Roadmap to College Planning for Advisors

In today’s changing world of finances, advisors are expected to change with it.

Clients are seeking out financial planners who can provide financial guidance in all aspects of their life. And oftentimes, this will include planning for college.

Higher education is a classic economic problem of human capital and consumption timing. The problem can be solved using the financial planning process and is unique for every family. This post will provide you with an overview of college planning strategies and savings plans that need to be considered when making a financial plan for college funding.

1. Who Will Pay for College?

Before any decisions are made, the client needs to decide whether they will help pay for college or if paying for college should be on the student. This is a key part in the planning process because it all comes down to communication and many times no one is on the same page.

In this video, professor Benjamin Cummings sat down with Ross Riskin, CPA/PFS, CCFC, gave an in depth overview on the advisor’s role in college planning. Riskin recommends using a matrix where you’re looking at two primary factors: retirement savings and the student’s level of motivation. He explains, “If retirement savings are sufficient then I want to look at the motivation of the student, so that’s a combination of looking at grades and career interests.” When a student is highly motivated and fosters aspirations to go onto higher learning – then caregivers can look at educational costs as an investment in their children. On the other side of the equation, when students aren’t motivated or have little desire to be in school, the cost should bear more on the student.

The role of financial advisor is crucial in this decision making process. Advisors need to know which page every person is on, ensure that everybody is talking to one another, and continue to become more knowledgeable in the area since financial aid is constantly changing.

2. College Planning Strategies 

After the client has decided who will pay for college, the role of the advisor is to provide the family with a strategy on how to ultimately pay for college.

There are three strategies that clients need to integrate into one plan:

• Tax planning: When working with high income clients, the focus should be on tax planning strategies. The American Opportunity Credit and Lifetime Learning Credit allow students the opportunity to receive credits for education expenses paid. If students are dependents, parents can take these deductions on their tax return.
• Cash flow: Cash flow planning is important for everyone. If the family has used a savings vehicle, notate which kind, and see if it makes sense to tap into that fund cash flow for loan payments.
• Financial aid: View the client’s financial situation to see if the family is in a position to qualify for financial aid. It’s important for clients to take advantage of the U.S. Department of Education's Free Application for Federal Student Aid (FAFSA) to receive financial aid or grant money.
  
  Determining where the family stands on the above strategies is important in order to provide clients’ with a plan that works for everyone and is attainable. 

Consider a Client's Options

After determining that the client plans to help the student pay for college, the advisor can assist with considering clients’ options. Read below to learn more about 529 plans and Roth IRAs.

529 plans as a college savings vehicle 

A 529 plan is a tax-advantaged savings plan designed for saving for future costs of college. 529 plans are aligned with families with college-bound children.
There are two types of 529 savings plans:

• Prepaid tuition plans – Prepaid plans allow families to purchase units or credits at participating colleges and universities for future tuition at current prices for the impending student. It is important to read the fine print on prepaid tuition plans. Prepaid plans are not guaranteed by the government, so it is necessary to check with the state to ensure the money paid is guaranteed.
• College savings plans – College savings plans let families open an investment account to save for the beneficiary’s future higher education expenses, such as tuition, mandatory fees, and room and board. College savings plans are a better fit for most people, due to more flexibility and options.

Roth IRAs are known as tax deferred retirement accounts, but they can actually be used for both college expenses and retirement income. Both parents and working students are able to contribute, and there are no restrictions on income. 

Roth IRAs offer a lot of flexibility compared to the 529 plan, since the money earned does not have to be used for qualified education expenses. If a student is on the fence about attending college, investing in a Roth IRA is a safer bet. Working students are also able to contribute to the Roth IRA along with the parent. 

Provide Solutions

Higher education has become a larger financial burden over the past two decades.

Taking an active role in the financial planning behind college saving for a family deepens the advisor-client relationship. Saving for college can be a huge burden on families – providing the latest financial knowledge and coaching gives clients the peace of mind that they are seeking in an advisor.

When financial advisors earn the Chartered Financial Consultant^® (ChFC^®) designation, they gain the skills to develop comprehensive financial plans and provide higher value to clients and their families. The ChFC^® curriculum provides financial advisors with the knowledge they need to calculate the college-funding requirements that must be met in the event of either a client's survival or death, recommend appropriate investment alternatives for meeting the former and appropriate life insurance products for meeting the latter, and be able to explain important aspects of financial aid.

Discover how obtaining a ChFC^® deepens advisor-client relationships and increases career opportunities for ambitious advisors by reading the guide, How the ChFC^® is a Game Changer in Advancing Your Financial Planning Career, for insights on retaining a loyal customer base, acquiring new high-net-worth clients, increasing earnings, and strengthening your reputation as a financial expert.