College Planning Essentials

(1)

inherit the thinking of j.p. morgan

College Planning Essentials

A comprehensive guide to saving and investing

(2)

Section 1 College matters

Section 5 appendix

Section 4 saving and investing

Section 3 Financial aid

4 Higher education pays

5 more education, less unemployment

6 Return on a college investment

7 “major” differences in salaries

38 Sources of financial aid

39 Financial aid: Types of applications

40 Federal aid methodologies

41 Federal student aid: A sample of grant programs

42 Federal student aid: Loan programs

43 College-related tax breaks

44 Comparing college savings options

45 The 529 plan advantage

46 Checklist: Choosing a 529 plan

47 529 plans: State tax benefits

48 index definitions

49 Disclosures

23 Current saving and investing trends

24 Comparing college savings vehicles

25 investing versus borrowing

26 investing for long-term growth

27 performance pays

28 The benefits of compounding

29 invest more, pay less

30 Tax-efficient investing

31 making college savings a family affair

32 Asset allocation provided a smoother ride

33 Staying diversified over 18 years

34 The power of diversification

35 Good intentions, unexpected consequences

36 College planning checklist

Section 2 College costs

9 Rising college costs

10 Future four-year college costs

11 Tuition inflation

12 The real cost of college

13 How college costs affect behavior

15 Financial aid overview

16 Financial aid reality check

17 Federal financial aid eligibility

18 The effect of savings on financial aid

19 Student loan landscape

20 private loans

21 The burden of debt

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myth:

“ College is too expensive.”

Fact:

The return on an investment

in college is nearly $1 million

more in lifetime earnings.

page 4

College matters

The value of a college education is growing faster than

the cost. Today, a college diploma has become a necessity

for anyone seeking increased earning potential, job security

and career opportunity.

Common myths and facts

sECtIOn 1 myth:

“ Not even college

graduates can find a

job in this economy.”

Fact:

The unemployment rate

among college graduates

is currently just 3.2%.

page 5

myth:

“ College just isn’t worth

the student loan debt.”

Fact:

A college graduate earns

38% more than a high

school graduate, even after

factoring in student loans.

page 6

1. Source: Georgetown University, Failure to Launch: Structural Shift and the New Lost Generation, 2013.

By 2020,

65%

of U.S.

jobs will require a degree

beyond high school, up

from

28%

in 1973.

1

65%

2020 1973

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4 |

INHERIT THE THINKING OF J.P. MORGAN

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ix

• Bachelor’s degree holders

earn nearly

$1 million

more

over a lifetime than high

school graduates. Those with

doctorate degrees earn nearly

$2 million more

.

1

• people who attend college

but

don’t receive a degree

earn only 12% more than

high school graduates.

2

Higher education pays

A college diploma opens the door to

a lifetime of higher earnings.

1. Source: Bureau of Labor Statistics, 2013 dollars, based on 2013 earnings projected over a typical work life of ages 25 through 64.

2. Source: Current population Survey, U.S. Bureau of Labor Statistics, 2013 dollars, U.S. Department of Labor. j.p. morgan Asset management. Data are for persons age 25 and over. Earnings are for full-time wage and salary workers.

Average annual earnings

by highest degree earned

2

DEGrEEs OF DIFFErEnCE

$100,000

$60,000

$80,000

$40,000

$20,000

$0

HIGH sCHOOL GraDUatE BaCHELOr’s DEGrEE PrOFEssIOnaL DEGrEE

71

100 163%

+

0+

X

+

29

GrEatEr PaY

85 70%

+

15 +

X

GrEatEr PaY

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ix

more education, less unemployment

College graduates enjoy

much better job security and

opportunity, especially during

economic downturns.

BrIGHt JOB PrOsPECts

• The number of

college-educated americans with

jobs has increased 9.1%

since the beginning of the

recession.

1

• The unemployment rate for

high school graduates aged

20 to 24 was 17.9% in 2012,

more than double the rate

for young college graduates

.

2

• a shortage of 5 million

college-educated workers

is projected by 2020.

3

1. Source: New York Times, College Graduates Fare Well in jobs market, Even Through Recession, 5/3/2013.

2. Source: TiCAS/project on Student Debt, Dec. 2013.

3. Source: Georgetown University Center on Education and Workforce, june 2013. Based on current production rate.

4. Source: j.p. morgan Asset management, Bureau of Labor Statistics, FactSet. Unemployment rates shown are for civilians aged 25 and older. Data are as of 9/30/14.

1992

0%

2%

4%

8%

6%

10%

12%

14%

16%

18%

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

LEss tHan HIGH sCHOOL DIPLOma HIGH sCHOOL, nO COLLEGE

sOmE COLLEGE

COLLEGE Or GrEatEr

Unemployment rates by education level

As of August 2014

4

9.1%

Less than high school diploma

6.2%

High school, no college

5.4%

Some college

3.2%

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Return on a college investment

Even students who borrow for college can expect a

significant long-term return on their investment.

Estimated cumulative earnings minus student loan repayment

Bachelor’s degree versus high school diploma

CU

m

U

La

tI

v

E n

Et

Ea

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n

In

G

s

aGE

18

22

26

30

34

38

42

46

50

54

58 62 64

$0

$200,000

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

BaCHELOr’s DEGrEE HIGH sCHOOL DIPLOma

38% rEtUrn On InvEstmEnt

in this scenario, a college diploma pays

for itself by age

36 .

The college graduate earns 38% more

over a lifetime than the high school

graduate, even when factoring in loan

repayment of full tuition costs.

Source: College Board, Education pays 2013. Based on median 2011 earnings for individuals working full time year-round at each education level and each age. includes only students who complete degrees; excludes bachelor's degree recipients who earn advanced degrees. Assumes college graduates borrow $14,352 to cover total first-year tuition and fee charges for 2011–2012 (weighted average of $8,256 average public year in-state and $27,883 private nonprofit four-year tuition and fees) for the first four-year and 5% more each of the next three years. Tuition payments and earnings are discounted at 3%, compounded every year beyond age 18.

36

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“major” differences in salaries

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Choice of college major has a significant

impact on a graduate’s starting salary.

saLarIEs On tHE rIsE

• On average, starting salaries

for the class of 2014 are

6.6% higher

than for the

class of 2012.

• if salaries continue rising at

this pace,

the average child

born today would earn

roughly $91,700

in the first

year after college.

all degrees

$45,473

math and sciences

$43,414

Humanities and

social sciences

$38,365

Engineering

$62,719

Computer science

$61,741

Communications

$43,924

Business

$53,901

Health sciences

$51,541

Education

$40,863

Average yearly starting salary

by college major for the class of 2014

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myth:

“ i know how expensive

college is.”

Fact:

many families underestimate

just how much college costs

and how quickly prices rise.

pages 9 and 10

Common myths and facts

College Planning Essentials: A comprehensive guide to saving and investing

myth:

“ i’m not concerned about college

inflation. it has to slow down at

some point.”

Fact:

Tuition continues to rise at a

much faster rate than other

expenses, so your savings need

to keep pace.

page 11

myth:

“ i’ll just make a few

compromises to help pay

for college.”

Fact:

Non-savers often don’t realize

the sacrifices needed to make

college affordable.

page 13

1. Source: Sallie Mae, How America Pays for College, 2014.

College costs

Saving for college starts with a plan. And a plan starts

with a goal. it’s important to understand college costs

so you know how much to save by enrollment time.

sECtIOn 2 of families have to rule out

colleges because of cost.

1

Two-thirds

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• if prices increase 5% each

year, the

cost of college

will more than double

by 2032.

Rising college costs

College savings need to grow

at a healthy rate to match or

exceed rapidly rising costs.

Note: Average tuition and fees for the public sector reflect four-year, in-state charges.

Source: j.p. morgan Asset management using The College Board, 2013 Trends in College pricing. Future college costs estimated to inflate 5% per year.

KEEPInG PaCE

2016 2018 2020 2022 2024 2026 2028 2030 2032

2014

$0

$60,000

$80,000

$100,000

$120,000

$40,000

$20,000

Tuition, fees, room and board expenses

PrOJECtED

annUaL COsts

for 2032

Private

$98,472

Public

$44,260

PrIvatE

PUBLIC

tODaY

tOmOrrOW

Private

Public

Room and board 26%

Tuition and fees 74%

Total Cost

$40,917

Room and board 52%

Tuition and fees 48%

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Future four-year college costs

Source: j.p. morgan Asset management, using The College Board, 2013 Trends in College pricing. Future college costs estimated to inflate 5% per year.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Projected cost of a four-year college education

Based on child’s current age

$117,114 $106,226

$96,350 $87,392

$79,268

$260,560 $236,336

$214,364 $194,434

$176,357

PUBLIC

PrIvatE

$287,268

$129,118

$316,713

$142,353

$349,176

$156,944

$384,966

$173,031

$424,425

$190,767

The younger the child, the more college is likely to cost. Add up four years per child, and it equals one of a family’s largest expenses.

newborn

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Tuition inflation

College tuition costs have

increased faster than any

other household expense

in recent decades.

• Colleges are

spending more

to attract the best students.

• Colleges are

hiring more

to reduce student-to-faculty

ratios.

• Colleges are

receiving less

financial support

from

cash-strapped states.

WHY COsts arE rIsInG

Source: BLS, Consumer price index, j.p. morgan Asset management. Data represents cumulative percentage price change from 1983 through 2014.

108%

135%

174%

192%

330%

688% 25%

44%

0%

100%

200%

300%

400%

500%

600%

700%

Gas

apparel

Cars

Coffee

Housing

sweets

medical Care

tuition

Tuition versus other expenses

Cumulative percent price change since 1983

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$40,920

The real cost of college

Net price is the “sticker price” (full cost) to attend a college, minus any grants and

scholarships received. While most families don’t pay the full sticker price, actual costs

vary considerably based on household income and the college’s financial aid policies.

aFFLUEnt FamILIEs

PaY mOrE

Due to financial aid policies,

higher-income families

paid 36%

more

than lower-income families

in 2013–14.

1

Public four-year institutions

1

Private nonprofit, four-year institutions

1

1. Source: The College Board, 2013 Trends in College pricing. Figures are in 2013 dollars. 2. Source: Sallie mae, How America pays

for College, 2014.

$18,390

$0

$10,000

$20,000

$30,000

$40,000

$9,400

$10,850

$12,000

$10,370

$10,800

$12,620

–31.4%

’13–’14

’11–’12

’09–’10

’07–’08

’05–’06

’03–’04

$0

$10,000

$20,000

$30,000

$40,000

$22,630

$23,940

$21,980

$23,190

$22,540

$23,290

–43.1%

Net price

Sticker price

nEt PrICE

On average, families paid

31% below

sticker

price

at public colleges and

43% less

at private colleges in 2013–14.

HIGH-INCOME FAMILIES

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45%

Parent

reduces

spending

48%

Student

works

more

How college costs affect behavior

To better afford college, many families must choose less expensive schools or change their daily lifestyles.

Elimination of colleges based on cost

0%

20%

40%

60%

80%

100%

OFF tHE LIst

After reviewing their financial

aid package,

67%

of families

ruled out some colleges based

on cost,

up from 56% in 2009.

Source: Sallie mae, How America pays for College, 2013 and 2014.

Actions taken to make college more affordable

percentage of people taking each action

Parent

works

more

19%

Student

changes

major

19%

Student

accelerates

education

28%

Student

reduces

spending

66%

54%

Student

lives at

home

stUDEnt aCtIOns ParEnt aCtIOns

2009

2010

2011

2012

2013

2014

56%

63%

64%

69%

67%

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Financial aid

sECtIOn 3 Financial aid can help pay for college, but not all aid

is free and not everyone qualifies. The more you

save now, the less you may have to borrow later.

myth:

“ Financial aid is free money.”

Fact:

Nearly 40% of federal aid

comes in the form of loans

that must be paid back

with interest.

page 15

Common myths and facts

College Planning Essentials: A comprehensive guide to saving and investing

myth:

“ i don’t need to save

because my child will

receive a scholarship.”

Fact:

Only 0.3% of college students

actually get a full ride.

page 16

myth:

“ Saving for college will hurt

my chances for financial aid.”

Fact:

Savings generally have

little impact on financial

aid eligibility when the funds

are held in parents’ names.

pages 17 and 18

1. Source: Project on Student Debt, The Institute for College Access & Success (TICAS), December 2013.

more than 7 in 10

college seniors

graduated with student

loan debt in 2012.

1

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tOtaL aID In 2012–13

$185.1 billion

Financial aid overview

most college students require

financial assistance of some kind,

but 37% of all aid comes in the

form of loans that must be paid

back with interest.

aID Is DOWn, tUItIOn Is UP

• From 2001 to 2011, state and

local financing per student

declined

24%

nationally.

From 2001 to 2014, tuition and

fees increased

79%

at state

colleges and nearly

32%

at

non-profit private institutions.

• Federal grants declined by

$2.6 billion

over the past year.

Undergraduate student aid by source and type

in billions, 2012–13

Borrowed

Free money

$67.8

(37%)

(24%)

(19%)

(9%)

(5%)

$45.3

$34.9

$16.9

$9.8

Federal loans

State grants

Private and

employer grants

Federal work study

$0.9 (<1%)

Federal grants

Institutional

grants

Education

tax benefits

Note: percentages may not total 100% due to rounding. Source: The College Board, 2013 Trends in Student Aid.

Average aid package

for full-time undergraduate

students, 2012–13

Federal loans

$4,900

tax credits, deductions and federal work study

$1,280

Grant aid from all sources

$7,190 Average total

aid package

$13,370

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Financial aid reality check

many families expect more free money

from grants and scholarships than they

are likely to receive.

mOrE aPPLICatIOns, LEss aID

• Financial aid applicants include

85%

of middle-income families

and

65%

of high-income

families. The more people

applying, the less aid there is to

go around.

1

1. Source: Sallie mae, How America pays for College, 2014. 2. Source: finaid.org. Based on full-time students at four-year colleges. 3. Source: Sallie mae, How America Saves for College, 2014 and The College

Board, Trends in College pricing, 2013.

of college students receive enough grants and scholarships

to cover all costs.2

0.3 %

Financial aid

expectations

3

61 %

61%

of parents

who are not yet

saving for college

expect scholarships

or grants to cover

the costs.

Grant reality

2013–14

Scholarship reality

2013–14

Private

23%

4-year

Public

26%

2-year

Public

30%

43 %

44 %

of total families received a grant, with an average amount of $6,6431

of total families received a scholarship, with an average amount of $8,0251

Percent of total costs covered by grants

Percent of total costs covered by scholarships

Private

37%

4-year

Public

24%

2-year

Public

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1. Source: Sallie mae, How America pays for College 2014. 2. Based on federal methodology for 2014–15 school year.

3. protected amount for parents is dependent upon a number of factors, including household size and number of students in college.

Federal financial aid eligibility

The Department of Education processes the Free Application for Federal Student

Aid (FAFSA) to determine the Expected Family Contribution (EFC). This is the amount

parents and students are expected to pay directly from their income and savings.

FEDEraL aID

in 2013–14,

81%

of families

with a college-bound child

applied for federal aid.

1

tOtaL COLLEGE

COsts EaCH YEar

COntrIBUtIOn (EFC)

EXPECtED FamILY

aID ELIGIBILItY

FInanCIaL

GranDParEnts/

OtHErs

0%

of income and assets considered in federal financial aid formulas. However, withdrawals for college by grandparents or others may be

considered student income and must be reported on the following year’s financial aid forms. Such income can reduce the amount of

aid by 50%.

ParEnts

Income

Up to

5.64%

of non-retirement assets above protected amount, including 529 plans,

investments and savings

assets

+

50%

of income above protected amount of $6,260

20%

of all assets in bank accounts, CDs, UGmAs/ UTmAs and any

other savings

Income

stUDEnts

+

assets

Colleges use the EFC to

calculate the total

cost of

attendance

— tuition, fees and

other expenses — which then

determines how much financial

aid is available to a student.

tOtaL EFC

HOW EFC Is

CaLCULatED

2

A family’s

current

annual income

, including

the student’s, counts far

more in the formula than

savings and investments,

especially when they’re

held in the parents’ names.

of adjusted gross income above the protected

amount3

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The effect of savings on financial aid

Savings actually count far less than current income when calculating your

Expected Family Contribution (EFC) for federal financial aid purposes.

529 PLan aDvantaGE

• When a 529 account is

owned by parents, it has

much less impact on federal

financial aid eligibility than

custodial accounts.

Maximum parental savings considered in federal financial aid formulas.

5

5.64 %

+

95 T

Big difference in college savings, little difference in financial aid

Federal financial aid for two families earning the same income and sending a

child to the same college costing $30,000 per year

1

EXPECtED FamILY COntrIBUtIOn FEDEraL FInanCIaL aID

$30,000

$20,000

$10,000

$0

Smiths

$75,000 saved in

529 plan

Wilsons

No savings

$18,152

$16,229

$11,848

$13,771

The Smiths have

$75,000

more in savings

but

get just $1,923 less in

financial aid.

1. Source: j.p. morgan Asset management and finaid.org.

Assumes both families earn $100,000 annually and 529 plan is owned by the parents. Does not include non-federal financial aid opportunities such as scholarships.

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Student loan landscape

Student loan debt has soared in recent years, putting an increased

financial burden on college graduates and their parents.

subsidized stafford Loans

For undergraduate

students with

documented financial

need. The government

pays interest while the

student is in college.

Unsubsidized stafford Loans

For undergraduate

and graduate

students regardless

of financial need. The

government does not

pay interest while the

student is in college.

Grad PLUs

For graduate

students only.

Parents PLUs

For parents only.

Perkins

For students with

high need at some

institutions.

Private Education Loans*

Offered by private

lenders, they can

either supplement

or replace federally

guaranteed loans.

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

2005–06

2007–08

2009–10

2011–12

2012–13

t

$113.4

t

$110.4

t

$113.9

t

$99.7

t

$87.6

Issuance of federal and private loans

Selected years, 2012 dollars in billions

1

1. Source: The College Board, 2013 Trends in Student Aid.

2. project on Student Debt, The institute for College Access & Success (TiCAS), December 2013.

* Note: private education includes loans to students from states and from institutions, in addition to private loans by banks, credit unions and Sallie mae.

In 2012,

71% of college

seniors

graduated

with student loan debt

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private loans

With college costs rising faster than the

availability of federal aid, many families

are choosing to fill the growing gap

with private loans.

• Americans currently owe

more

than

$165 billion

in outstanding

private student loan debt.

2

• Outstanding private loan debt has

nearly

tripled since 2005

.

• private student loans tend to have

higher interest rates

and

less

flexible repayment options

than

federal loans.

PrIvatE LOans at a GLanCE

1. Source: private Student Loan Report 2012, Consumer Finance protection Bureau.

2. Source: Consumer Financial protection Bureau, mid-year snapshot of private student loans complaints, july 2013.

Private student loans

Outstanding loans (in billions)

1

Private loan defaults

as of 2012

$8 billion

in defaulted private loans distinct loans in default

850,000

2005

$55.9

2007

$101.1

2011

$140.2

2009

$133.0

2013

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The burden of debt

Families that don’t save enough for

college often have no other choice than

to borrow. Today, a record four in ten

households owe student loan debt.

1

Debt balances

by type of consumer loan

2

The debt impact

percent of student borrowers who said loans had this effect

5

• Student loan debt

more than

quadrupled

to $1.1 trillion between

2004 and 2014.

2

• The average student borrower

owes over

$29,000

in loans.

3

• Student loan defaults are at a

20-year high

, affecting over

7 million borrowers.

4

DrOWnInG In DEBt

Harder to buy

necessities

27%

Harder to

buy a home

75%

put off

marriage

29%

Delayed starting

a family

43%

1. Source: pEW Research Center. October 2013 Survey. Households headed by a person younger than 40. 2. Source: New York Federal Reserve, Household Debt and

Credit Report, 2Q 2014.

3. Source: The institute for College Access and Success (TiCAS), Student Debt and The Class of 2012, December 2013. 4. Source: U.S. Department of Education, September 2013. 5. Source: American Student Assistance, Life Delayed:

The impact of Student Debt on the Daily Lives of Young Americans, 2013.

$0.4 trillion

$0.6 trillion

$0.8 trillion

$1.0 trillion

$1.2 trillion

’04

’05

’06

’07

’08

’09

’10

’11

’12

’13

’14

stUDEnt LOan

CrEDIt CarD aUtO LOan HOmE-EqUItY LOan

in 2010, student loan debt

surpassed credit card debt

for the first time in history.

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Saving and investing

sECtIOn 4 Choosing the right savings plan and following time-tested

investment strategies can help you reduce taxes, increase

growth potential and accumulate more for college.

myth:

“ All college savings plans

are the same.”

Fact:

College savings plans

differ in a variety of ways,

including investments, tax

benefits and flexibility.

pages 24 and 30

Common myths and facts

College Planning Essentials: A comprehensive guide to saving and investing

myth:

“ i’ll just take out a loan

if i don’t save enough.”

Fact:

it costs more to borrow

and pay interest than to

invest and earn interest.

page 25

myth:

“ it’s too early to start saving

for college.”

Fact:

Starting early and

saving regularly helps

you maximize the power

of compounding.

page 28

1. Source: Sallie mae, How America Saves for College, 2014.

of families saving for

college invest in 529 plans.

1

Only 29%

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Current saving and investing trends

Half of U.S. families aren’t saving for college. The other half often

choose vehicles that don’t maximize their growth potential, such

as CDs, taxable investments or accounts intended for retirement.

Percentage of families using:

18%

Retirement Savings Accounts

16%

CDs

45%

General Savings Accounts

29%

529 College Savings Plan

20%

Investments

11%

Trust Fund

14%

Prepaid or Guaranteed State

College Savings Program

24%

Checking Account

13%

Coverdell Education

Savings Accounts

Source: Sallie mae, How America Saves for College, 2014.

0%

10%

20%

30%

40%

50%

10%

UGMA/UTMA

FamILIEs DOn’t FULLY

maXImIzE GrOWtH POtEntIaL

more parents—45%—save for college

with low-yielding savings accounts than

any other method.

FAMILIES USING A

529 PLAN FAMILIES USING A TRADITIONAL SAvINGS ACCOUNT

On average, those parents with a

529 plan

save 68% more

than those

simply using a savings account.

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7 +

93 +

U

5 +

95 +

U

Comparing college savings vehicles

Understanding the different tax benefits and features of college savings

vehicles can help you choose the right one for your needs.

of parents own UGMA/

UTMA accounts

529 college savings plan

Custodial account (UGMA/UTMA)

Coverdell Education Savings Account

• Tax-free investing and withdrawals for

any qualified higher education expense*

• Account owner control for

the life of the account

• No income limits on contributors

• High contribution maximums

• Low impact on financial aid eligibility

• Funds must be used for the child’s

benefit, not necessarily for college

• portion of investment earnings taxed at

child’s and parents’ rates

• Child assumes control at age of majority,

usually 18 or 21

• High impact on financial aid eligibility

• Tax-free investing and withdrawals

for any level of education*

• income limits on contributors

• Age limits on beneficiaries

• maximum contribution of $2,000

annually per beneficiary

• Low impact on financial aid eligibility

of parents own

529 plans

27 29%

+

73 +

U

10%

13%

of parents own

_{Coverdell accounts}

* Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.

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College savings plan versus student loan

initial investment of $1,000

plus

monthly investment of $300

2

investing versus borrowing

it costs less to invest now than to

borrow later. When you borrow for

college, you

pay interest

. When you

invest, you

earn interest

and other

forms of investment returns.

It taKEs a PLan

• Without a plan, families run

the risk of not saving enough

and borrowing too much. Yet

43%

of high-income families

and

61%

of middle-income

families

don’t have a plan

to

pay for college.

1

$200,000

$150,000

$100,000

$50,000

$0

College savings plan

over 18 years

principal and

College loan:

interest

$119,143

InvEstmEnt GrOWtH OUt-OF-POCKEt COst

out-of-pocket difference

with 529 plan

$101,753

Average loan debt at graduation

for parents

3

$10,000

$15,000

$33,800

$7,500

$0

1993

2003

2012

$20,000

$30,000

$40,000

a BUrDEn FOr

EvErYOnE

The average parental

debt load has

more than

doubled

in a decade to

$33,800

in 2012, while

the average debt faced by

students was more than

$29,000

in 2012.

4 1. Source: Sallie mae, How America pays for College, 2014.

2. Source: j.p. morgan Asset management. The investing illustration assumes an initial lump sum investment of $1,000, subsequent monthly investments of $300 thereafter for 18 years, and assumes an annual investment return of 6% and federal tax rate of 28%. investment losses could affect the relative tax-deferred investment advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. The borrowing illustration assumes an interest rate of 7.21% and a payback period of 10 years. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses.

The chart is shown for illustrative purposes only. past performance is no guarantee of future results. 3. Source: The Wall Street journal, parent Trap: What to

Know Before Taking a College Loan, FinAid.org analysis of Department of Education data, march 24, 2013. 4. Source: The institute for College Access and Success

(TiCAS), December 2013.

$167,553

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s&P 500

U.s. 30-DaY trEasUrY BILLs COnsUmEr PrICE InDEX COLLEGE tUItIOn anD FEEs

investing for long-term growth

Starting a college savings plan early allows more time to

hold investments with higher return potential.

$100

$10

$1

DEC ’78

DEC ’83

DEC ’88

DEC ’93

DEC ’98

DEC ’03

DEC ’08

DEC ’13

Growth of one dollar

December 1978 to December 2013

Source: j.p. morgan Asset management. past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1979. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index.

stOCKs OUtPaCE

tUItIOn InFLatIOn

While short-term investments

grew more slowly than

tuition costs, stocks

delivered high returns to

help beat college inflation

and achieve savings goals.

t

$52.23

t

$12.05

t

_$5.50

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performance pays

Even small increases in investment

returns can make a big difference when

it comes time to pay for college.

sEEKInG HIGHEr rEtUrns

• Be an investor

, not just a

saver in low-yielding bank

accounts.

• Stay invested

for the

long haul to avoid the risk

of being out of markets

during upswings.

• Reduce taxes

to keep more

of what you earn.

1. Source: j.p. morgan Asset management using The College Board 2013 Trends in College pricing. This hypothetical assumes an investment of $100,000 over an 18-year period. Different assumptions will result in outcomes different from this example. investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision.

Investment growth over 18 years

Calculations assume an initial investment

of $100,000 at birth

$450,000

$350,000

$400,000

$300,000

$250,000

$200,000

$150,000

$100,000

1

0

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

t$399,602

of $100,000

covers a year of tuition at a

Public College

(in-state)

covers a full year's cost at

Public College

(out-of-state)

Private College

Ivy League College

Initial Investment

Slightly higher returns can pay for a full year of college

1

+$14,501

$337,993

7%

7.25%

+$29,587

7.5%

+$45,282

7.75%

+$61,609

8.0%

Difference of

$61,609

t$337,993

7.75% annUaL rEtUrn

7.5% annUaL rEtUrn 8% annUaL rEtUrn

7.25% annUaL rEtUrn

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The benefits of compounding

The sooner you start saving, the more time you may

have to grow your college fund through the power of

long-term compounding. Even small contributions add

up over time.

Total

accumulation

in 6 years

Total

accumulation

in 12 years

Total

accumulation

in 18 years

$50,000

$100,000

$150,000

$200,000

$0

$100 mOntHLY COntrIBUtIOns $250 mOntHLY COntrIBUtIOns $500 mOntHLY COntrIBUtIOns

Start early, small savings add up

Total amounts accumulated over 6, 12 and 18 years

1

if you start saving $500 per month

when a child is born, you'll earn

$84,214 more

than if you start at age six.

$8

,3

70 $2

0 ,9

26 $4

1,

85

2 $5

0 ,6

10 $10

1,

22

0 $37

,08

7 $92

,7

17 $1

85,

43

4 $2

0 ,24

4

1. Source: j.p. morgan Asset management. This hypothetical example illustrates the future values of different regular monthly investments for different time periods. Chart also assumes an annual investment return of 6% and a federal tax rate of 28%. investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. a plan of regular investment cannot assure a profit or protect against a loss in a declining market. the chart is shown for illustrative purposes only. Past performance is no guarantee of future results.

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invest more, pay less

Some savings vehicles, such as 529 plans, allow large contributions that can help you

pay for much of college from your investment earnings instead of your pocket.

Source: College Board, 2013 Trends in College pricing. Based on tuition, fees and room/board costs for 2013–2014 school year. Costs estimated to inflate 5% per year. This example is hypothetical and assumes a 6% annual rate of return and an annual lump sum contribution of $18,085 over a 12-year period. This example does not represent the performance of any particular investment. Different assumptions will result in outcomes different from this example. Your results may be more or less than the figures shown. investment losses could affect the relative tax-deferred investing advantage. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses that would be paid by a 529 plan participant. Such costs would lower performance.

$200,000

$0

$100,000

$300,000

Average private

college cost

$316,713

Lump-sum

investment

Annual

investments

Out-of-pocket

payment

InvEstmEnt GrOWtH OUt-OF-POCKEt COst

Investing versus paying out of pocket

Amounts needed to fund four years of private college in 12 years

$154,437

$217,019

$316,713

save 32%

on out-of-pocket costs

save 51%

on out-of-pocket costs

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Tax-efficient investing

A tax-advantaged account, such as a 529 plan, has

the potential to grow faster for college than a taxable

investment earning the exact same returns.

$15,477

more

with a tax-free

529 plan

$90,000

$120,000

$60,000

$30,000

$0

Taxable

account

Tax-free

529 plan

Lower taxes equal a larger college fund

investment growth over 18 years

1

1. Source: j.p. morgan Asset management. illustration assumes an initial $1,000 investment and monthly investments of $300 for 18 years. Chart also assumes an annual investment return of 6% and a federal tax rate of 28%. investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. These figures do not reflect any management fees or expenses that would be paid by a 529 plan participant. Such costs would lower performance.

The chart is shown for illustrative purposes only. past performance is no guarantee of future results.

2. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.

$103,666

$119,143

statE taX BEnEFIts

• many 529 plans offer state tax

benefits in addition to federal

tax-free investing.

2

_{See the}

Appendix on page 47 for

more information.

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making college savings a family affair

Getting family, friends and students involved in college

savings can increase the size of your account and reduce

your share of the expenses.

taLK tO CHILDrEn

• Nearly half (47%) of college

savers have

discussed

education costs with

children

, compared to just

28% of non-savers.

1

Don’t go it alone

parents expect only

5%

of college

costs to be paid with contributions

from grandparents, friends

and family.

1

1. Source: Sallie mae, How America Saves for College, 2014.

2. Source: j.p. morgan Asset management. This hypothetical example illustrates the future values of regular monthly investments by the account owner and annual investment by other contributors over an 18-year period. investment losses could affect the relative tax-deferred investing advantage. This hypothetical illustration is not indicative of any specific investment and does not reflect the impact of fees or expenses. Such costs would lower performance. Each investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors. A plan of regular investment cannot assure a profit or protect against a loss in a declining market. The chart is shown for illustrative purposes only. past performance is no guarantee of future results.

More contributors equal a larger college fund

investment growth over 18 years

2

$36,906

$72,264

$185,434

Family and friends

$1,000 annually

Total

Parents

$6,000 annually

Grandparents

$2,500 annually

$294,604