• Last week was eventful — Valentine’s Day (how’d it go, by the way — if you celebrated?), the State of the Union, ASTEROIDS (!), etc. Gratefully, no meteorites struck our Worcester tax preparation office — or else we’d be writing something more urgent!

    But I would like to highlight something President Obama said during his SOTU speech, because it’s pertinent to you. He said (my emphasis added):
    “The American people deserve a Tax Code that helps small businesses spend less time filling out complicated forms, and more time expanding and hiring, a Tax Code that ensures billionaires with high-powered accountants can’t work the system and pay a lower rate than their hardworking secretaries, a Tax Code that lowers incentives to move jobs overseas, and lowers tax rates for businesses and manufacturers that are creating jobs right here in the United States of America,” he said. “That’s what tax reform can deliver. That’s what we can do together.”

    I certainly agree with most everything he said there … perhaps except for the part that I highlighted, which before construing or misconstruing a particular political affiliation for me, allow me to explain here:

    1) It’s probably unrealistic to expect that billionaires won’t continue to work any system which is set up, and to say otherwise … well, this *is* politics, I suppose.

    2) It’s not just for billionaires.

    You see, “working the system” is what we do for Worcester-area taxpayers — but not for some sort of nefarious purpose. We are simply leveraging the hundreds of hours that we spend immersed in the tax code, and using it like a targeted laser-shot to protect our clients’ balance sheets from the grasping hands of the government.

    There really are TWO tax systems in this country, but with apologies to our fine President, it’s not ‘one for billionaires and one for everyone else’ — it’s more like one for those who know the code cold … and another for those who use software, or jimmy preparer down the street. But happily for you, you’re now on the better side of that equation. (And I was flattered, I must say, to have the President call me “high-powered”!)

    But, speaking of equations, I have a bit of an ugly one to share with you today. Let me know what you think…

    Worcester Tax Preparer Declares: Unless The Bubble Bursts, Better Start Saving
    According to the most recent College Board Annual Survey of Colleges, the sticker price of a college education keeps rising, faster than the price of groceries, health care and almost everything else in the basket of goods used to determine the Consumer Price Index (CPI). In the last 10 years, in-state tuition and fees at public four-year colleges increased 5.6% annually on top of a CPI growth of 2%. The average estimated total expenses for most public in-state four-year students (depending on the state) vary in the astounding range of $65,000 to $90,000.

    S0, that means that if you were blessed with the birth of a child recently, you will need to save $430 monthly to pay for in-state college tuition, fees, room and board. Double this rate to cover the full costs at the average private institution. And this doesn’t even include money for a cell phone, pizza, room decor or other stuff that college students deem “necessities.”

    Now it’s true: most students don’t pay full price for college. In 2011-12, undergraduate students received an average of $12,894 in financial aid, split almost equally between loans and grants. Grants are the most attractive because students are not saddled with a repayment plan after college. Federal grants make up 26% of total aid. Institutional college grants account for 17%, state grants for 6% and private and employer grants (scholarships) for 4%.

    But that hasn’t stopped the fact that students are graduating with larger debt loads than they were 10 years ago. Public four-year college borrowers graduate with an average of $19,800 in debt; their nonprofit private college counterparts graduate owing $26,100. This private college debt is 17% more than it was 10 years earlier, even after accounting for inflation. In addition, a growing percentage of all college debt is unsubsidized and begins accruing interest immediately.

    Perhaps there are some good things which are shaking out here. That is to say, degrees might have to be evaluated a little more closely — that anthropological art history degree might should be scrutinized a little more, yes?

    So, students will have to make smarter education choices. Today’s global marketplace puts more value on hard skills such as engineering, computer technology, teaching and finance. Technical degrees and certificate programs will become commonplace. A liberal arts education will likely diminish in popularity and become more focused at the elite institutions. More students are likely to begin their education at lower-cost community colleges, and complete a four-year degree at schools that specialize in their concentration.

    Parents may feel overwhelmed about the amount they need to save for college. But college education is one of the two lifetime investments for which we approve borrowing money (the other is a home mortgage). Students should plan to graduate with a debt load no higher than half of what they can reasonably expect from their first year’s salary. For example, those with a starting salary of $40,000 should keep their debt at or below $20,000. Thus graduates can dedicate 10% of their annual salary to school debt and pay it off in five years.

    New parents who are able should immediately begin saving $430 a month for college. Alternatively, a one-time $50,000 investment should cover tuition, fees, room and board at an in-state college 18 years from now. Yes, this is pretty scary. But there are other options…

    Giving a child the gift of a college education and a debt-free start to adulthood is one choice. Other parents believe their children should participate in financing their college education and can apply the 50/50 savings approach. Parents commit to saving half of the money needed, and their children commit to the other half. Students participate by working hard in high school, applying for scholarships, taking summer jobs, seeking out work-study opportunities and accepting reasonable loan levels.

    The support of grandparents can help tremendously. The vast majority of the college accounts that I’ve seen are owned and funded by grandparents. Instead of buying the latest gadgets for their grandchildren, they make annual contributions to a college savings account. If the grandparents own the account, it has the added advantage of not being included as a resource on the student’s financial aid forms — and that is a beautiful advantage, trust me!

    One last thing: I’m not a stocks advisor, but–I do NOT recommend prepaid college tuition plans. At best, they tend to match college inflation, and if used at an out-of-state institution, returns are based on money market rates, which are abysmally low right now.

    Even worse … who knows? This bubble may just burst, and you don’t want to have locked into a tuition which might fall through the floor on its own some years from now.

    If you’d like to talk this over with someone experienced in such matters, let me know, and I’ll give you a recommendation. Until then, I am hoping that my thinking ahead in matters of taxes and finances here isn’t scaring you, but is helping you to be prepared!

    And please feel free to call [(508) 753-3532] or email me and my staff with any tax or financial-related questions.