Financing a College Education – Quiz

Attending college is expensive! Take the following quiz to find out how much you understand about financing a college education. Answers to the questions are at the end of the quiz. Good luck!

1. According to “ expected family contribution” guidelines for receiving financial aid, how much of a parent’s or guardian’s disposable income and assets should be available to pay for college expenses?

• Ten percent of disposable income and five percent of assets are expected to be used.
• Twenty-five percent of disposable income and 15 percent of assets are expected to be used.
• Parent’s assets are not included, but financial aid reviewers expect a contribution of 30 percent of disposable income.
• At least 47 percent of disposable income and up and 5.6 percent of assets are expected to be used.

2. Is a student expected to contribute to his or her college education, and why?

• No, money earned from summer and after-school jobs is not considered for college expenses by financial aid offices.
• Yes, but a student must submit a separate application.
• Yes, 50 percent of the student’s income and 35 percent of the student’s assets are expected to be used for college expenses.
• Yes, 25 percent of the student’s income and 25 percent of the student’s assets are expected to be used for college expenses.

3. An individual is likely to receive financial aid for his/her child if he or she

• has two or more children in college at the same time.
• earns less than $50,000 a year.
• has consumer debt that accounts for more than 25 percent of net income.
• has a home placed in a child’s name.

4. Moving assets to a child’s name accomplishes which one of the following?

• A savings in taxes will result if interest income on the amount is more than $1,200 a year.
• A family’s expected contribution to college expenses may decrease.
• Thirty-five percent of these assets will be put in the “family contribution” column.
• It will make it easier for the student to obtain college aid.

5. Which one of the following statements about student loans is correct?

• They are available to everyone, but based only on need.
• They are a source of financial help even to families that do not qualify for financial assistance.
• They are attractive if they have high interest rates and long repayment periods.
• They are easier to obtain if the student has a high net worth.

6. How are retirement assets handled in determining financial need?

• They are not considered in the estimation of available assets although current contributions to retirement programs are counted.
• They are counted with other household assets in assessing “family contribution” amounts.
• They can be held out of aid calculations by a family until the last year of college.
• They are counted only if the participant is over the age of 59 ½.

7. An excellent way to shield assets or income from “family contribution” calculations is to:

• take out an unsecured personal signature loan.
• make payments to secure a mortgage on an additional residence.
• divert funds to retirement-oriented insurance vehicles, such as annuities or life insurance.
• contribute to a new IRA account.

8. Which one of the following permits an individual to optimize his or her finances for the purposes of financial aid review?

• Take any unrealized capital losses to the extent they offset gains and reduce adjusted gross income.
• Delay deductions and defer income.
• Obtain bank financing to purchase a needed new car.
• Overpay the IRS by a considerable amount.

9. An effective investment to use for purposes of avoiding the “unearned income” tax rules (also known as the “kiddie tax”) is

• a high-yielding income bond.
• a “jumbo” certificate of deposit.
• a growth stock with low dividends.
• commercial real estate.

10. The best method to fund a child’s college education is from a

• parent’s or relative’s current income.
• parent’s or relative’s personal savings.
• student’s current income while in college.
• prepaid tuition plan if available in state of residence.

Answers:
1. d
2. c
3. a
4. c
5. b
6. a
7. c
8. a
9. c
10.b