As the old saying goes, “it takes money to make money.” Unsurprisingly, it also takes major money for high net-worth families to send their kids to college.
In fact, Town & Country magazine reported that wealthy families spend over $1.7 million per child to get their kids into elite schools. The actual tuition costs of college only represent the final (and biggest) piece of their higher education bill.
It’s all too easy for high net-worth clients to look at their college investment and assume, “we’ll cross that bridge when we get to it.” In reality, your wealthiest clients need a solid education plan just as much as middle-income families.
The True Cost of College
While you don’t need to be reminded of this fact, it bears repeating: high net-worth clients are in the high echelon tax brackets. Though their W-2 may be impressive, the IRS is asking them to part with nearly 50% of their money.
Therefore, your wealthy clients effectively have to earn twice the money to pay for college.
Then, you add in the rather mercenary way colleges treat wealthy families. Whereas middle income families may be given considerable financial support, universities and colleges simply see dollar signs on high net-worth candidates.
Their EFC score might as well read, “Please charge this family the maximum rate.”
It’s no wonder then that colleges have hired countless “enrollment management specialists” to market directly to high-income zip codes across the country.
College is big business after all, and high net-worth families are targeted as the “whales” that keep the wheels in motion.
Wealthy victims aren’t victims. But in the academic world, they’re high value targets.
Therefore, they need specific and future-focused plans. That’s especially true if they have multiple children attending college at once.
The New FAFSA
The Consolidated Appropriations Act of 2021 (and the FAFSA Simplification Act within it), made some serious changes to financial aid eligibility.
These rule changes are highly detrimental to families, and at College Aid Pro™, we are actively lobbying against them. Our change.org petition is quickly closing in on 50,000 signatures, and we would certainly appreciate it if you added your name to the list.
With regards to the FAFSA Simplification Act, the new legislation eliminates the supremely valuable discount for families with multiple kids enrolled in college at once.
Fortunately, this change won’t go into effect until the 2024-2025 academic year.
But if you have clients with multiple children around the same age, they likely won’t get the crucial support formerly afforded to so many families.
At CAP, we have always viewed this discount as essential to protecting families from draining their savings accounts to cover the cost of college.
In describing the change, our very own Joe Messinger used this analogy:
“[Imagine] you’ve got a teacher and a firefighter making $100,000 combined, (the FAFSA) wants about 20% of your income going toward college. If you’ve got two kids in this family, the cost used to be $10,000 each.
Now they’re saying it’s $20,000 each and they’re expecting you to pay $40,000 total for college that year.”
While these changes will undoubtedly hit middle class families the hardest, high net-worth families will still feel the punch as they manage larger up-front contributions with potentially little aid.
As a result, your clients may need to tap their savings or current earnings to cover the costs.
Such desperate measures are increasingly common. In fact, according to a recent study by Sallie Mae,
- Approximately 70% of families used their current cash flow to pay for college in the academic year 2019-2020.
- 14% withdrew from their retirement funds, and an additional 35% of families liquidated savings and investment accounts to cover college costs.
- A whopping 83% of families paid out-of-pocket for part of their child’s college tuition. Worse yet, that number is up 17% over the previous year.
These are worrisome trends that undoubtedly affect both middle and high-income families alike.
Specifics Clients, Specific Needs
The cost of college can easily affect the comfortability of retirement.
We see it all the time: families get behind the proverbial eight-ball and rush to plan for college in 24 months or less. So they tap their savings, accept large loans, and effectively mortgage their futures.
Are high net-worth clients in the best financial position? Absolutely.
Are they impervious to the true costs of college (and its impact on retirement)? Absolutely not.
As an advisor, it’s incumbent upon you to jumpstart the higher education conversation with all of your college-bound clients — even the supremely wealthy ones.
Tell them about the FAFSA rule changes.
Show them the alarming statistics about people paying out-of-pocket.
But above all, comfort them with the power of College Aid Pro™ software.
Show them the breadth of institutions they can apply for — the exact cost of attending their favorite schools — the number of scholarships they can attain — and the expected salaries of graduates on a one, five, and ten year basis.
With College Aid Pro™, our tools can help you protect, impress, and retain your high net-worth clients for years to come.
Want to learn more? Schedule a live demo at your convenience