Method of providing means to pay for total future educational expenses to attend an institution of higher learning6424952Abstract A method and system for financing expected future educational expenses. The method includes the basic steps of determining current educational expenses, reviewing past changes in educational expenses, calculating future educational expenses based on current educational expenses, past changes in educational expenses and assumptions on annual increase rates of educational expenses, establishing a target for future total investment payout based on calculated total future educational expenses and assumptions on expected investment yields, and deriving present investment amount needed to provide future educational expenses. Payment of the investment amounts are collected for investment of future payment of educational expenses. Additional insurance policies are purchased to providing cushion money to cover investment short fall and guarantee the payment for future education expenses. The system that implements the present invention method utilizes a computer network such as the Internet for establishing and maintaining a web site which provides on-line enrollment of the service and direct payment links as well as continued educational counseling. Claims What is claimed is: Description BACKGROUND OF THE INVENTION
TABLE I-A
Twenty-five (25) Top Rated National Universities
Harvard University
Princeton University
Yale University
Massachusetts Institute of Technology
Stanford University
Cornell University
Duke University
University of Pennsylvania
California Institute of Technology
Brown University
Columbia University
Dartmouth University
Northwestern University
Johns Hopkins University
University of Chicago
Emory University
Washington University
Rice University
University of Notre Dame
Georgetown University
Vanderbilt University
University of California - Berkeley
University of Virginia
University of North Carolina - Chapel Hill
Carnegie Mellon University
Having chosen the institutions to be included in the example of the present invention method, the current (1998-1999 school year, if available) cost information were summarized, taking data from the following sources: (1) U.S. News & World Report--1999 "Best Colleges" edition; (2) Time/The Princeton Review--1999 "The Best College for You" edition; and (3) Newsweek/Kaplan--1999 "How to Get into College" edition. Each of these publications provides cost information such as tuition, room and board, fees, and books. Since not all cost categories were available for every institution, to arrive at the final "current cost", the greatest combination of tuition/room and board/fees from either the U.S. News and World Report or Newsweek/Kaplan publications was picked, and the book charges shown in the Time/Princeton Review publication were added thereon. The resulting current costs for each institution are shown in TABLE II-A and TABLE II-B. The following are the average current costs for the two groups of institutions:
Institution Grouping Average Current Annual Educational Costs
25 National Universities $29,072
10 Liberal Arts Colleges $30,758
The next step is to evaluate how educational costs have changed in the past. As an example of the present invention method, the data provided by The College Board in New York was reviewed. Their material ("Trends in College Pricing") provides the average tuition and fees for two and four year, private and public institutions in the United States from 1971 to the present. Room and board costs were also available from 1988 to 1999. Additionally, the 1972-1999 tuition and fees amounts were shown on both a current dollar and an inflation adjusted constant dollar basis. The College Board information is summarized in TABLE III.
TABLE II-A
Current Educational Costs for Selected National Universities
Harvard University $31,932
Princeton University 30,531
Yale University 33,230
Massachusetts Institute of Technology 31,750
Stanford University 30,899
Cornell University 30,978
Duke University 31,562
University of Pennsylvania 31,634
California Institute of Technology 25,905
Brown University 31,060
Columbia University 32,272
Dartmouth University 31,512
Northwest University 31,004
Johns Hopkins University 30,855
University of Chicago 31,810
Emory University 29,930
Washington University 30,171
Rice University 21,111
University of Notre Dame 27,300
Georgetown University 31,712
Vanderbilt University 31,000
University of California - Berkeley 22,170
University of Virginia 20,935
University of North Carolina - Chapel Hill 16,761
Carnegie Mellon University 28,780
According to the College Board material, the annual average increase in tuition and fees since 1972 has been 8.0%. Since 1988, the average annual tuition and fees increase has been 6.1%, while the comparable increase for room and board charges during that same period was 5.4%. On a year by year basis, the annual room and board increase is consistently 1%-3% lower than the tuition and fees change in the same year. On a "constant dollar" basis, using 1972 as a starting point, the average annual increase in tuition and fees has been about 2.6%. The tuition and fees cost increases mentioned above, 6.1% and 2.6%, are measured over nearly a thirty year period. Within that span of years, there were substantial changes in cost, both positive and negative. Shown in TABLE IV is a comparison of the annual cost increases with the annual change in the Consumer Price Index (CPI). Although the values do not match exactly, there is a strong correlation between the way educational costs change versus the inflation rate. The next step of the present invention method is to calculate examples of future costs based on several assumed annual increase rates, using the current educational costs described earlier as a starting point. These values are accumulations of the current costs compounded at the rates shown. The detailed results of the calculations are shown in TABLE V. The summarized results of the calculation are shown in TABLE V-A and TABLE V-B (based on 1999 costs of $29,072 for National Universities and $30,758 for Liberal Arts Colleges). The next step of the present invention method is to establish a target for future expected investment yields. Future investment yields are crucial to the present invention method because enough return must be generated from the initial investment to provide for the future increase in educational expenses as well as covering applicable investment management and risk charges, and certain expenses. The required investment return may follow the trend of educational costs. The investment management must look for returns which will provide the margin to cover the items discussed above, at an appropriate level of risk for the situation.
TABLE IV
Relationship of Historic Tuition and Fees Increases to CPI Changes
Increase in
Educational CPI Rate of
Year Costs Inflation Difference
1973 4.3% 6.2% (1.9)%
1974 4.8 11.0 (6.2)
1975 6.4 9.1 (2.7)
1976 7.3 5.8 1.5
1977 11.5 6.5 5.0
1978 6.6 7.6 (1.0)
1979 9.6 11.3 (1.7)
1980 9.0 13.5 (4.5)
1981 12.2 10.3 1.9
1982 13.7 6.2 7.5
1983 12.8 3.2 9.6
1984 9.8 4.3 5.5
1985 9.1 3.6 5.5
1986 10.2 1.9 8.3
1987 8.8 3.6 5.2
1988 5.9 4.1 1.8
1989 13.6 4.8 8.8
1990 8.2 5.4 2.8
1991 7.8 4.2 3.6
1992 5.7 3.0 2.7
1993 5.8 3.0 2.8
1994 5.3 2.6 2.7
1995 6.5 2.8 3.7
1996 4.2 2.9 1.3
1997 6.4 2.4 4.0
1998 6.1 1.6 4.5
Average 8.1% 5.4% 2.7%
Increase
For example, assuming future educational costs will increase at a rate which is somewhat above inflation, for example, 2%, then an interesting comparison is the difference between the historic CPI and the annual rate for one year Treasury Bills. Such a comparison is shown in TABLE VI. Since 1960, the Treasury Bill has averaged about 1.5% above the CPI. During that period, however, there have been substantially greater margins in either direction. Using this crude comparison as a guide provides a certain idea of the additional risk to be borne by the investment management to increase yields to required levels. The final step of the present invention method is to derive present amount needed for investment to meet future expected costs of higher education, i.e., to determine what amount is necessary today to meet the expected future costs of education. This determination depends upon several related factors, including but not limit to, the assumed future costs, and the expected yield rate associated with the initial invested funds. As an example, TABLE VII shows the present value of four years of future educational costs, assuming annual cost increases of 5%, 6%, and 8%. The future costs have been discounted to the present value assuming a yield rate 2% higher than the assumed growth rate. Specific examples of funds needed for children at different present ages are shown in TABLE VII-A and TABLE VII-B. These calculations do not reflect any assumptions relative to deaths prior to the payment periods. The present invention method also looked at present values assuming a death benefit equal to the initial "premium" with 4% annual interest paid if death occurs prior to age 18. It is determined that a benefit of this magnitude has very little impact on the present values, which indicates paying out funds earlier than anticipated is offset by the reduced "interest" allocated to those payments. Ultimately, any anticipated death benefit and potential "surrender" benefit must be specifically defined in order to reflect its impact on the pricing.
TABLE VI
Comparison of Historic CPI Rate and One-Year Treasury Bills
(Secondary Market)
Year Treasury Rate CPI Rate Difference
1960 4.95% 1.70% 3.25%
1961 2.63% 1.00% 1.63%
1962 3.19% 1.00% 2.19%
1963 3.00% 1.30% 1.70%
1964 3.68% 1.30% 2.38%
1965 3.91% 1.60% 2.31%
1966 4.69% 2.90% 1.79%
1967 4.61% 3.10% 1.51%
1968 5.30% 4.20% 1.10%
1969 6.07% 5.50% 0.57%
1970 7.51% 5.70% 1.81%
1971 4.40% 4.40% 0.00%
1972 3.82% 3.20% 0.62%
1973 5.58% 6.20% -0.62%
1974 7.01% 11.00% -3.99%
1975 6.27% 9.10% -2.83%
1976 5.44% 5.80% -0.36%
1977 5.00% 6.50% -1.50%
1978 6.80% 7.60% -0.80%
1979 9.54% 11.30% -1.76%
1980 10.96% 13.50% -2.54%
1981 12.62% 10.30% 2.32%
1982 12.77% 6.20% 6.57%
1983 8.01% 3.20% 4.81%
1984 9.07% 4.30% 4.77%
1985 8.33% 3.60% 4.73%
1986 7.21% 1.90% 5.31%
1987 5.46% 3.60% 1.86%
1988 6.52% 4.10% 2.42%
1989 8.37% 4.80% 3.57%
1990 7.38% 5.40% 1.98%
1991 6.25% 4.20% 2.05%
1992 3.95% 3.00% 0.95%
1993 3.35% 3.00% 0.35%
1994 3.39% 2.60% 0.79%
1995 6.59% 2.80% 3.79%
1996 4.82% 2.90% 1.92%
1997 5.30% 2.405 2.90%
1998 4.98% 1.60% 3.38%
1999 4.31%
It is noted that the objective of the present invention method is not to predict specifically future educational costs or investment returns. Rather, it is to look at possible future costs and returns, in relationship to historical experience and current costs. Following the steps outlined above, the calculations of the present invention method provide a base for understanding the potential magnitude of future educational expenses and potential funding requirements. The present invention method may also include additional analysis for generating more specific pricing levels which reflect expenses, death and surrender payments, and investment returns and costs in other particular situations. Referring to FIG. 2, there is shown a schematic block diagram showing a preferred embodiment of the present invention system for financing expected future educational expenses, providing on-line assistance for educational funding and counseling by utilizing a computer network such as the Internet. The preferred embodiment of the present invention system 10 as shown in FIG. 2 includes a computer 20 used by the administrator of the present invention system, a local or a remote file server 30 for establishing and maintaining a web site 40 on the Internet 50. If it is local server, than it may be the same administrator computer 20. The web site is accessible by consumers through their computers 60 connected to the Internet 50, and linked to other important web sites, including web sites 70 of the universities and colleges, web sites 80 of the financial institutions, web sites 90 of insurance companies, web sites 100 of other educational related products or services, and web site 110 of other general products or services providers. The web site 40 may be used for introducing and providing the educational funding and counseling services of the present invention method. Referring to FIGS. 2 and 3 together, an interested customer may be enrolled on-line by filling out an application and related contract. The administrator of the present invention system may conduct on-line administration of the customers' on-line activities, conduct calculations of the present value of future educational costs based on the information and selection provided by the customer. The calculations are performed by a computer, which may be the file server or the administrator's computer, and which typically includes a central processing unit (CPU), a memory device such as read-only memory (ROM) and/or random access memory (RAM) memory devices, a mass data storage device such as a hard disc drive, and input/output (I/O) devices, which are all operatively connected and adapted to receive inputs and perform calculations based on the programs contained in the memory device and executed by the CPU and database information stored in the data storage device. The result of the calculation may be delivered back to the customer via the Internet 50. After enrollment and receiving the result of the calculation, the customer may make payment to a financial institution via direct link to the financial institution's web site 80, which link may be provided by the present invention web site 40. When a child in the customer family is ready to attend college or university of his or her choice, the child or his or her guardian instructs the financial institution as to which educational institution the child has selected and then the financial institution will make direct payment to the educational institution. If the child dies before reaching college age or the child decides not to attend college for whatever reason, the family may choose to surrender the contract or policy and receive a lump sum payment. If the child chooses a less expensive college than the benchmark, the child can have the excess money in account for future higher education or take a payout of the difference between the benchmark and the actual payment to the college. However, during the years in between, on-line counseling is provided continuously. In order to guarantee the future payment of the educational funds, appropriate insurance policies are purchased, covering the short falls of the investment total payout as defined by the total payout benchmark. The premiums of the insurance policies are invested to provide "cushion money" that "re-insures" the guarantee to the customer family by covering the short falls of the original investment total payout. Of course as shown in FIG. 3, the enrollment of the present invention service may be conducted off-line. Defined in detail, the present invention is a method of financing expected future educational expenses, comprising the steps of: (a) determining current educational expenses; (b) reviewing past changes in educational expenses; (c) calculating future educational expenses based on current educational expenses, past changes in educational expenses, and assumptions on annual increase rates of educational expenses; (d) establishing a target for future total investment payout for total future educational expenses based on calculated future educational expenses, and assumptions on expected investment yields; and (e) deriving present investment amount needed to provide future educational expenses. Defined broadly, the present invention is a method of financing expected future educational expenses, comprising the steps of: (a) calculating future educational expenses based on current educational expenses, past changes in educational expenses, and assumptions on annual increase rates of educational expenses; (b) establishing a target for future total investment payout for total future educational expenses based on calculated future educational expenses, and assumptions on expected investment yields; (c) deriving present investment amount needed to provide future educational expenses; (d) collecting payment of the present investment amount; and (e) investing the payment to provide funds for payment of the future educational expenses. Defined more broadly, the present invention is a method of financing expected future educational expenses, comprising the steps of: (a) collecting information from a customer regarding a child's present age and desired educational institution; (b) calculating present investment amount needed to provide future educational expenses, based on total future educational expenses and future total investment payout; and (c) delivering results of calculation to the customer. Alternatively defined, the present invention is an apparatus for financing expected future educational expenses, comprising: (a) an educational financial and counseling service web site established on the Internet for collecting information from a customer regarding a child's present age and desired educational institution; (b) means for calculating present investment amount needed to provide future educational expenses, based on total future educational expenses and future total investment payout; and (c) means for delivering results of the calculation to the customer. Of course the present invention is not intended to be restricted to any particular form or arrangement, or any specific embodiment, or any specific use, disclosed herein, since the same may be modified in various particulars or relations without departing from the spirit or scope of the claimed invention hereinabove shown and described of which the apparatus or method shown is intended only for illustration and disclosure of an operative embodiment and not to show all of the various forms or modifications in which this invention might be embodied or operated. The present invention has been described in considerable detail in order to comply with the patent laws by providing full public disclosure of at least one of its forms. However, such detailed description is not intended in any way to limit the broad features or principles of the present invention, or the scope of the patent to be granted. Therefore, the invention is to be limited only by the scope of the appended claims.
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