People preparing to pay for a college education could save a great deal of money by discussing their plans with a financial advisor.
Paying for a college education is expensive in the United States, but most people know that there are loans and scholarships available that will help ease the burden.
Another resource that may not be as well-known is the advice of a financial provider, who can analyze the particulars of a financial situation to present the best option for funding the college experience.
Investment News looks at all the ways a financial provider or advisor can assist an investor who is trying to determine how best to pay for the college education of a child or grandchild.
For 2015, the College Board issued the average costs of education for fees, room and board at different types of colleges. For in-state public schools, the average cost is $19,000 while out-of-state costs are $33,000. The average cost for attending a private school is $42,000, and it can reach more than $60,000 at the most elite colleges.
“Even wealthy people are struggling to save enough money to send kids to college,’’ said National Association of Student Financial Aid Administrators managing director Megan McClean to Investment News. “Folks from all different levels of the income spectrum are needing to borrow to pay for college.”
Spectrem’s wealth segmentation series study Financial Behaviors and the Investor’s Mindset bear that out. Even among investors with a net worth between $5 million and $25 million, 14 percent admit concern over paying for their children’s college education, and 31 percent have concern over paying for the education of their grandchildren.
There are two ways financial advisors can help when it comes to paying for college.
Any person seeking federal aid to pay for college must fill out the free application for Federal Student Aid, known as FAFSA. This is an online application that asks questions about the financial status and savings position of the person requesting financial aid.
The FAFSA is completed by both the student and any co-borrower involved, whether it a parent, a set of parents, grandparents or others.
All an applicant needs is the most recently filed tax return to fill out the FAFSA. However, a financial advisor can assist the applicant by moving assets in advance of the tax return in order to present the best possible picture to the federal loan officers in order to receive the most financial aid.
What advisors most often look for is an applicant’s “expected family contribution”, or EFC, which is the figure the government creates based on the FAFSA. To lower a client’s EFC, and thus make them more likely to get a higher loan amount, advisors can shift assets from those accounts that lower aid awards (checking and savings accounts, trust funds, stock options, and properties) into vehicles that do not count against the applicant (retirement funds, home equity, life insurance cash values and small businesses).
It also helps for the student to have assets, so that transferring funds to a child’s savings accounts or other vehicles in their name will often produce a higher loan amount. Advisors can assist in determining where to pull funds from a parent’s account and which accounts to place them in the name of the child.
Which brings us to the second way advisors can assist with the college loan application process. There are tax implications to every financial move, and advisors can provide information on how to lower the tax
Besides shifting cash to a student in order to make them more attractive to loan officers, there are ways to lower the tax burden if one is required to pay for college without the benefit of loans.
The most significant advice relates to the American Opportunity Tax Credit, which provides exemptions, deductions and the credit itself when accounts levels meet acceptable standards.
Paying for college is a high-cost endeavor, but for many Americans, it is manageable, and can be made more manageable when those paying for college make the correct financial decisions. Advisors can promote their skill at making the proper financial maneuvers to lessen or alleviate the financial burden related to sending someone to an institution of higher learning.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.