1. Financial Literacy for Teens Presented by: Linda S. Howard, CPA, CTP, MBA The Florida Institute of Certified Public Accountants (FICPA)

2. Managing Debt – Buying a Vehicle Paying for College Module 4B

3. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-3 Learning objectives 1. List several costs of owning a vehicle 2. Describe various options to pay for college At the end of this module, students will be able to:

4. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-4 Sunshine State Standards: MA.912.F.4.4 Establish a plan to pay off debt

5. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-5 AUTOMOBILE FINANCING PART II

6. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-6 The total costs of owning a car It’s not just the initial purchase price Initial purchase price + Sales tax (6-plus%) + Tag and title + Interest payments on the loan = Total purchase cost Annual costs + Insurance premiums + Gas, oil, repairs, tires, general maintenance

7. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-7 Automobile Purchase Example $12,000Sales Price +50Tag and title +840Sales tax at 7% =12,890Total price -2,890Down payment =10,000Amount to finance +$790Total finance charges (5% for 36 mos.) $13,680Total cost (12,890+790) Note: Monthly payment is $299.71 per month

8. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-8 Financing an automobile Purchase or lease?  Purchase (leases are traps) Who should I borrow from?  Your bank or credit union, avoid dealer financing What will affect my payments:  Amount of loan  Interest rate  Your credit score  Length of loan (3 years maximum)

9. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-9 Car-buying tips New or used?  “Used” to avoid the early depreciation Sources:  Family, friends, neighbors  Credit union sales  CarMax  Internet/ Newspaper ads  Avoid used car lots Research cars and prices at: www.edmunds.com, www.autobytel.com, www.beatthecarsalesman.com www.edmunds.com www.autobytel.comwww.beatthecarsalesman.com

10. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-10 More car-buying tips Before going to purchase a car, determine how much you can afford and obtain “pre-approved” financing from your bank or credit union Never finance a car through a dealer Always negotiate price over the phone, not at the dealership

11. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-11 COLLEGE FINANCING PART III

12. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-12 Paying for College Scholarships  Merit (athletic, academic, talent)  Bright Futures Federal Grants (Pell) Work part time Parents/relatives Federal loans (last option)  Note: Going into debt is the last option

13. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-13 Student loans – A few thoughts Many factors affect the decision to go to college. If college is the right choice for you, then how to pay for college needs to be carefully considered and loans should not be the first choice. Don’t assume it will be easy to pay off college loans after you graduate and begin making “real” money The accumulation of debt during college should be avoided or at least minimized If possible, work part-time and/or during summers to help pay for college Seek out scholarships or federal grants Student loans are NOT forgiven in bankruptcy

14. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-14 Current status of debt for graduating seniors The average student loan debt at graduation is $24,000 for students who have loans  25% borrowed $30,000 or more  10% borrowed $45,000 or more To pay off $24,000 in 10 years at 6.8% interest would mean $276 per month in payments  = $3,312 per year  Total interest = $9,120

15. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-15 Government or private loan? New law: Private loans are eliminated so all student loans will be processed through the government. Additional information:  www.finaid.org  www.students.gov

16. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-16 3 Types of Federal Government College Loans Perkins - Student Loan Stafford - Student Loan Plus – Parent Loan U.S. Department of Education

17. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-17 Perkins Student Loan A subsidized loan for students with exceptional financial need (FAFSA) Interest charges accumulated during school are paid by government Payback begins 9 months after graduation or loss of eligibility Maximum loan amount is $5,500 per year Interest rate = 5% per year Payback period = 10 years Apply to: college

18. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-18 Stafford Student Loan - Subsidized Financial need test not as stringent as Perkins Stafford loan statistics:  65% of students with family income under $50,000  25% of students with family income $50,000 to $100,000  10% of students with family income over $100,000 Interest charges accumulated during school are paid by government Payback begins 6 months after graduation or loss of eligibility (may be based on income) Maximum loan amount per year:  $3,500 Freshman year  $4,500 Sophomore year  $5,500 Junior and Senior years Interest rates: 4.5% for 2010-11, 3.4% for 2011-12, 6.8% 2012-13 Loan origination fee: 4% deducted from loan amount Apply through: College

19. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-19 Stafford Student Loan - Unsubsidized Financial need not required (must still file FAFSA) Interest charges accumulated during school are added to original loan amount Payback begins 6 months after graduation or loss of eligibility (may be based on income) Maximum loan amount per year for dependent students whose parents were not denied a PLUS loan: $5,500 Year 1; $6,500 Year 2; $7,500 Years 3 & 4 Maximum loan per year for an independent student or a dependent student whose parents were denied a PLUS loan: $9,500 Year 1; $10,500 Year 2; $12,500 Years 3 & 4 Interest rates: 6.8% Loan origination fee: 4% deducted from loan amount Apply through: College

20. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-20 Parents Loan for Undergraduate Students - PLUS Parents must submit financial information to lender and sign a promissory note Maximum loan amount: Full cost of attendance minus costs already covered by the students total financial aid package Interest rate: 7.9% Apply: College Repayment begins 60 days after funds are fully disbursed

21. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-21 Free Application for Federal Student Aid - FAFSA What is it?  Required document to obtain any federal or State student loan or aid  Furnishes key financial information about you and your parents When to submit  Must be submitted every year that you want aid  Submit as early as possible after Jan. 1 of the next school year  Example: To receive aid for Fall 2012, submit FAFSA in January of 2012. Note: Don’t wait for parents to finalize their tax return. It’s better to estimate the tax return inputs and complete the FAFSA in January. How to submit  Online at www.fafsa.ed.gov (preferred method)www.fafsa.ed.gov  Paper version (PDF format)

22. Copyright, FICPA. For educational use only. Reprint/reuse strictly prohibited. 4-22 Questions?? Action Items Pick 2-3 vehicles and research your annual costs (purchase and maintenance) Using an online calculator, identify the “true cost” of several student loans Complete your FAFSA