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Declaring a major in college is a big decision, but the choices don’t stop there. Once students know their area of study, then comes the selection of courses. And, generally, you can’t just sign up for classes willy-nilly. Students typically need to start at one point before they can progress to another. This is where upper and lower division courses come into play.

Like levels in a video game, students have to start with beginner lessons before they can take on advanced challenges. Here’s a closer look at what lower division and upper division courses are and how they differ.

Types of Courses Students Can Take

When signing up for their first semester of classes, college students might notice that there are many more offerings than they had in high school.

In addition, core classes are different, and requirements will vary based on a student’s course of study.

While a college student can take everything from astronomy to architecture, here’s how courses are typically designated:

•   Lower division
•   Upper division
•   Major courses
•   Minor courses
•   General education courses

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Degree Requirements

Every college major will have different courses, electives, and requirements that are necessary for graduating.

In addition to core requirements, students might need to take general education courses. These courses are required for all students, no matter their area of study. (Some will “CLEP out of” some or all gen ed courses. The College-Level Examination Program® offers 34 exams that cover intro-level college course material. Others might pass AP or International Baccalaureate exams to get college credit.)

Students won’t get to graduate just by taking classes for four years. They’ll need to meet the requirements of the major (and minor, if applicable) they’ve selected.

Each course has a number of credits, and students usually will need to accumulate a number of credits to qualify for their degree.

Degree requirements will vary based on what a student studies, but each will come with a mix of lower division and upper division courses to round out the educational experience.

Recommended: 5 Ways to Start Preparing For College

What Is a Lower Division Course?

Lower division courses are the building blocks of an undergraduate’s major. College beginners might have restrictions in the courses they can enroll in.

Unless they bring in AP, IB, or college credits, they’ll need to take (and pass) lower division courses in their major before being able to sign up for upper division courses.

In general, here’s what student can expect in lower division classes :

•   Introductory material Typically, lower division courses teach the building blocks of concepts that students will use more down the line. For example, a biology major might start the course requirements with a lower division Introduction to Biology lecture before moving on to more challenging material.
•   Younger students Generally, students will find more freshmen and sophomores in their lower division courses.
•   A larger class Depending on the size of the school, lower division classes are often larger because they may cover a broad swath of material that applies to multiple majors and areas of study. A lower division class might even have more than one section a semester because so many students need to take it. In these larger lectures, participation might be limited, and attendance might not even count toward a grade.
•   A stricter structure Students might find that lower division courses vary by the book (or syllabus). Each class, a professor covers exactly what was detailed in the syllabus — nothing more, nothing less. Similarly, test questions might come straight out of lecture notes or assigned readings. Often this is done to ensure that students know the basics by heart before moving on to more challenging courses in their major.
•   Evaluation by test Due in part to their larger class sizes and structure, students can often expect multiple-choice tests in lower division courses.

Of course, every college’s policies on classes are different, but for the most part, students can expect to take lower division courses as they begin their academic career.

Lower division courses may be required by a major or minor, or they might be a general education course all students are asked to take.

Recommended: Community College vs College: Pros and Cons

What Is an Upper Division Course?

If lower division courses are the foundation an education is built on, upper division courses are the structure on top.

Lower division courses sometimes count as prerequisites for upper division classes. That means an undergraduate must take, and pass, a lower division class before enrolling in an upper division course.

Here’s what a student might experience in an upper division course:

•   In-depth curriculum Upper division classes are a deeper dive into areas of study or more complex topics. Once students master a lower division class, they’ll be challenged with harder concepts in an upper division class. Upper division classes are more likely to have words like “advanced” in the title.
•   Older students Third- and fourth-year students are more likely to be in these courses, typically because they’ve taken the prerequisites.
•   Smaller classes Whereas lower division classes may be large lectures, upper division classes start to get smaller, in part because the curriculum is more specialized. The deeper a student gets into a major, the more in-depth classes become.
•   A fluid structure Upper division courses likely have a syllabus and required reading, but the day-to-day structure of the class may be less lecture-focused. In fact, some classes are seminars where students are encouraged to contribute ideas in a discussion format, often resulting in a participation grade.
•   Varied evaluations Depending on the class focus, testing may look different than that of a lower division course. Students may be asked to write in-depth research papers or create large presentations to show their learning. If tests are in use, they might rely less on multiple-choice questions.

Since upper division courses include more complex teachings, professors might expect students to show what they’ve learned in a more complex way. That might mean essays to prove an argument, or demonstration of critical thinking skills that don’t rely purely on lecture notes or readings.

Recommended: The Ultimate Guide to Studying in College

Numbering Systems for Division Courses

A simple way to tell if a class is a lower or upper division course is using a school’s numbering system for classes.

Most college courses will have a three- to five-digit number. The number is unique to the course, and can help students know what they’re getting into before they sign up in terms of difficulty.

While numerical systems will change from college to college, they might follow these general formulas:

•   1-199 At UCLA , for example, all undergraduate courses are assigned a number between 1 and 199. Any class with a number between 1 and 99 is a lower division course, and any class with a number between 100 and 199 is an upper division class.
•   100-499 Other schools, like the University of Arizona , might start the numbering higher. All lower division classes are numbered from 100 to 299. Anything 300 to 399 is an upper division course. The University of Massachusetts uses a similar system, where every 100 is a different year of school (100s are for freshmen, 200s for sophomores, etc.)

The numerical system for a college course probably won’t help students compare classes across different universities, but it can be a useful guide in plotting academic schedules within one school and major.


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Finding a Way to Pay

Figuring out how to pay for college can feel like an upper division course in and of itself. After completing the Free Application for Federal Student Aid (FAFSA), you may find that you are eligible for grants, scholarships, and subsidized or unsubsidized student loans. However, you may still fall short of all the funding you need.

That’s where private student loans can come in. These loans are available through private lenders, including banks, credit unions, and online lenders. Rates and terms will vary depending on the lender. Some students may need a cosigner to qualify for private student loans due to a lack of credit history and income.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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While applying to college, students and parents may consider a variety of factors before enrolling. Those factors could include a school’s academic programs, location, sports programs, tuition, and potential financial aid.

But there is one more thing families may want to think about: A college or university’s endowment. Not familiar with the term?

Here’s helpful information about university endowments, how they work, how they are managed, which schools have the largest ones, and how those university endowments could potentially benefit students.

What Is an Endowment?

A university endowment refers to the amount of money a college or university receives via donations from its alumni or other interested parties. This money is then invested by the academic institution to help grow its savings and to provide funding for the future.

Some schools can have endowments well into the billions made up of potentially hundreds or thousands of individual gifts.


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Types of Endowments

Not every university uses the same endowment system. Typically, a university has one of four types of endowments. Those include unrestricted endowments as well as term, quasi, and restricted endowments.

An unrestricted endowment means the university may choose to spend or distribute the donations it receives however it wishes. With a restricted endowment, the academic institution must hold the principal of the invested donation in perpetuity.

The earnings from the invested assets can be used, but only at the donor’s specifications at the time of giving. For example, if a donor gives a $25,000 donation specifically earmarked for a scholarship, any principal earnings must be used on the scholarship.

A term endowment means a university can use the principal after a period of time has passed or if a specific event occurs, while a quasi-endowment generally allows academic institutions to use both the principal as well as income at their discretion from the donation.

Recommended: Finding Free Money for College

How Does University Endowment Giving Work?

If a person wants to donate to their alma mater, or just give to the academic institution of their choice, they can do so at any time. With a standard donation, however, the donor typically does not have much, if any, control over how the funds are spent.

So, if a person does want control, they may prefer to give via endowment. Colleges and universities typically set a minimum when it comes to endowment gifts, and those minimums can be quite hefty.

For example, Michigan State University’s law program endowments begin at $50,000. Other universities set different minimum funding levels for different types of endowments.

At the University of Illinois, a person can give $25,000 for a named scholarship that provides financial support for a student or student’s tuition and fees. A donor could even provide the university with $5 million for a named deanship, which will be used for unrestricted support for the department at the discretion of the Dean.

Recommended: How to Pay for College With No Money Saved

Who Manages a University Endowment?

Every school decides how to best manage its own endowment. Some colleges and universities hire internal staff to manage their endowments while others hire outside firms and professional investors to oversee the money.

There may be an endowment manager or a committee or team that works to manage the funds. They will generally work with the university to decide its goals for the endowment, such as making as much income as quickly as possible, or going for more long term sustainable growth. Then, decisions about how and where to invest the money are made to help the endowment meet its goals.


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Which Universities Have the Largest Endowments?

According to US News and World Report, Harvard University in Massachusetts has the largest endowment at around $53 billion. Yale University in Connecticut comes in a distant second with roughly $42 billion, and Stanford University comes in third with $32.8 billion.

Princeton University in New Jersey comes in at number four with $37 billion and Massachusetts Institute of Technology in Massachusetts rounds out the top five with $27.4 billion.

University of Pennsylvania, Texas A&M University, University of Michigan—Ann Arbor, University of Notre Dame, and Washington University in St. Louis, make up the remaining top 10 with endowments ranging from $13.7 to $20.5 billion.

However, these schools can be considered major outliers on the endowment scale. In 2022, the National Association of College and University Business Officers analyzed 678 university endowments and found the average fund balance was $1.2 million.

Recommended: 11 Strategies for Paying for College and Other Expenses

How Are University Endowments Used and Why do They Matter?

University endowments can be used for a variety of financial needs including hiring new professors, building new buildings or upgrading new ones, and can even be used for fellowships or scholarships.

Many schools also use their endowments to distribute financial aid. Beyond these uses, endowments also allow colleges and universities to look ahead into the future. It helps schools plan for faculty hiring, help to stave off tuition increases, plan for new facilities, and more.

Recommended: What Is the Average Cost of College Tuition in 2023?

Taking Advantage of Endowments

While students will never have direct access to a college or university’s endowment, they could still reap the benefits of any and all donations. Those benefits could come in the form of having access to newer facilities and equipment, through research opportunities, or via learning from the highest skilled professors.

Of course, students can also take advantage of a university’s endowment by applying for specific scholarships funded by donors, or by applying for any and all available financial aid to help them pay for college.

However, sometimes, financial aid and scholarships can fail to stack up against the growing cost of tuition. And that’s where a private student loan could come in to help fill the gaps.

Private student loans are usually available via a bank or another private lender or financial institution. Different lenders will offer different terms, so students will likely want to shop around for one that fits their specific needs.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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A money purchase pension plan or MPPP is an employer-sponsored retirement plan that requires employers to contribute money on behalf of employees each year. The plan itself defines the amount the employer must contribute. Employees may also have the option to make contributions from their pay.

Money purchase pension plans have some similarities to more commonly used retirement plans such as 401(k)s, pension plans, and corporate profit sharing plans. If you have access to a MPPP plan at work, it’s important to understand how it works and where it might fit into your overall retirement strategy.

What Is a Money Purchase Pension Plan?

Money purchase pension plans are a type of defined contribution plan. That means they don’t guarantee a set benefit amount at retirement. Instead, these retirement plans allow employers and/or employees to contribute money up to annual contribution limits.

Like other retirement accounts, participants can make withdrawals when they reach their retirement age. In the meantime, the account value can increase or decrease based on investment gains or losses.

Money purchase pension plans require the employer to make predetermined fixed contributions to the plan on behalf of all eligible employees. The company must make these contributions on an annual basis as long as the plan is maintained.

Contributions to a money purchase plan grow on a tax-deferred basis. Employees do not have to make contributions to the plan, but they may be allowed to do so, depending on the plan. The IRS does allow for loans from money purchase plans but it does not permit in-service withdrawals.


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What Are the Money Purchase Pension Plan Contribution Limits?

Each money purchase plan determines what its own contribution limits are, though the amount can’t exceed maximum limits set by the IRS. For example, an employer’s plan may specify that they must contribute 5% or 10% of each employee’s pay into that employee’s MPPP plan account.

Annual money purchase plan contribution limits are similar to SEP IRA contribution limits. For 2023, the maximum contribution allowed is the lesser of:

•   25% of the employee’s compensation, OR

•   $66,000

The IRS routinely adjusts the contribution limits for money purchase pension plans and other qualified retirement accounts based on inflation. The amount of money an employee will have in their money purchase plan upon retirement depends on the amount that their employer contributed on their behalf, the amount the employee contributed, and how their investments performed during their working years. Your account balance may be one factor in determining when you can retire.

Rules for money purchase plan distributions are the same as other qualified plans, in that you can begin withdrawing money penalty-free starting at age 59 ½. If you take out money before that, you may owe an early withdrawal penalty.

Like a pension plan, money purchase pension plans must offer the option to receive distributions as a lifetime annuity. Money purchase plans can also offer other distribution options, including a lump sum. Participants do not pay taxes on their accounts until they begin making withdrawals.

The Pros and Cons of Money Purchase Pension Plans

Money purchase pension plans have some benefits, but there are also some drawbacks that participants should keep in mind.

Pros of Money Purchase Plans

Here are some of the advantages for employees and employers who have a money purchase plan.

•   Tax benefits. For employers, contributions made on behalf of their workers are tax deductible. Contributions grow tax-free for employees, allowing them to put off taxes on investment growth until they begin withdrawing the money.

•   Loan access. Employees may be able to take loans against their account balances if the plan permits it.

•   Potential for large balances. Given the relatively high contribution limits, employees may be able to accumulate account balances higher than they would with a 401(k) retirement plan, depending on their pay and the percentage their employer contributes on their behalf.

•   Reliable income in retirement. When employees retire and begin drawing down their account, the regular monthly payments through a lifetime annuity can help with budgeting and planning.

Disadvantages of Money Purchase Pension Plan

Most of the disadvantages associated with money purchase pension plans impact employers rather than employees.

•   Expensive to maintain. The administrative and overhead costs of maintaining a money purchase plan can be higher than those associated with other types of defined contribution plans.

•   Heavy financial burden. Since contributions in a money purchase plan are required (unlike the optional employer contributions to a 401(k)), a company could run into issues in years when cash flow is lower.

•   Employees may not be able to contribute. Depending on the terms of a plan, employees may not be able to make contributions to the plan. However, if the employer offers both a money purchase plan and a 401(k), employees could still defer part of their salary for retirement.

💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).

Money Purchase Pension Plan vs 401(k)

The main differences between a pension vs 401(k) have to do with their funding and the way the distributions work. In a money purchase plan, the employer provides the funding with optional employee contribution.

With a 401(k), employees fund accounts with elective salary deferrals and option employer contributions. For both types of plans, the employer may implement a vesting schedule that determines when the employee can keep all of the employer’s contributions if they leave the company. Employee contributions always vest immediately.

The total annual contribution limits (including both employer and employee contributions) for these defined contribution plans are the same, at $66,000 for 2023. But 401(k) plans allow for catch-up contributions made by employees aged 50 or older. For 2023, the total employee contribution limit is $22,500 with an extra catch-up contribution of $7,500.

Both plans may or may not allow for loans, and it’s possible to roll amounts held in a money purchase pension plan or a 401(k) over into a new qualified plan or an Individual Retirement Account (IRA) if you change jobs or retire.

Recommended: IRA vs 401(k)–What’s the Difference?

Employees may also be able to take hardship withdrawals from a 401(k) if they meet certain conditions, but the IRS does not allow hardship withdrawals from a money purchase pension plan.

Here’s a side-by-side comparison of a MPPP and a 401(k):

	MPPP Plan	401(k) Plan
Funded by	Employer contributions, with employee contributions optional	Employee salary deferrals, with employer matching contributions optional
Tax status	Contributions are tax-deductible for employers, growth is tax-deferred for employees	Contributions are tax-deductible for employers and employees, growth is tax-deferred for employees
Contribution limits (2023)	Lesser of 25% of employee’s pay or $66,000	$22,500, with catch-up contributions of $7,500 for employees 50 or older
Catch-up contributions allowed	No	Yes, for employers 50 and older
Loans permitted	Yes, if the plan allows	Yes, if the plan allows
Hardship withdrawals	No	Yes, if the plan allows
Vesting	Determined by the employer	Determined by the employer

The Takeaway

Money purchase pension plans are a valuable tool for employees to reach their retirement goals. They’re similar to 401(k)s, but there are some important differences.

Whether you save for retirement in a money purchase pension plan, a 401(k), or another type of account the most important thing is to get started. The sooner you begin saving for retirement, the more time your money will have to grow through the power of compounding returns.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Here are answers to some additional questions you may have about money pension purchase plans.

What is a pension money purchase scheme?

A money purchase pension plan or money purchase plan is a defined contribution plan that allows employers to save money on behalf of their employees. These plans are similar to profit-sharing plans ,and companies may offer them alongside a 401(k) plan as part of an employee’s retirement benefits package.

Can I cash in my money purchase pension?

You can cash in a money purchase pension at retirement in place of receiving lifetime annuity payments. Otherwise, early withdrawals from a money purchase pension plan are typically not permitted, and if you do take money early, taxes and penalties may apply.

Is final salary pension for life?

A final salary pension is a defined benefit plan. Unlike a defined contribution plan, defined benefit plans pay out a set amount of money at retirement, typically based on your earnings and number of years of service. Final salary pensions can be paid as a lump sum or as a lifetime annuity, meaning you get paid for the remainder of your life.

Photo credit: iStock/ferrantraite

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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