How planners say parents should prepare kids for the cost of college

Many Americans start talking about college with their children too late or put the important discussion in a back seat to other priorities, according to one financial advisor.

"People tend to do more research and investigation into their automobile purchases than they do for their children's college education," advisor Larry Sprung of Hauppauge, New York-based Mitlin Financial wrote in his new book, "Financial Planning Made Personal." In Sprung's opinion, that disconnect is acting as "one of the contributing factors to the crisis we are seeing in the United States related to college debt."

In light of the $1.6 trillion in student loan debt held by roughly 45 million Americans, Financial Planning asked Sprung and five other planners for their best tips guiding families' choices in higher education for their kids. They recommended that parents begin the conversation when a child reaches middle school or the first year of high school with a frank explanation of the cost of college, the potential return on the investment and tools such as 529 savings plans, financial aid and independent college counselors. Most students pay less than the listed price tag for tuition. The location and an array of other factors will determine the ultimate total cost of college.  

"We don't necessarily want to make a decision for the client," said Fahmin Fardous, an associate planner with Philadelphia-based Zenith Wealth Partners. "We want to provide them with the right tools to be able to make that informed decision."

Fardous and Michelle Cortés-Harkins and Rick Harkins of Providence, Rhode Island-based Harkins Wealth Management agreed that the late pre-teen and early teenage years around middle school are a good time to enter the exploration of a child's higher-education options. By high school, the families should be comparing expenses such as tuition, books, rooms, food and the pros and cons of in-state versus out-of-state colleges or alternatives like community college or trade schools.

"The role of an advisor is to help the family make decisions as to affordability of college as it fits into their larger financial plans, options for saving for college and the different vehicles that can be used, and to help them draw down funds in an efficient manner," the Harkins said in an email. "Whether their child(ren) attends college really depends on these factors. We highly discourage families from sacrificing their own secure retirement in exchange for their children's education. An advisor is also very valuable in helping look at different college options and helping the family decide the 'where.'"

College recruiting

105 schools for financial planning

November 1, 2019 3:30 PM

High costs and billions in assets
The statistics about paying for college highlight why clients' financial decisions on the hefty outlay loom so large. Average in-state tuition and fees at public colleges rose 10% between 2011 and 2021 to $9,400 annually, while the yearly expenses at private nonprofit institutions jumped 19% to $37,600, according to the Department of Education's National Center for Education Statistics. More than two-thirds of bachelor degree recipients took out federal loans to pay for their college, with an average amount borrowed of $30,800.   

Americans aren't entirely ignoring the cost of higher education. Tax-advantaged 529 plans have soared by 59% from 2009 to the end of 2022 to 16 million accounts with assets of $411 billion, according to the College Savings Plan Network, an information service that's part of the National Association of State Treasurers.

Discussions of the "complex topic" of paying for college give advisors the opportunity for deeper relationships with clients informed by an understanding of what aspects could seem overwhelming to parents and their children, said Julie Littlechild, the CEO of client and prospect relationship firm Absolute Engagement.

"This is really the process of scratching below the surface," Littlechild said. "It does bring couples together, and it really is one that I think can get them both actively involved and engaged. And I think that's a pretty cool thing."

Wealth management

How to prepare to pay for college — from a parent and a planner

May 18, 2023 12:05 PM

Setting expectations
Parents ideally will have been talking with their kids from a young age about money and basic concepts like cash flow, compounding interest, different forms of capital and tracking their purchases over time, said advisor Kelly Klingaman of Austin, Texas-based Kelly Klingaman Financial Planning. Students should aim not to take on more debt than they expect to earn their first year after graduation, and parents ought to be clear with their kids about how much they may have to pay for higher education, she said. Medical school and law school are among the exceptions to the general rule, given the higher income a few years later in those professions.

"You don't need to go to some really fancy private school to get a good education," Klingaman said. "It prepares them better once they get closer to applying and they can be realistic with their choices. … We don't want you to be riddled with this terrible debt that a lot of kids end up having."

The stories of families that Sprung has worked with offer cautionary tales about the impact to parents' wealth from a lack of early conversations with their kids. One spouse lost his job just before a couple's son started classes at an out-of-state school, Sprung recalled in the book. They had anticipated their son would opt for an in-state institution that would demand a lower tuition, but he wanted to go out of state. 

"The family was racking up debt and facing hardship — yet they never had a conversation about the situation," Sprung wrote.

In some cases, the more costly schools may provide a better return on the investment, especially if scholarships or other financial aid reduce the price disparity and there is a specific degree program leading directly to some form of employment, according to Sprung. Parents should remember that they're trying to "grow good, viable humans who can live on their own" more so than simply being there "to be our kids' friends," he said.

"Unfortunately, a lot of times it gets overlooked because parents don't want to disappoint their kids," Sprung said. "If you start with that, 'Oh well, I can't let them down, they've got to go to this school,' what happens when they're looking at a house? It starts off this snowball effect that really starts people off on the wrong foot."

New fraternity for aspiring planners seeks to build paths into field

May 15, 2023 3:22 PM

Other factors in the equation
Advisor Rupa Pereira of suburban Raleigh, North Carolina-based FWJ Planning works with many immigrant clients who make higher education a top priority, she said in an email. Some families may lose sight of the fact that many college students don't graduate within four years due to transferring between different schools or changing their majors.

"The question is not just getting into college but getting through and graduating, given the high cost of capital," Pereira said. 

"Weighing all the factors is important when choosing the right college — major, cost of living, available grants and scholarship and career prospects," she continued. "If the child is not sure of their major, then community college is an affordable way to explore various options before signing up for a student loan, especially in a period of high interest rates. Choosing the right college is a major financial decision for the family, not just for the kid — since it could make a difference between securing a financial foothold or loan indebtedness for years to come."

Some schools provide relief from skyrocketing costs by participating in reciprocity agreements or regional exchanges that allow students from neighboring states to attend at an in-state tuition price, Fardous noted. For more distant schools, parents should include the price of their child traveling home for visits in their consideration of the cost. Various online student loan calculators can assist families in figuring out debt levels into the future. 

In terms of deciding between public and private institutions, the "generous financial aid packages'' offered by some non-public schools could end up making them the cheaper option, she noted.

"Don't just shy away from applying to private schools," Fardous said. "Apply everywhere so you can have your options open."

Most 529 plans "work extremely well" in terms of saving for college expenses, but parents should stay away from so-called custodial accounts that are required to hand over control of the assets in them to kids when they turn 18 years old, according to Sprung. The custodial assets may turn into a big problem "if they decide to buy a car with it," he said. An independent college counselor can also help parents and kids sort out their range of choices and criteria.

"Overall, it should be a fun time for the family, it should be an exciting time," Sprung said. "If you've done the right planning all along, it shouldn't be a stressful time. It should be something you've planned and saved for."

An advisor's job around the college discussion among their clients' households revolves around "creating space to have that conversation with my clients and their kids," Klingaman said.

"Being proactive means that we're setting everyone up for success and avoiding tough, emotionally charged conversations later," she said. "College is one of the biggest financial burdens that anyone will pay for or help pay for. It's up to us as advisors to aid our clients as much as we can."