1 How to Pay for College ©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc. Subsidiary....

1

How to Pay for College

©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc. Subsidiary. Member FINRA, SIPC

What You Need to Know About Savings & Federal Student Aid

2HOW TO PAY FOR COLLEGE: WHAT YOU NEED TO KNOW ABOUT SAVING & FEDERAL STUDENT AID

Challenge


Challenge

The cost of college continues to climb More and more parents can’t save the entire amount

1 Source: College Savings Plan Network 529 Report, March 2014.2 Trends in College Pricing 2013 College Board. See Disclosure page 29 for additional details.


Solution


1. How do we set a savings goal?

Solution: What You Need to Know


1. How do we set a savings goal?

Put our five-step savings plan in place:

1. Determine the cost of college

2. Identify your savings profile

3. Set your savings goal (may be less than total cost)

4. Choose a savings vehicle

5. Establish a savings schedule

Visit scholars-choice.com to download our How to Save Guide, Five Steps to Successful Savings.

http://www.scholars-choice.com/


2. What advantages do 529 College Savings Plans offer?



2. What advantages do 529 plans offer?

529s offer three primary advantages:

1. Tax benefits

2. Professional money management

3. Control by account owner

To remember them easily, think “The Preferred Choice”

Visit scholars-choice.com to download our Product Overview brochure, Explore.

http://www.scholars-choice.com/



3. If we can’t save the entire cost of college, what sources of federal student aid are available?


3. What sources of federal student aid are available?

Available at no cost to students: Scholarships Grants Work-study

Comes at a price: Student loans (federal and private)

For links to student aid resources, please see page 27.


4. How do we apply for federal aid? Do we complete the FAFSASM?



4. How do we apply for federal aid? Do we complete the FAFSA?

Completing the “Free Application for Federal Student Aid” form (“FAFSA”) is the first step: Most college students and families are expected to contribute How much, depends upon the Expected Family Contribution = EFC FAFSA looks at assets, income, other information to determine EFC

Fastest and easiest way to apply is online at FAFSA on the WebSM

www.fafsa.gov

http://www.fafsa.gov/


5. What are the most important factors in calculating the EFC?



5. What are the most important factors in calculating the EFC?

Summary Assets & Income

Source of data: savingforcollege.com

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

Owner Assets3 Income4

Student 20% 50%

Parents Up to 5.6% 22% - 47%

3 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.

4 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 veterans non-education benefits, such as disability. Source: FAFSA 7/1/14 - 6/30/15.


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



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

Summary

529 plan owned by a parent treated as parental assets

Distributions from a parent-owned plan are considered income

Third-party-owned plans, e.g., grandparents, are treated differently

3 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.

4Income 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 veterans non-education benefits, such as disability. Source: FAFSA 7/1/14 - 6/30/15.

Owner Assets3 Income4

Parent Up to 5.6% 0%

Third Party 0% 50%

Source of data: savingforcollege.com


7. Is it true that it’s better to use a Roth IRA to save for college because it doesn’t affect the EFC calculation on the FAFSA?



7. Is it true that it’s better to use a Roth IRA to save for college?

Not necessarily

The value of a Roth IRA is not reported as assets on the FAFSA

However, tax-free distributions must be reported as untaxed income Appears on following year’s FAFSA Will be counted 22 - 47% in the following year’s EFC calculation


8. College is years away. Can we estimate how much federal financial student aid our child may qualify for without filling out the FAFSA?



8. Can we estimate federal student aid our children may qualify for without filling out the FAFSA ?

Parents not ready to apply for federal student aid but who are seeking an estimate can use a free financial aid calculator: FAFSA4caster

It provides an early estimate of eligibility

The calculator is offered at the website of Federal Student Aid, an office of The U.S. Department of Education

http://studentaid.ed.gov/fafsa/estimate

http://studentaid.ed.gov/fafsa/estimate


Get the Fundamentals of Funding


Get the Fundamentals of Funding

1. Read our new brochure

2. Ask us questions

3. Know Scholars Choice® is a top-ranked5 529 plan

5Ranked #4, #1, #1, #8 for the 1-, 3-, 5-, 10-year periods respectively, by Savingforcollege.com as of June 30, 2014; See page 28 for ranking methodology


Why Scholars Choice?

1. A leading plan One of the largest advisor-sold plans nationwide Top-ranked by savingforcollege.com

2. Portfolio management expertise QS Legg Mason Global Asset Allocation Disciplined. Thoughtful. Experienced.

3.Multi-manager portfolios ClearBridge, Western Asset, QS Batterymarch, Brandywine,

Royce Thornburg*

*Thornburg is not an affiliate of Legg Mason.


Why Scholars Choice?

4.Broad range of portfolio options Age-based or static allocations Individual portfolio options Cash Reserve portfolio

5. Competitive pricing structure Unit Class A sales charge = 3.5% Unit Class C = no up-front sales charge or back-end CDSC

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.


Student Aid Primary Sources

Scholarships www.scholarships.com

Private database of > 2,700,000 scholarship opportunities www.careerinfonet.org/scholarshipsearch

U.S. Dept. 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

http://www.scholarships.com/

http://www.careerinfonet.org/scholarshipsearch

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

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

http://studentaid.ed.gov/types/work-study


Student Aid Primary Sources

Federal student loans www.studentaid.ed.gov/types/loans Perkins Loan6: (up to $5,550 for undergraduates; up to $8,000 for graduates) Direct Subsidized Stafford Loan6: $3,500 - $5,500 (undergraduates only) Direct Unsubsidized Stafford Loan6: $5,500 - $20,500 (undergraduates and

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

6 As of July 2014

http://www.studentaid.ed.gov/types/loans


Disclosure

Savingforcollege.com — an independent informational website owned by Saving for College, LLC — is generally regarded by industry professionals as one of the leading experts on college savings. Scholars Choice is managed by Legg Mason’s independent investment firm, QS Legg Mason Global Asset Allocation, and distributed by Legg Mason Investor Services, for the State of Colorado.

All Savingforcollege.com rankings are as of June 30, 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 ranking is based on short and long-term performance (i.e., rolling 1-, 3-, 5- and 10-year periods). The program ranked 4, 1, 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 volati lity, 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 produced for one-, three-, five-, and ten-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 Scholars Choice’s program disclosure statement, please visit scholars-choice.com.


DisclosureAn 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, ClearBridge Investments, LLC, Brandywine Global Investment Management, LLC, QS Batterymarch Financial Management, Inc., 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. is 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.

Footnote 2, page 3 – Support2Trends in College Pricing 2013, College Board: Average published tuition and fees ($8,893) + room and board charges ($9,498) for in-state students at public four-year institutions in 2013-14 is $18,391. The average annual real rate of increase in in-state tuition and fees at public four-year colleges and universities for 2003-04 to 2013-14 was 4.2%. The same percentage increase is assumed for room and board. The total cost 2013-14 through 2016-17 is $78,329 ($18,391 + $19,163 + $19,968 + $20,807).

Average published tuition and fees ($30,094) + room and board ($10,823) at private nonprofit four-year institutions in 2013-14 is $40,917. The average annual real rate of increase in tuition at private nonprofit four-year institutions was 2.3% for 2003-04 to 2013-14. The same percentage increase is assumed for room and board. The total cost 2013-14 through 2016-17 is $169,402 ($40,917 + $41, 858 + $42,821 + $43,806).

scholars-choice.com ©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc subsidiary. Member FINRA, SIPC 10/14 FN1411280

1 How to Pay for College ©2014 Legg Mason Investor Services, LLC, a Legg Mason Inc. Subsidiary....

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