This would include all education credits, student grant and scholarship aid reported to the IRS in your adjusted gross income, and taxable earnings from need-based employment programs:

for our example: enter $1,000

35: Total Income

subtract line 34 from line 33 (it can be a negative number)

number: $11,000

this concludes the section on Student Income

EFC Formula: Allowances Against Student’s Income

The EFC formula allows some of the income calculated in Line 35 to be protected.

36: 2007 U.S. Income Tax Paid (FAFSA form #36)

the amount of taxes paid is an allowance against the student’s income

for our example: enter $1,000

37: State and Other Tax Allowance

number is derived from Table-A7. The number takes in consideration income taxes paid to States and sales tax.

We will use the State of Virginia in this example. The percentage is 3%.

(you can view the EFC formula guide in PDF format: it includes all Tables being used in this example: open PDF file)

number: $330 (line 35 X 3%)

38: Social Security Allowance

number is derived from Table-A2. This number takes in consideration social security taxes paid.

(you can view the EFC formula guide in PDF format: it includes all Tables being used in this example: open PDF file)

from line #30 above: $10,000 X 7.65% (this percentage increases with higher numbers: view table)

number: $765

39: Income Protection Allowance

The student’s Income Protection Allowance is a set number established by Congress.  It may change every year.  The number for 2008-2009 is:  $3,080 

number: $3,080

40: Allowance for Parent’s Negative AGI

If the student’s parents’ contribution from Adjusted Available Income is negative (line 25 from last’s week demonstration for parents), you are to enter the number here as a positive number. 

If the student’s parents’ contribution from Adjusted Available Income (AAI) is zero or positive, you are to enter zero.

number: $0
since the parents’ AAI was positive

41: Total Allowances

sum Lines 36, 37, 38, 39 and 40

number: $5,175

Student’s Contribution From Income

Total Income from Line 35: $11,000
Total Allowances from Line 41: $5,175

42: Available Income (AI)

(Line 35 minus Line 41): $5,825

43: Assessment of AI

(percentage): 50%

44: Student’s Contribution from AI

(Line 42 X Line 43): $2,912.50

this concludes the section on Income

Student’s Contribution From Assets

45: Cash, savings & checking (FAFSA form #43)

for our example: $5,000

46: Net worth of investments (FAFSA Form Line #44)

this would include all investments, including real estate and 529 plans, if any. What is not included is the home in which you live, retirement plans, non-education IRAs, and Keogh plans.

for our example: $1,000

47: Net worth of business and/or investment farm (FAFSA Form Line #45)

includes all business value, land, buildings, machinery, equipment, inventory, etc. Do not include the family farm that you live on and operate. Do not include the value of a small business that you own that has less than 100 or fewer full-time or full-time equivalent employees.

for our example: $0

48: Net Worth

sum of lines 45, 46, and 47): $6,000

49: Asset Conversion Rate

percentage of assets: 20%

number: $1,200

50: Contribution from Assets

number: $1,200

this concludes the section on Income

Expected Family Contribution

Parents’ Contribution

from line 28: $15,708.72

(see last week’s posting)

Student’s Contribution from AI

 from line 44: $2,912.50

Student’s Contribution from Assets

 from line 50: $1,200

Expected Family Contribution

add up line 28, line 44, and line 50

number: $19,821.22

The total Expected Family Contribution is $19,821.22.  The colleges will use that number when determining how much financial aid assistance will be awarded the student.

Almost $20,000 is a substantial EFC for some public colleges where the cost of education may be around $15,000-$20,000. So the student may not receive much financial aid assistance (again, this may vary on the college and the student).

So the goal of students (and parents) is to reduce the EFC number whenever possible. This may require assistance from a tax preparation specialist who can offer advice on reducing adjusted gross income and asset allocation. Note that the student must submit the FAFSA for each academic year. So completing a tax planning session with your tax specialist may help you in the future to qualify for financial aid assistance.

Next time, we will review tactics for reducing EFC.

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