Post by David A. Emery, CFP®, CDFA®
We talk a lot about the importance of having a financial plan in place for life’s unexpected moments. But a financial plan is just as important for those very expected moments of life: like the college bill that will hit when the kids grow up.
Having a plan, in this case, needs to involve much more than the familiar college savings plan. Your financial advisor should be working with you to answer big picture questions, like:
Do you know the financial stability of the institution your child is applying to?
A college is a business just like any other. And any business can run into hard times.
When this happens with a college, major internal changes take place. If a college is private, these changes can be happening outside the public eye. They may switch up the administration in a bid to increase profitability. They may hire adjuncts in place of tenured professors in order to cut costs.
As with any other business, life-saving measures can affect the quality of that institution’s education.
And then there’s the even greater danger that comes when a business fails. When a college closes in the midst of a four-year degree, your student may not only lose the course credits already paid for, but the student loans they’ve taken out to cover the cost of that four-year degree will also get dispersed.
What opportunities are there for aid or for scholarships when applying as a child from a wealthy family?
Our first advice for you? Always fill out the FAFSA. Even if you think you can’t qualify for aid, you never know what life holds around the corner. The example that always comes to mind for us is a client who applied for aid on behalf of their child, fully expecting not to receive it, when one of those unexpected life events we talk about so often hit. Hurricane Katrina caused unexpected losses, but planning ahead by applying for the FAFSA meant their child still had the means to afford college when the time came for it.
Secondly, look at the college itself. A very selective college is also very unlikely to give merit scholarships. Because they have a high number of applicants along with a low acceptance rate (i.e. the demand is greater than the supply) they won’t give away money because they don’t have to, except in the case of needs-based scholarships.
A less selective college, on the other hand, needs to attract prospective students that will perform well in order to increase that college’s overall ranking. Merit scholarships are much more likely to be offered.
Finally, and most importantly, if you want aid you must be willing to fight for it.
If you visit campus with your prospective student, be sure to let admissions know you’re there. The more time your child spends at the college they want to apply to, the better, as it demonstrates that student’s interest in choosing that college once accepted.
Among other factors, colleges are ranked by yield – which is the number of students who actually attend the school divided by the total number of students admitted. The higher the yield number, the more competitive the school appears, and the higher its overall rank will be. Enticing your very interested student to apply and accept is thereby a win-win situation for the college.
Every college website has a net price calculator. Look for it and use it. Then, save the number it gives you for the expected family contribution. If the actual aid you receive down the road is lower than what this calculator gives you, it’s time to visit the financial aid office. Sometimes, a little push back can gain surprising results.
How can choices beyond just the college itself – such as your child’s intended major – affect their potential earning outcomes down the road?
Of course, the cost of college is only worth it when there are returns on that investment down the road. Georgetown University recently released a database that ranks 4,500 colleges by their estimated ROI.
Even more important than the college itself may be the major your child chooses. Check out a recent report by nonprofit Foundation for Research on Equal Opportunity. It looks in-depth at how factors like completion rates and programs studied can affect graduates’ earnings later in life.
Preston Cooper, “Is College Worth It? A Comprehensive Return on Investment Analysis”, Foundation for Research on Equal Opportunity, October 19, 2021
“Ranking 4,500 Colleges by ROI (2022)”, Georgetown University, McCourt School of Public Policy, Center on Education and the Workforce, 2022
Planning Capital Management Corp is a Registered Investment Advisor with the SEC, and we are held to a fiduciary standard with all of our clients. We offer full financial planning in conjunction with investment advice and portfolio management. Should you have any questions or concerns about current market conditions, or just general financial planning questions, schedule a call with us!