Throughout my years of experience in financial services and a substantial number of those focusing on college planning, I have come across many pieces of sound advice. You’ve probably heard some of them as well, such as the importance of saving early and often, avoiding too much debt, and not using your retirement accounts to fund college.
The other day someone asked me, “If you could teach just one college planning lesson to families, what would it be?” While you would do well to follow any of the lessons listed above, today I want to focus on one piece of advice that will impact your whole college planning experience. It stems from the idea that we don’t know what we don’t know, so we would do well to seek professional advice.
Fumbling In The Dark
College planning is complicated, and many people don’t realize this until they are already deep in the process. When I help people with their college planning, I’ve heard many of them say, “Before we met I didn’t think you could help me, but I thought it was worth a free discussion. Boy, am I glad we followed through!”
College planning isn’t as simple as picking a school and paying the tuition bill. There are countless areas where advice from someone who specializes in both financial planning AND college planning can help. In many cases, people are surprised at where savings could come from and the number of strategies that could improve the end result. Here are just a few:
Superior EFC Numbers
Knowing your expected family contribution (EFC) years before you actually have to complete the Free Application for Federal Student Aid (FAFSA) can benefit you tremendously. Rather than just accepting your EFC number once it’s calculated, you can plan and strategize to improve it and make it as efficient as possible before the time. Taking actions like positioning assets correctly, planning income flow, planning when grandparents or others help with college payments, whose name the assets are in, and having two kids in college at the same time can dramatically alter your EFC.
In addition, there are two EFC calculations to keep in mind: federal methodology (FM) and institutional methodology (IM). FM determines eligibility for need-based aid from most colleges and universities as well as federal and state governments. But IM is based on certain college’s own financial aid forms. That means that college choice also plays a significant role in your final EFC number. A professional can make sure that you maximize your chances for financial aid by covering all the bases.
Strengths Assessments And Career Choices
Approximately 70% of students currently attending college will spend more than 4 years attaining their bachelor’s degree. (1) Those extra years can create a huge hole in the financial bucket. Proper preparation and understanding of the student’s natural gifting and fit for career choices could lower that statistic dramatically and save parents tens of thousands of dollars.
Personalized School Choice
Where you choose to attend college will impact multiple steps in your college planning process. Each college uses different methodology for determining financial aid, has diverse amounts and types of financial aid available, and can have confusing price information. When deciding what college your child will attend, you should determine your reason for choosing the specific school, research their four-year graduation rate, figure out the fit for the student and the fit for your financial plan, and look at the long-term consequences for the college plans of your other children.
Setting Financial Expectations
Where should the money come from? Savings? Loans? Home equity? Retirement accounts? Scholarships? How much should the student contribute versus how much the parents are willing to pay? There can often be many expectations on the part of the student and the parents. Getting it all down on paper can ease some of the financial burden and prevent bucketloads of stress when it comes time to send your child off to college.
Having a clear college plan can give you clarity on whether your child should even apply to higher-priced schools and where to get the money to cover costs.
Preventing Financial Loss
Did you know that certain college planning decisions could cost you a good chunk of money? For example, if a grandparent starts a 529 account for their grandchild, that money will count as untaxed income for the student as soon as they take it out as a distribution. That amount could be assessed up to 50% in the financial aid formulas. If you take out a PLUS loan, you could drastically affect your future retirement income. Stafford loans are often offered at a much lower interest rate than private student loans, so not taking a Stafford loan could cost you thousands in interest through the years. All of these examples and more show that without proper planning, you could put your finances at risk. If you don’t have anyone guiding you through the college planning maze, you won’t know if your decisions have long-term consequences that could have been avoided.
Prepared Negotiation
Even though most colleges say they don’t negotiate, I have had many experiences where our clients have saved thousands with the correct planning. This planning has to be done early on, while the list of schools is being compiled. If you plan with the end in mind, you may find yourself adding schools to the list because they just make sense for your situation.
Join Forces With A Professional
In many areas of life, we don’t realize that we don’t know what we don’t know until someone with experience shows us the way. At College Planning America, we want to see you succeed and experience a positive college planning process. If you want to see how we can help, contact us for a complimentary, no-obligation meeting today! Get started by emailing me at dcoen@sageviewadvisory.com or calling 800-814-8742.
About Dave
Dave Coen is a Financial Advisor with SageView Advisory and the CEO of College Planning America. Along with his Retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide them comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.
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