2018-04-12 / Front Page

MET director visits area

Discusses college savings with residents

Above, MET Executive Director Robin Lott is shown speaking to residents about college savings plans Tuesday. 
Pioneer Tribune photo Above, MET Executive Director Robin Lott is shown speaking to residents about college savings plans Tuesday. Pioneer Tribune photo MANISTIQUE – Saving for college can be a daunting task, but Robin Lott, executive director of the Michigan Education Trust, was in the area Tuesday to help simplify the process. Lott’s presentation, held at St. Francis de Sales School, supplied information on two state-run college savings programs – the Michigan Education Trust and the Michigan Education Savings Program.

The MET and MESP programs are operated under the Michigan Department of Treasury and offer those with children a variety of options to save for college.

“The higher level of education your child completes, the better their ability to earn will be,” Lott began, adding that due to this earning potential, the cost of college continues to rise. “This is another reason we want you to start saving early. As these numbers (costs) grow in the future, you’ll have something to help you.”

She explained college expenses are rising due to inflation and the need for universities and colleges to keep their campuses appealing to both existing and incoming students.

“Tuition is rising and, over time, we’ve seen a 7.3 percent average tuition increase at the Michigan public colleges,” Lott said. “On average, nationwide, it’s been a little higher than that.”

Most families who save for tuition and college costs are placing their money in traditional savings accounts, she explained.

“Some families are considering using some of their retirement, which we don’t really advise,” she said. “Some are just writing checks.”

The other families, approximately 37 percent, are taking advantage of 529 plans, such as the MET and MESP programs.

Financial aid packages mostly consist of loans, Lott said, increasing the debt load of students before they step foot in an institution of higher learning.

“That’s another reason we’re trying to encourage parents to start early, save as much as you can – help reduce those loans,” she explained.

The Treasury offers three types of programs – MET, a prepaid tuition program; MESP, a “direct sold” investment-based program; and MAP, another investment-based program, but one that requires direct communication with a broker.

“MESP and MAP are investment based programs very similar to your 401(k),” Lott said, noting that, for her presentation, she would focus on the MET and MESP programs, as the MAP program comes with higher broker-related fees.

“With the MET or with the MESP, your account will be used anywhere at a qualified institution nationwide or abroad,” Lott said. “If the school has a college code within the U.S. Department of Education’s system, then it’s probably a qualified institution.

That means they offer federal financial aid to their students,” she continued. “So you can send your money there and not pay any tax on that at all.”

If the student decides not to attend college, Lott said the funds may be transferred to another family member, including first cousins.

“Refunds can be sent out either if the student receives a full scholarship or decides not to attend college,” she explained. “All the funds are refundable, so you don’t lose your money if the student does not attend college.”

Lott pointed out that the money put into the MET and MESP accounts are “tax deferred” going in, meaning that the money is taken from net pay.

“It’s after tax dollars going in, it’s tax deferred as it grows, and when you pull it out, it’s tax exempt as long as you use it for qualified higher education expenses,” she explained. “If you just pull it out (for other reasons), then there are tax consequences on the earnings portion only … you never pay tax on that principal amount.”

While students can choose to attend college anywhere, Lott explained that students who choose to attend an in-state college would get the best benefit from the MET program, which pays actual tuition. She also noted that the total dollar amount put into the MET savings account is tax deductible.

“On the MESP side, your deduction is limited to $5,000 if you’re a single filer or $10,000 if you’re a joint filer,” Lott said.

Both the MET and MESP programs offer payroll, or ACH, deduction as a method of getting money to the account.

“You can send in a paper check and you can also have gifting from family and friends,” Lott explained.

She pointed out that college savings should have minimal impact on a student’s eligibility for need-based aid, as the U.S. Department of Education only considers 5.6 percent of the value of the savings when making calculations.

“There is some legislation pending in Congress that will wipe that totally out,” Lott said. “So we’re hopeful that may still happen – where you wouldn’t even have to put MET of MESP on the financial aid application.”

Focusing specifically on the MET program, Lott explained that it is essentially buying credit hours at today’s rate.

“You’re locking in that price, so whatever you buy at that rate, we never come back to you and increase the price,” she said. “When your child is ready to attend college, we’re going to pay out those number of credits you purchased … at the end of the day, we promise to pay in-state tuition, plus mandatory fees, if your child attends a Michigan public college or university.”

If the child decides to attend an out-of-state college or university, MET will calculate the average tuition of public colleges and pay out credits at that rate. If the child decides to attend a private college, credits will be paid out according to the weighted average tuition of public colleges.

“Worst case … we won’t give you back less than you paid in,” Lott said.

There are three types of contracts – all at different prices – available in the MET program: Full Benefits, Limited Benefits, and Community College. Full benefits is the most costly contract, as it covers all 15 public four-year institutions in Michigan.

“The Limited Benefits contract is a little lower in cost because the price of that contract is based on 105 percent of the weighted average tuition,” Lott explained. “What that means is not that they can’t go to the higher-cost schools, but if they go there, we reduce the number of credit hours we pay out.”

The Community College contract is self-explanatory, she said, with those credit hours available to only community colleges.

Some participating in the MET program choose to purchase two years of Community College contract credits and two years of credits at either a Full Benefit or Limited Benefit contract, Lott added.

Contract prices can be paid in five purchase plans: lump sum, four year, seven year, 10 year, or 15 year. There is also a “Pay-As- You-Go” option, where credit hours may be purchased by depositing any amount until one credit hour is purchased, then moving on to the next credit hour.

Lott recommended setting up one MET or MESP fund for each child. She also noted that the credits purchased are transferrable if the students decides to switch colleges.

If a child receives a partial scholarship, Lott explained that the excess money in the MET account can be transferred to the school for room and board or the student can request a refund from the MET account to pay for off-campus expenses.

Enrollment in the MET program is open from now until Sept. 30, Lott said, and the $25 online registration fee will be waived if residents use the “2018UP” code on the enrollment screen at www.setwithmet.com.

As for the MESP program, Lott said to think of it as a 401(k), as it involves investment.

“Your balance of your account can pretty much be used anywhere in the United Stated or abroad as long as it’s considered a qualified institution – which can include technical/vocational schools,” she said. “The total amount in your account balance is also able to be applied to room and board, books, it can be used for computers, tuition fees … lab fees.”

In MESP, the account owner has all control of the money and when it will be dispersed to the college or student. As in MET, the earnings portion of any non-qualified withdrawal is subject to tax. Non-qualified withdrawals are also subject to a 10 percent federal penalty on the earnings portion.

Lott explained that if the student earns a scholarship and the account owner decides to withdrawal for personal reasons, the 10 percent federal penalty is waived.

In the MESP program, there are nine investment options from which to choose. Lott pointed out that there is a conservative investment option, but the rest will be based on market conditions.

“Using the moderate age-based allocation as an example, if the child is a newborn to three years old, the portfolio is like 85 percent equity and 15 percent fixed income,” she explained. “As the child gets older, the portfolio automatically shifts on its own to be more conservative, so that by the time the child is 16 to 18, that portfolio is 85 percent fixed income and 15 percent equity because we know it’s almost time for you to pull it out and use it for school. So it reduces your risk level over time.”

Lott noted that you can deposit funds in more than one investment option.

“You don’t have to put all your eggs into one investment option,” she said. “Twenty-five dollars opens the (MESP) account, and then any amount $25 or more (can be deposited) any time you wish.”

Residents may opt for a payroll deduction to make deposits on a regular basis.

“If you commit to payroll (deductions), it’s only $15 to open the account and you just have to commit to $15 a pay period,” Lott explained. “A trip to McDonald’s and Starbucks – that’s $15 right there.”

As with MET, others can “gift” to the MESP account. Lott noted that the MESP program tends to offer more flexibility for the amount deposited, as well as the expenses covered.

For more information on the MESP program, visit www.MIsaves.com.

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