December 9, 2023

Many Americans start talking to their kids about college too late or are putting important discussions on the back burner over other priorities, according to a financial advisor.

“People tend to do more research and research on buying a car than they do on their kids’ college education,” said Larry Sprung, a Hauppauge, New York-based consultant. Mitlin Finance In his new book, he writes, “Personalized Financial Planning. In Sprung’s view, this disconnect is “one of the contributing factors to the crisis we’re seeing in the United States related to college debt.” “

Given $1.6 Trillion in Student Loan Debt held by approximately 45 million Americans, financial plan Ask Sprung and five other planners for their best tips for guiding a family Choosing higher education for your child. They advise parents to start a conversation when their child is in middle school or high school freshman year, with a candid explanation of the cost of college, potential return on investment, and tools such as 529 Savings Plan, financial aid and independent college counselors.most students pay below list price tuition fee. Location and a host of other factors will determine the final total cost of college.

“We don’t necessarily have to make decisions for the client,” says Philadelphia-based associate planner Fahmin Fardous. Zenith Wealth Partner“We want to give them the right tools so they can make informed decisions.”

Fardous and Michelle Cortés-Harkins and Rick Harkins from Providence, Rhode Island Huggins Wealth Management There is consensus that late adolescence and early adolescence around secondary school are a good time to explore your child’s postsecondary options. By high school, families should compare the cost of tuition, books, housing, food, etc., and the pros and cons of in-state colleges versus out-of-state colleges or alternatives such as community colleges or trade schools.

“The role of an advisor is to help families make decisions about college affordability as it fits into their larger financial plans, options for saving for college, and the different tools at their disposal, and to help them do so in an efficient manner,” Harkins said in a statement. said in an email. “Whether or not their kids (children) go to college really depends on these factors. We strongly discourage families from sacrificing their own secure retirement for their children’s education. Counselors are also very helpful in helping consider different college options and helping families make decisions Value ‘where’.”

High cost, hundreds of millions of assets
Statistics about paying for college highlight why customers’ financial decisions about big expenses matter so much.According to the Department of Education, average in-state tuition and fees at public universities rose 10 percent between 2011 and 2021, to $9,400 a year, while annual spending at private nonprofit institutions rose 19 percent, to $37,600 National Center for Education Statistics. More than two-thirds of bachelor’s degree recipients take out federal loans To pay for their college expenses, borrow an average of $30,800.

Americans haven’t completely ignored the cost of higher education. Tax-advantaged 529 plans soar From 2009 to the end of 2022, the 16 million accounts with $411 billion in assets are said to have increased by 59% to the College Savings Plan Networkan information service that is part of the National Association of State Treasurers.

Discussions on the “complex topic” of paying for college give advisors an opportunity to build deeper relationships with clients and understand what might be overwhelming for parents and their children, said Julie Littlechild, the firm’s chief executive Client and Prospect Relations Company Definitely participate.

“It’s really a process that’s easy to understand,” Littlechild said. “It really brings couples together, and I think it really keeps them engaged and engaged. I think it’s a cool thing to do.”

set expectations
Ideally, parents talk to their kids about basic concepts like money and cash flow, compound interest, different forms of capital, and track their purchases over time, says Kelly Klingaman, a consultant in Austin, Texas. Kelly Klingaman Financial PlanningThe goal for students is not to take on more debt than they can expect to earn in their first year after graduation, she said, and parents should make it clear to their children how much they might have to pay for post-secondary education. Medical and law schools are exceptions to the general rule, as these majors pay more after a few years.

“You don’t need to go to some very fancy private school to get a good education,” Klingaman said. “Once they’re close to applying, they’re better prepared and they can be more realistic about their options. … We don’t want you to be saddled with the horrendous debt that many kids end up with.”

The stories of the families Sprung has served offer cautionary tales of the financial impact of parents’ lack of early conversations with their children. Sprung recalls in the book that one spouse lost his job before the couple’s son started attending an out-of-state school. They had expected their son to choose an in-state institution that required lower tuition, but he wanted to go out-of-state.

“The family was in debt and facing hardships — but they never had a conversation about the situation,” Spron wrote.

According to Sprung, in some cases, a more costly school may offer a better return on investment, especially if scholarships or other financial aid reduce the price gap and there is a specific degree program that leads directly to some form of employment. Parents should remember that they are trying to “raise good, viable individuals who can live on their own,” not simply “be our children’s 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 off by saying, ‘Oh well, I can’t let them down, they have to go to this school,’ what happens when they look at the house? It starts a snowball effect that really starts and people go the wrong way. .”

other factors in the equation
Rupa Pereira, a consultant in suburban Raleigh, North Carolina Fujian Planning She said in an email that she works with many immigrant clients who put higher education first. Some families may overlook the fact that many college students fail to graduate within four years because they change schools or majors.

“Given the high cost of funding, it’s not just about getting into college, it’s about getting through college and graduating,” Pereira said.

“When choosing the right university, it’s important to weigh all the factors – majors, cost of living, available bursaries and scholarships, and career prospects,” she continued. “If a child is unsure of their major, community college is an affordable way to explore options before applying for student loans, especially during times of high interest rates. Choosing the right college is a major financial decision for their families, And not just for the kids – as that could make the difference between securing a financial footing or loan debt for years to come.”

Fardous noted that some schools have mitigated skyrocketing costs by participating in reciprocity agreements or regional exchanges, which allow students from neighboring countries to attend at in-state tuition prices. For schools that are farther away, parents should include travel expenses for their children’s home visits into the cost.Different kinds Online Student Loan Calculator Can help households calculate future debt levels.

She noted that “generous financial aid packages” offered by some non-government schools could end up making them the cheaper option when deciding between public and private institutions.

“Don’t just shy away from applying to private schools,” Fados said. “Apply everywhere so you can open up your options.”

Most 529 plans are ‘very effective’ at saving college money, but parents should stay away from so-called Escrow account According to Sprung, they must hand over control of the assets to their children when they turn 18. “If they decide to use it to buy a car, escrow assets can become a big problem,” he said. Independent college counselors can also help parents and children sort out their options and criteria.

“Overall, it should be a fun time for the family, it should be an exciting time,” Sprung said. “If you’ve been planning correctly, it shouldn’t be a stressful time. It should be something you’ve planned and saved for.”

Klingaman says the counselor’s work revolves around “creating space to have a conversation with my clients and their kids” around college discussions among clients’ families.

“Being proactive means we set everyone up for success and avoid having difficult, emotional conversations later,” she says. “University is one of the greatest financial burdens that anyone will pay or help pay for. As consultants, we have a duty to help our clients as much as possible.”