Glossary: Education and Major Purchase Terms
Understanding the terminology used in education planning, home buying, and healthcare savings helps you make informed decisions and communicate effectively with financial professionals. This glossary covers essential terms you'll encounter when planning for major expenses.
Education Planning Terms
529 Plan: A tax-advantaged savings account designed for education expenses, offering tax-free growth and tax-free withdrawals for qualified education costs including tuition, room and board, and required supplies.
Age-Based Portfolio: An investment option within a 529 plan that automatically adjusts from aggressive to conservative investments as the beneficiary approaches college age.
COA (Cost of Attendance): The total estimated annual cost to attend a college, including tuition, fees, room and board, books, supplies, transportation, and personal expenses.
Coverdell ESA (Education Savings Account): A tax-advantaged account for education expenses with a $2,000 annual contribution limit that can be used for K-12 and higher education costs.
CSS Profile: A financial aid application required by approximately 200 private colleges to determine eligibility for institutional (non-federal) financial aid.
EFC/SAI (Expected Family Contribution/Student Aid Index): The calculated amount a family is expected to contribute toward college costs, used to determine financial aid eligibility; renamed from EFC to SAI in 2024.
FAFSA (Free Application for Federal Student Aid): The federal form required to apply for federal financial aid including grants, work-study, and federal student loans.
Grad PLUS Loan: A federal loan available to graduate and professional students to cover education costs not met by other financial aid, with borrowing limited to the cost of attendance minus other aid received.
Merit Aid: Financial aid awarded based on academic achievement, talents, or other accomplishments rather than financial need.
Need-Based Aid: Financial aid awarded based on a family's demonstrated financial need as calculated through the FAFSA or CSS Profile.
Net Price: The actual cost a student pays to attend a college after subtracting all grants and scholarships from the cost of attendance.
Parent PLUS Loan: A federal loan available to parents of dependent undergraduate students to help cover education costs, with borrowing limited to the cost of attendance minus other aid received.
Qualified Expenses: Costs that can be paid with 529 plan funds without incurring taxes or penalties, including tuition, mandatory fees, books, supplies, equipment, and room and board for students enrolled at least half-time.
Sticker Price: The published cost of attendance at a college before any financial aid is applied, often significantly higher than what most students actually pay.
UGMA (Uniform Gifts to Minors Act): A custodial account that allows adults to transfer assets to minors, with the minor gaining control of the account at age 18 or 21 depending on the state.
UTMA (Uniform Transfers to Minors Act): Similar to UGMA but allows a broader range of assets to be transferred and typically extends the age at which the minor gains control to 21 or 25 depending on the state.
Home Buying Terms
Closing Costs: Fees and expenses paid at the completion of a real estate transaction, typically ranging from 2% to 5% of the purchase price and including lender fees, title insurance, appraisal, and prepaid items.
Down Payment: The portion of a home's purchase price paid upfront by the buyer, typically expressed as a percentage of the purchase price, with 20% being the traditional benchmark to avoid PMI.
HELOC (Home Equity Line of Credit): A revolving line of credit secured by the equity in your home, allowing you to borrow as needed up to a set limit during a draw period.
Home Equity Loan: A lump-sum loan secured by the equity in your home, repaid over a fixed term with fixed monthly payments.
PMI (Private Mortgage Insurance): Insurance required by lenders when a buyer makes a down payment of less than 20%, protecting the lender if the borrower defaults; typically costs 0.5% to 1% of the loan amount annually.
Price-to-Rent Ratio: A calculation comparing the cost of buying a home to renting, determined by dividing the home's purchase price by the annual rent for a comparable property; higher ratios suggest renting may be more economical.
Healthcare Planning Terms
HDHP (High-Deductible Health Plan): A health insurance plan with higher deductibles and lower premiums that meets IRS requirements for HSA eligibility, requiring minimum deductibles of $1,600 for individual coverage or $3,200 for family coverage in 2024.
HSA (Health Savings Account): A tax-advantaged savings account available to individuals enrolled in a high-deductible health plan, offering tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
General Financial Planning Terms
Sinking Fund: A dedicated savings account established for a specific future expense, funded through regular contributions calculated by dividing the goal amount by the number of months until the expense is needed.