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ACC 356 - final exam material complete Questions and Answers
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ACC 356 - final exam material complete Questions and Answers
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ACC 356 - final exam material complete Questions and AnswersWith FASFA, planners should be able to answer clients questions regarding: - correct answer-- How
much is current tuition?
- How much is tuition expected to increase in the future?
- What other costs are associated with a college education?
- What type of financial aid are available and where does one locate the information regarding
financial aid?
- What are the tax advantaged plans, deductions, & credits available for education training?
Current Education Costs, is it worth it?
Average Annual Earnings (for workers 25 and older): - correct answer-high school diploma: $37,
960
bachelor's degree: $62, 296
master's degree: $74, 568
doctorate degree: $94, 900
professional degree: $97, 968
Average tuition & fees for 2018-2019: - correct answer-public university, in state tuition: $10, 230
public university, out of state tuition: $26, 290
private university tuition: $35, 830
Total cost of attending college is significantly ________________ than just tuition & fees. - correct
answer-greater
It is not uncommon for the total cost of education to be ______________ the amount of tuition &
fees. - correct answer-twice
Financial Aid is ... - correct answer-- An important tool for families that are not adequately prepared.
- Administered by the U.S. Department of Education.
- Information about financial aid is available online, at high schools, & college campuses.
Financial Aid Process - correct answer-Free Application for Federal Student Aid (FASFA)
- Calculates 'Expected Family Contribution' amount (EFC)
*The EFC is subtracted from the cost of attendance at a university including living expenses.
Federal Methodology determines the EFC using one of three methods: - correct answer-- Regular
Formula > income & assets
- Simplified Method >
1040A
1040EZ
Income <= $50,000
- Automatically Assessed Formula >
1040A
1040EZ
<= $26,000
Regular Formula - correct answer-Takes into consideration: income, assets, dependency status, #
of children in college, # of children
- Parents available contribution.
- 12% discretionary assets
- student's available contribution
- 50% of income
, - 20% of assets
Simplified Method - correct answer-Family's assets are not considered.
- To qualify for simplified method:
Parents either not required to file a Federal Income Tax Return or file using the 1040A or 1040EZ.
Total AGI of parents less than $50,000.
Student must only file a Form 1040A or 1040EZ or not be required to file.
Student's AGI less than $50,000.
Automatically Assessed Formula - correct answer-Calculates the EFC at zero allowing maximum
financial aid.
- Students & parent only file a 1040A or 1040EZ.
- Parent's AGI is $26,000 or less.
Filing the FASFA: - correct answer-FASFA filing begins 10/1 of prior year.
- Prior-prior year income.
- Assets reported as of date of filing.
federal grants - correct answer-no repayment, typically awarded based on financial need!
- Federal government only awards grants for undergraduate studies.
Types of Federal Grants - correct answer-*Federal Pell Grant*:
- undergraduate or professional degree
- no repayment required
- only allowed for up to 12 semesters
*Teacher Education Assistance for College & Higher Education (TEACH) Grant*: student must
serve as a teacher for 4 years
*Federal Supplemental Educational Opportunity Cost (FSEOG)*: for students with exceptional
financial need
Stafford Loans - correct answer-- Stafford loans are administered by the U.S. Department of
Education
- Students with low incomes & large loan balances are only required to repay up to 10% of their
income each year.
- Loan forgiveness after 20 years.
- Subsidized vs. Unsubsidized loans.
- Cosigners
Stafford Loans, repayment plans - correct answer-*Standard* Repayment = 10 years
*Extended* Repayment = up to 25 years
*Graduated* Repayment = up to 10 years, payment increase every 2 years
*Income Based* Repayment (IBR) = based on income & family size
*Income Contingent* Repayment (ICR)
*Pay As You Earn* Repayment (PAYE) = for high debt-to-income ratio, based on income & family
size
*Revised Pay As You Earn* Repayment (REPAYE) = based on income & family size & caps at 10%
of discretionary income
loan programs - correct answer-Federal Perkins Loan Program *
, *Parent PLUS Loans*:
- based on parent's credit history
- grace period 60 days after final disbursement
- from U.S. Department of Education
*Graduate PLUS Loans*:
- for graduate & professional degree students
- based on parent's credit history
*Consolidation Loans*
student loan debt - correct answer-NOT dischargeable in bankruptcy!!
Cosigning a loan can cause problems for the cosignee.
Types of Tax Deferred Savings - correct answer-- Qualified Tuition Plans: includes prepaid tuition &
college savings plan
- Coverdell Education Savings Accounts
- U.S. Government Savings Bonds
Qualified Tuition Plans or Savings Plans - correct answer-Prepaid Tuition Plans:
- Allows a parent to purchase college credits today & use those credits when the child attends
college.
- Requires parents to reside in the state.
- Use those credits to attend college that is part of the state university system.
- No income tax consequences to the parents for the difference between the amount paid for the
college credits & the current cost of the college credits.
Prepaid Tuition Plans > Disadvantages: - correct answer-- University's in home state may not offer
curriculum that appeals to student.
- Student may be offered out-of-state scholarship.
- Possible significant asset shortfall.
College Savings Plans, 529 Savings Plan - correct answer-- tax deferred (non taxable)
- Distributions for qualified education expenses are federal & state income tax free.
- No federal income tax deduction for contributions to a College Savings Plan.
- No phase-outs for high income savers.
- Plan can benefit anyone & the *beneficiary is allowed to change!!*
Coverdell Education Savings Account (ESA) - correct answer-A tax deferred trust or custodial - can
be used for qualified higher education or qualified elementary/secondary school expenses.
Coverdell Education Savings Account (ESA), *qualified expenses* - correct answer-- higher
education: tuition, fees, books, room, board, computer related
- elementary & secondary education: tuition fees, books, supplies, equipment, tutoring, computer
related, special needs services, room & board, and uniforms if required
Annual contributions to a Coverdell ESA are limited to ___________ per beneficiary & are ______
deductible for federal or state income taxes. - correct answer-$2,000; not
U.S. Government Savings Bonds; Series EE & Series 1 Bonds - correct answer-- Can be pay for all
qualified education expenses (only tuition & fees.)
- Earnings excluded from taxable income.
- Bonds must be in name of parent & issued when the owner is at least 24 years old.
, - Must be redeemed in the year that qualified education expenses are incurred.
- May convert the bonds into a college savings plan (529 plan) or Coverdell Education Savings
Account.
Tax Implications of Student Loans - correct answer-- May deduct up to $2,500 of interest expense
per year.
- Loan proceeds must have been used to pay for qualified education expenses: tuition, fees, books,
supplies, equipment, transportation, room & board.
- Must have been paid by the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer.
- Can include loan organization fees, credit card interest, capitalized interest.
- Loans forgiven for public service are not taxable.
*Student loan forgiveness not taxable if:
contingent on working in certain professions
Tax Credits for Education Related Expenses: - correct answer-American Opportunity Tax Credit
(AOTC)
Lifetime Learning Credit
- Credits are a dollar for dollar reduction in any federal income taxes owed.
- The taxpayer cannot claim both the AOTC & Lifetime Learning Credits for the same child in the
same year.
American Opportunity Tax Credit (AOTC) - correct answer-Tax credit of up to $2,500 per student
per year for the first 4 years of qualified education expenses for postsecondary education.
- 100%x the first $2,000 for qualified education expenses, plus
- 25%x the second $2,000 of qualified education expenses.
- Can qualify for multiple American Opportunity Tax Credits in one year for eligible family members.
- qualified education expenses: tuition & fees (including student activity fees), books, supplies, &
equipment, but ~not~ room & board.
AOTC example...
John has 2 children, Bob & Sara, who are attending University of Oregon. John pays qualified
expenses of $6,000 for Bob & $3,000 for Sara. John is entitled to an AOTC of $2,500 for Bob, and
$2,250 for Sarah. - correct answer-[(100% x 2,000) + (25% x 2,000)]
[(100%x 2,000) + (25% x 1,000)]
for a total tax credit of $4,750!
Lifetime Learning Credit - correct answer-20% of qualified education expenses of up to $10,000
per year.
- maximum credit is $2,000
- applied at the family level rather than per student
- ex of tax free education assistance:
pell grants, tax free scholarships, employer provided education assistance, & distributions from
savings plan or coverdell ESA?
LLC example...
Patrick & jill are married & both have an undergraduate degree. Patrick goes back to school for a
certificate in financial planning. While Patrick goes back to school for a certificate in financial planning,
Jill goes back to school for her master's degree in nursing. Patrick incurs $5,000 of qualified education
expenses & Jill incurs $15,000 of qualified education expenses. - correct answer-Patrick & Jill can take
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