1 © 2015 Legg Mason Investor Services, LLC, a Legg Mason, Inc. subsidiary. Member FINRA, SIPC How...

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© 2015 Legg Mason Investor Services, LLC, a Legg Mason, Inc. subsidiary. Member FINRA, SIPC

How to Pay for CollegeWhat you need to know about Federal Student Aid

FOR BROKER/DEALER USE ONLY – NOT TO BE USED WITH THE GENERAL PUBLIC

2WHAT YOU NEED TO KNOW ABOUT FEDERAL STUDENT AID

CE credit important information

Please note that you must provide your full name and remain logged in to the webinar for a minimum of 50 minutes in order to qualify for CE credits.

For CFP® credit:Please follow this link to take the quiz: https://www.surveymonkey.com/r/JLDBWHRIf you achieve a 70% or better, we will submit your attendance to the CFP Board. For IMCA® credit:Please email ([email protected]) and we will provide you with the IMCA program ID and instructions on how to self-report. For CRPS®, CRPC® credit: Please follow this link to take the quiz: https://www.surveymonkey.com/r/JLDBWHRIf you achieve a 70% or better, we will email you a Certificate of Completion for your record.Please note, for the CFP ID question, you can just enter your designation.


https://www.surveymonkey.com/r/JLDBWHR


mailto:[email protected]



Learning objectives

Explaining the 4 types of financial aid

Demystifying the financial aid eligibility calculation

Providing 5 steps to successful college savings

Understanding 529 benefits and financial aid impact



The Challenge



Source: Dshort.com, Bureau of Labor Statistics, Consumer Price Index (CPI). CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.

College costs continue to climb at a higher rate than CPI



Based on the average annual cost of attendance, for the 2014-15 academic year, adjusted for a hypothetical 5.0% rate of education inflation. Source: © 2014 The College Board, collegeboard.com.

College costs are projected to rise steeply

$578,129

$292,185

In 18 years

$202,544

$102,365

Now

Public (in-state)4-year (average)

Private4-year (average)



Yet, an investment in education still pays off

Learn more, earn more Average earnings for full-time working adults (age 25-34)1

High School Diploma - $30,000 Bachelor’s Degree - $46,900.

Competitive job market By 2020, 3 out of 4 jobs will require a 2-year or 4-year degree or certificate.

Unemployment Rates (age 25-34)2

High School Diploma - 12.1% Bachelor’s Degree - 3.6%.

1 U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics, unpublished annual average data from the Current Population Survey (CPS), selected years, 2000 through 2013 Source: Grant Thornton LLP, U.S. Department of Labor.

2 U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and Unemployment Statistics, unpublished annual average data from the Current Population Survey (CPS), selected years, 2000 through 2013. See Digest of Education Statistics 2013.



How many Americans pay for college



Understanding financial aid

What sources of student aid are available?



Types of financial aid

First 3 types are available at no cost to students.

Scholarships – money awarded that the recipient is not expected to pay back. May hinge on maintaining certain requirements.

Grants – Unlike scholarships, grants generally come with no strings attached: Institutional Need-based Assistance (awarded by the college) Federal Grants:

Pell Grant Supplemental Educational Opportunity Grant (FSEOG).

Work-study – part-time jobs located both on and off campus for students who demonstrate financial need.For links to student aid resources, please see pages 31-32.



Types of financial aid (cont’d)

There are also loans, but they come at a price.

Loans – two types:

Federal Student Loan - allows students to borrow money at low fixed interest rates with flexible repayment terms through programs supported by the federal government

Private Loan - is issued (generally to the parent) by a lender such as a bank or a credit union.

For links to student aid resources, please see pages 31-32.



How to apply

Accessing financial aid



The ‘FAFSA’ application and CSS profile

The application process begins by completing one – or both – of the following financial aid forms: For Federal Student Aid – FAFSA (“Free Application for Federal Student Aid”):

All colleges that award Federal Student Aid require that students complete the FAFSA in order to determine eligibility.

Apply online: www.fafsa.ed.gov For Institutional Need-based Assistance –

College Scholarship Service (CSS) Profile: Approximately 200 colleges also require that the CSS Profile be completed

(in addition to the FAFSA) Used to assess the student’s eligibility for the college’s own

aid dollars. Apply online: collegeboard.org



What are the most important factors in

calculating the EFC?

Demystifying EFC



About the EFC

Most college students and families are expected to contribute some or all of the cost of attendance.

How much, depends upon the Expected Family Contribution (EFC) calculation.

The EFC calculation takes into account assets and income – for both the student and the parent(s) – and other information.



At-a-glance: What goes into the EFC calculation?

Summary Assets and Income

Additional considerations: How many children in the family? How many children in college?

Assets1 Income2

Student 20% 50%

Parents Up to 5.6% 22% - 47%

1Total current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home in which parents and student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or businesses with 100 or fewer full-time or full-time equivalent employees. Net worth means current value minus debt. Source: FAFSA 7/1/14 - 6/30/15.

2 Income includes the adjusted gross income from the parents‘ and students’ Forms 1040 along with certain other items representing untaxed income and benefits, e.g., untaxed portions of IRA distributions and veteran non-education benefits, such as disability. Source: FAFSA 7/1/14 - 6/30/15.



FAFSA4caster

Estimate future Federal Student Aid. Parents, not yet ready to apply for federal student aid, can get an

estimate using a free financial aid calculator – FAFSA4caster.

Provides an early estimate of eligibility

The calculator is offered on the FAFSA website: http://studentaid.ed.gov/fafsa/estimate



Your client not eligible for financial aid?

The Solution



Start a savings plan

Five-steps to successful savings:1. Determine the cost of college

2. Identify your savings profile

3. Set your savings goal

4. Choose a savings vehicle

5. Establish a savings schedule



What advantages do each type of savings vehicle offer?

Understanding the options



There are a number of ways to save

Coverdell education savings account UTMA/UGMA (Uniform Transfer/Gift to Minors Act) Trusts Savings bonds Traditional taxable accounts Roth IRAs 529 college savings plans



Benefits of 529 plans

529 plans offer 4 main benefits Tax advantages Gifting & estate planning advantages Account owner control Flexibility




Tax Advantages: Federal Tax-deferred growth:

Investment earnings grow tax deferred Tax-free withdrawals, when used for Qualified Higher Education

Expenses (QHEE), including: Tuition Room and Board Certain Fees Books and Equipment

Tax Advantages: State – Vary by state




Gift Tax Exclusion - Contributions qualify for the $14,000 annual gift tax exclusion per tax filer. Accelerated gifting - a provision that allows for five years’ worth of

contributions/gift tax exclusions in a single year.

Maximum Contribution (per child, for joint filers)

This planning assumes no other gifts being made to the donee by the contributor. Contributions to an account for a beneficiary between $14,000 and $70,000 made in one year can be prorated over a five-year period without incurring federal gift taxes or reducing an investor’s unified estate and lifetime gift tax credit. If the account owner dies before the end of the five-year period, a prorated portion of the contribution will be included in his or her taxable estate.




Account Owner Control - Owner remains in full control over the assets in the account and has the ability to:

Change beneficiary

Change investment options

Change Owner

Roll over assets to another 529 plan1

Make withdrawals.2

1 Allowed once every 12 months, from the time of the last rollover.2 Regarding Non-Qualified withdrawals, Distributions that are made for Non-Qualified expenses are subject to ordinary income tax, plus a 10% additional federal penalty on the earnings portion of the withdrawal.




Flexibility No income, age or time restrictions

Anyone can contribute

Assets may be used at any “accredited” higher education institution that participates in the U.S Department of Education’s Federal Student Aid (FAFSA) program, including: Colleges Universities Vocational schools Trade schools Over 500 schools abroad1

1The college must accept U.S. Federal Student Aid. Check FAFSA website for eligibility.



How, exactly, are 529 plan assets and distributions counted in the EFC?

Factoring in 529 plans



Impact of a 529 plan account on EFC calculations

Summary 529 plan account owned by a parent treated as parental assets,

which count up to 5.6%

Third-party-owned plans (e.g., grandparents) are treated differently: Assets are not considered in the original EFC calculation Distributions are considered income of the student the following year

Source of data: savingforcollege.com. 1 Total current balance of cash, savings and checking accounts; net worth of investments, including real estate, excluding the home in which parents and student live; net worth of parent and student current businesses and/or investment farms, excluding family farms or businesses with 100 or fewer full-time or full-time equivalent employees. Net worth means current value minus debt. Source: FAFSA 7/1/14 - 6/30/15.

Owner Assets1 DistributionsParent Up to 5.6% 0%

Third Party 0% 50%



Summary

Despite their expectations, many of your clients: Are unlikely to qualify for much – if any – needs-based

Federal Student Aid If they qualify at all, the aid will likely come in the form

of federal loans or work-study (vs. grants) A 529 Plan account:

Affects a client’s chances – of receiving Federal Student Aid – less than student-owned assets (e.g., UGM/UTMAs), and far less than the parent’s income

Owned by a person other than the parent or student (e.g., a grandparent) is not considered in the EFC formula*

Distributions (withdrawals from a 529 Plan account) are considered income of the student the following year.



Resources



Scholarships

www.scholarships.comPrivate database of > 2,700,000 scholarship opportunities

www.careerinfonet.org/scholarshipsearch U.S. Department of Labor database of > 5,000 scholarship opportunities

Grants

http://studentaid.ed.gov/types/grants-scholarships

Also see the two websites listed under the scholarships

Work-Study

www.studentaid.ed.gov/types/work-study

Resources: Student aid primary sources



Federal student loans www.studentaid.ed.gov/types/loans Perkins Loan1: up to $5,550 for undergraduates; up to $8,000 for graduates. Direct Subsidized Stafford Loan1: $5,500 - $12,500 (undergraduates only). Direct Unsubsidized Stafford Loan1: $5,500 - $12,500 for undergraduates; up to

$20,500 for graduates. Direct Plus Loan: Student’s Cost of Attendance (COA) minus any other financial aid

(for parent of dependent undergraduate students and for graduate or professional students).

Private student loans If student does not have sufficient funds Consult with school’s Financial Aid Office or parent’s bank

Resources: Student aid primary sources (cont’d)

1Source: U.S. Department of Education; as of April 2015.



Why The Legg Mason Scholars Choice® 529 Plan?



Why Scholars Choice?

1. A Leading 529 Plan from a Leading Investment Company

With over $700 billion in assets under management, and over a century of experience delivering solutions to clients, Legg Mason is a global leader in the investment management business.1

With over $3.6 billion in assets under management,

and over 15 years helping clients achieve their college savings goals, Scholars Choice 529 Plan is one of the largest and one of the first-ever advisor-sold 529 Plans.2,3

1AUM as of 3/31/15. 2AUM as of 3/31/15. 3Source: Strategic Insight, “529 Quarterly Data Update”; data as of 9/30/14.




2. Expert Portfolio Construction + Performance Monitoring The Plan’s Investment Manager, QS LMGAA, performs ongoing:

Fund selection from among both Legg proprietary and non-proprietary funds

Asset allocation adjustments of all Scholars Choice multi-fund Portfolios.

QS Legg Mason Global Asset Allocation, LLC is the Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program; together they serve as Manager of the Program.




3. Multi-Manager, Open-Architecture Portfolios

Legg Mason proprietary fund managers: ClearBridge Investments Brandywine Global QS Batterymarch Royce & Associates Western Asset

Non-proprietary fund managers: Franklin Templeton Investments* Thornburg Investment Management*

*Thornburg and Franklin Templeton are not affiliates of Legg Mason.




4. Independent, Proven, Award-Winning Managers Recent awards given to Legg Mason affiliates:

Western Asset – manager of five of the underlying funds in the Plan, including Core Plus Bond Fund (WAPSX), was awarded Morningstar’s 2014 U.S. Fixed-Income Fund Manager of the Year.

ClearBridge – manager of three of the underlying funds in the Plan, including Aggressive Growth Fund (LSIFX), which received the Lipper award for the 5‐year period (ended 12/31/14) for the Multi‐Cap Growth Funds category.

Brandywine – manager of two of the underlying funds in the Plan, including Global Opportunities Bond Fund (GOBSX), was a 2014 Morningstar Fixed Income Manager of the Year Nominee.

Please see slide #44 for important disclosure regarding the Morningstar and Lipper awards discussed above. Western Asset Core Plus Bond Fund, Clearbridge Aggressive Growth fund, and Brandywine Global Opportunities Bond Fund are not available in all Scholars Choice investment options.




5. Proven, Long-Term Plan Performance The Plan is highly-ranked by SavingforCollege.com:

#1 for the 5-year period1



Among the top 4 for the 1-yr periods — for over five years running2

The Plan has received a “5-Cap” rating from SavingforCollege.com: for residents and for non-residents3

1Among all Advisor-sold Plans, including sales charge, for the period ended 12/31/14. 2See slide #45 for important disclosures regarding SavingforCollege.com performance rankings, including their methodology. 3Savingforcollege.com's 5-Cap Ratings provides an evaluation and comparison of 529 plans, utilizing a formula that examines dozens of factors grouped categories. (Scale 0 to 5; 5 is highest)




6. Low Fees Low asset-based fees

Fourth-lowest expenses of all actively managed advisor-sold Plans1

Competitive load structures Class A:

• low up-front (maximum) sales charge of 3.5%• NAV breakpoint at $500,000

Class C:• no up-front sales charge• NO back-end CDSC

1As of 12/31/14. Source: Strategic Insight “529 College Savings Quarterly Fee Analysis – Fourth Quarter 2014.”




7. Full Range of Investment Options Age-Based Portfolios

Years to Enrollment Portfolios

Static Multi-Fund Portfolios

Individual-Fund Portfolios

Cash Reserve Portfolio

An investment in the Cash Reserve Portfolio is not a bank deposit and is not insured or guaranteed by the FDIC or any other governmental agency. There is no assurance that the Cash Reserve Portfolio will be able to maintain the value of its units at $1 per unit. It is possible to lose money by investing in this option. The Cash Reserve Portfolio will not seek capital appreciation and may underperform other investment options. While the Cash Reserve Portfolio will invest all of its assets in a money market mutual fund and will value its units based on the underlying money market fund share value, the Cash Reserve Portfolio itself is not a money market mutual fund.




8. State Tax Deduction For Colorado Residents: Unlimited State Tax Deduction

Contributions to the Program by Colorado taxpayers are deductible from Colorado state income tax in the year of the contribution, up to the contributor’s Colorado taxable income for that year.1

For AZ, KS, ME, MO, MT and PA Taxpayer may take the state tax deduction for contributions to

any state’s plan.

1Such deductions are subject to recapture in subsequent years in which non-qualified withdrawals or a rollover to a non-Colorado Section 529 plan are made.If neither the investor nor the Beneficiary is a Colorado taxpayer, a prospective investor should consider before investing whether the investor’s or the Beneficiary’s home state offers a 529 Plan that provides state tax and other benefits only available to state taxpayers investing in such plans.



For more information

Contact us: [email protected]

(for questions regarding CE credits)

Victoria BarringtonAVP, Scholars Choice Sales DirectorLegg Mason & [email protected]

Legg Mason Sales Desk800-544-7835

Visit our website: scholars-choice.com



Questions?



Important information

Western Asset Fixed Income Manager of the year Award was awarded to Ken Leech, Carl Eichstaedt and Mark Lindbloom for Western Asset Core Plus Bond Fund (WAPSX); named Morningstar 2014 U.S. Fixed-Income Manager of the Year, United States of America. Morningstar Awards 2015© Morningstar, Inc. All rights reserved.

Morningstar Fund Manager of the Year award recognizes portfolio managers who demonstrate excellent investment skill and the courage to differ from the consensus to benefit investors. To qualify for the award, managers’ funds must have not only posted impressive returns for the year, but the managers also must have a record of delivering outstanding long-term performance and of aligning their interests with shareholders’. The Fund Manager of the Year award winners are chosen based on Morningstar’s proprietary research and in-depth evaluation by its fund analysts.


The 2015 Lipper Fund Award winners are selected based on the highest risk-adjusted performance among funds within a given category for the 3-, 5- and 10-year periods ending 12/31/14. Fund classification averages are calculated with all eligible share classes for each eligible classification. The calculation periods extend over 36, 60 and 120 months. The highest Lipper Leader for Consistent Return (Effective Return) value within each eligible classification determines the fund classification winner over three, five or 10 years. A high Lipper rating does not necessarily imply that a fund had the best total performance or that the fund achieved positive results for that period. Lipper Inc. is a major independent mutual fund tracking organization.

BEFORE INVESTING, CAREFULLY CONSIDER A FUND’S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. YOU CAN FIND THIS AND OTHER INFORMATION IN EACH PROSPECTUS OR SUMMARY PROSPECTUS, IF AVAILABLE, AT WWW.LEGGMASON.COM/INDIVIDUALINVESTORS. PLEASE READ THE PROSPECTUS CAREFULLY.

http://www.leggmason.com/INDIVIDUALINVESTORS



Regarding Savingforcollege.com Performance RankingsAll Savingforcollege.com rankings are as of December 31, 2014 and are based on the universe of 30 advisor-sold plans for Class A share performance (including maximum sales charges). The portfolios within the plans are compared and ranked based on published investment returns. The plan’s composite ranking is determined by the average of its percentile ranking. The program ranked 2, 2, 1 and 8 for the quarterly rolling 1-, 3-, 5- and 10-year periods, respectively.

Past performance is no guarantee of future results. The performance and rankings discussed are inherently limited and are not indicative of longer-term performance. Current performance may be lower or higher than performance results used for these rankings, resulting in different rankings that may be lower than those shown. Market volatility, interest rate changes and economic events, among other factors, can affect an investment’s short-term returns.

Ranking MethodologySavingforcollege.com derives the rankings using each plan’s relevant portfolio performance in seven unique asset allocation categories: 100% Equity, 80% Equity, 60% Equity, 40% Equity, 20% Equity, 100% Fixed and 100% Short Term. The plan’s composite ranking is determined by the average of its percentile ranking in these categories. Within each category, portfolios are compared and ranked based on published investment returns. Separate rankings are producedfor 1-, 3-, 5- and 10-year periods. In addition, two versions of rankings for each performance period are produced: one based on performance without sales charges and the other based on performance with maximum sales charges. Please visit Savingforcollege.com for more information about the ranking.

Additional unit classes may exist for each plan ranked. Please refer to each plan’s program disclosure statement for more information regarding its performance, fees and expenses. For the Scholars Choice’s program disclosure statement, please visit scholars-choice.com.




An investor should consider the Program’s investment objectives, risks, charges and expenses before investing. The Program Disclosure Statement at scholars-choice.com, which contains more information, should be read carefully before investing. If an investor and/or an investor’s beneficiary are not Colorado taxpayers, they should consider before investing whether their home states offer 529 plans that provide state tax and other benefits only available to state taxpayers investing in such plans.

Investments in the Scholars Choice College Savings Program are not insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution. Investments are not guaranteed by the State of Colorado, CollegeInvest, QS Legg Mason Global Asset Allocation, LLC, Legg Mason Investor Services, LLC, or Legg Mason, Inc. or its affiliates and are subject to investment risks, including loss of principal amount invested.

Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Scholars Choice is a registered service mark of CollegeInvest. CollegeInvest and the CollegeInvest logo are registered trademarks administered and issued by CollegeInvest, State of Colorado. QS Legg Mason Global Asset Allocation, LLC is the Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program; together they serve as Manager of the Program.QS Legg Mason Global Asset Allocation, LLC and Legg Mason Investor Services, LLC are Legg Mason, Inc. affiliates. QS Legg Mason Global Asset Allocation, LLC, ClearBridge Investments, LLC, QS Batterymarch Financial Management, Inc., Brandywine Global Investment Management, LLC, Royce & Associates, LLC, Western Asset Management Company and Western Asset Management Company Limited, and Legg Mason Investor Services, LLC are Legg Mason, Inc. affiliates. Thornburg Investment Management, Inc. and Templeton Global Advisors Limited are not affiliated with Legg Mason Inc. and its affiliates. QS Legg Mason Global Asset Allocation (QS LMGAA) is part of the combined QS Investors investment platform, which is comprised of QS Investors, LLC, QS Batterymarch Financial Management, Inc. and QS LMGAA.

© 2015 Legg Mason Investor Services, LLC, a Legg Mason Inc. subsidiary. Member FINRA, SIPC 4/15 FN1511717 scholars-choice.com


1 © 2015 Legg Mason Investor Services, LLC, a Legg Mason, Inc. subsidiary. Member FINRA, SIPC How...

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Transcript of 1 © 2015 Legg Mason Investor Services, LLC, a Legg Mason, Inc. subsidiary. Member FINRA, SIPC How...