Part II: The Changing College Planning Paradigm: Implications and Opportunities for Financial Advisors

Previously, we looked at three brutal truths about college costs and their impact on families as well as the inherent implications and opportunities for financial advisors. To review:

• Truth # 1 - College costs are absurdly high and the projections aren’t encouraging
• Truth #2 – The impact on families is seen in the gigantic amount of student loan debt incurred
• Truth #3 - Upper-middle-income families are the ones suffering the most

To many parents, helping to pay for their children’s college education is a deeply held emotional need, which means that when the time comes and it’s a question of saving for retirement or helping pay college costs, the more emotional and urgent need of college funding supersedes retirement savings decisions.

Because many parents now have the seeming impossible double burden of paying for college while saving for retirement, they expect (rightly so!) more than just college savings strategies from their advisor. They want their advisor to help them identify ways to reduce their out-of-pocket college costs – without crippling their retirement savings outlook.

Advisors today who have the specialized capability to provide college savings strategies/plans AND college cost reduction strategies have a tremendous opportunity to differentiate themselves from other advisors, deepen the client relationship, generate more revenue and identify other opportunities with the client.

Beyond these, many advisors have a personal stake in helping clients avoid transferring tens and possibly hundreds of thousands of dollars of assets under management to cover college costs.

In order to further expand the financial solutions and services offered and to better meet the needs of clients with college-bound children (as well as capitalize on the aforementioned advisor opportunities), there are a number of areas where a knowledgeable advisor can offer significantly more value to families with college-bound children. Here are four of the most valuable and practical areas where your knowledge will go a long way to delivering more value to your clients with college-bound children: 

1. Expected Family Contribution (EFC) analysis – The EFC is the basic starting point to being able to offer value-added college planning services to a family. The EFC is what the family will be expected to pay toward the cost of college at a particular school before qualifying for any need-based financial aid from the school. As it relates to need-based financial aid, families fall into one of three categories: they will qualify, they won’t qualify, or they could qualify (see item #2 below). Depending on a number of factors (cost of the school, number of children in college at the same time, etc.), families making in excess of $250,000/year may qualify for need-based financial aid. Because need-based financial aid can significantly reduce the out-of-pocket college costs for middle and upper-middle-income families, at a minimum you should be able to estimate your clients' EFC and help ensure that they can at least cover that amount.
2. Strategies for increasing financial aid eligibility – If you and your clients don’t know how financial need is determined and if you don’t know the difference between “included income and assets” and “non-reportable income and assets” for purposes of filling out financial aid forms – you should know - because where they keep their money matters. If they don’t know how to plan for financial aid, they could end up losing thousands in financial aid – and you could end up losing thousands in assets under management!
3. Funding strategies for covering the gap - Most families will either need loans to help cover the total cost of college or should at least consider them for a variety of reasons. Knowing which options to choose - based on circumstances - can be complicated and confusing. Choosing the wrong option can cost families thousands of additional dollars on out-of-pocket college costs! The knowledgeable advisor should have a basic understanding of the federal loan programs as well as the pros/cons of each so as to be able to offer some guidance to the client for choosing the best option for their circumstances.
4. Planning for business owners – Most advisors consider business owners to be highly desirable clients. There are many college planning strategies specific to business owners that can help them reduce their college costs significantly either through financial aid-enhancing strategies or strategies that are unique to business owners that can help increase cash flow or tax savings. What makes business owners the best candidates for college planning help is their unique ability to control their circumstances, including income, which is the primary driver of the EFC, versus W2 employees. IRS 970, Tax Benefits for Education, is a good resource for learning some of the tax-planning options available to families in general and business owners in particular, like the Employer Provided Educational Assistance that may offer significant tax and college cost savings benefits to small, closely-held businesses.

About the Author

Roger Lorelle is President of Collegiate Funding Solutions (CFS), an XYPN discount partner. CFS equips XYPN members to help clients save ON, and not just for, college costs. CFS’ college-planning software, support, education and marketing material enable fee-only advisors to deliver the college-planning value Gen X parents need today and grow their business and revenue in the process.