Education isn’t going anywhere.
Sure, under present circumstances it might look different. But online or not, higher education is here to stay. Recent data shows that nearly two-thirds of high school graduates attend college and the top reason that students cited for not attending college was the cost. This is where you come in.
Proactive college planning is top of mind for a majority of students and parents alike. Education is the cornerstone of professional and personal development and with structured and strategic advice, more people will be prepared for the cost of college.
College planning is a growing niche in the financial planning field, and our team is going to illustrate the top three reasons you should include it as part of your practice.
#1 College planning is the #1 concern of Gen-X Parents
What’s the top thing on your client’s mind? You might think it’s saving for retirement or squirreling away funds for the next tropical getaway, but it should come as no surprise that the top concern for your clients is their kids.
In fact, a Gallup survey found that 73% of parents with kids under the age of 18 cited college costs as their top financial concern. This means that parents are more concerned about college than they are about retirement, investments, taxes, and general money management. The bottom line is that college is expensive and people don’t know what to do about it.
College funding isn’t getting any easier. With the cost of college steadily on the rise, there is a lack of clarity around what families are actually expected to pay. Education costs extend beyond tuition to fees, room and board, books, supplies, travel, and more. Even with savings and other measures, the average student loan debt at a 4-year college for the class of 2018 was $29,200 according to TICAS Project On Student Debt.
Adding to the chaos, financial aid is often confusing and high school guidance counselors aren’t always equipped with the tools and resources to provide adequate support, leaving a bulk of the financial leg work on your client’s shoulders.
For your clients, college keeps looking more and more like an investment and presents many competing problems: juggling rising costs, looming debt, and other financial priorities like retirement. It’s time to start offering solutions to these important issues which can be done through proactive college planning.
#2 The cost of college impacts your clients’ current and future wealth
We know that college costs are climbing but by how much? Higher education costs have been on the rise for a number of years now and the 2019-2020 school year saw a general tuition increase of about 4% across the board. While that might not seem like much, coupled with the fact that median household incomes have remained relatively stagnant, these cost increases present a big concern for your client’s wealth and well being.
Many parents want to help contribute to their children’s education. The general public is telling us that this is their number one financial concern, yet most advisors rely on the industry standard line of “there is only one way to pay for retirement and lots of ways to pay for college”. That is not helpful and simply not good enough. 70% of parents are planning and saving for their children’s education and that can be done in a number of ways,
- Co-sign on a loan
- For students who need to take private student loans, cosigning could make interest rates and repayment terms more favorable. But should their child not be able to afford payments, your clients would be on the hook for those bills which could impact other financial savings goals. Be sure to advise clients to take the Federal Direct Student Loans (Stafford) before private loans, as there is no cosigner required. Check out our blog on Being a Smart Borrower for more details.
- Dip into retirement savings
- We always discourage this option, but it doesn’t always stop parents from using it. Encourage your clients to maintain their retirement savings and not to dip into it for any reason besides retirement. As the famous saying goes, there is no loan for retirement.
- Add savings to their monthly budget
- Regular savings is the most prudent way to approach saving for college. Ensure your clients understand that paying for college is just one of several competing financial needs. Although you can’t take a loan for retirement, you can work a few more years. Help clients understand the trade offs in the context of their overall financial plan.
With proper college planning, you will be able to work with your clients from the beginning and develop a strategy that takes into account their financial goals as well as strategies for maximizing college savings and minimizing student debt.
#3 Generate clients for the future
The average college student graduates with about $29,200 in student debt which the Department of Education estimates will take about 20 years to repay. This is a huge decision for a 17 or 18-year-old to make on their own. So why not jump in and help them now to better promote financial stability in the future?
The student loan crisis is only gaining momentum with the country in over 1.6 trillion dollars of debt across 45 million borrowers. You could be part of the change to lower those numbers. Your firm can help more parents and their children through the college planning process and out the other side with little or no student loan debt without robbing retirement.
How can you help?
- Advise clients on how to shop smart for college
- Fill out the FAFSA
- Find schools that will be the most generous with financial aid
- Focus on the net cost, not the sticker price
- Reduce debt statistics
- Take out less in loans
- Understand the total student loans for all four years before taking them out
- Find firm financial footing from the start
Remember, your client’s children could be future clients! By working with them to reduce their loans and prioritizing financial success, you will help mold the next generation of financial planning clients.
Your work in college planning will help boost the financial planning industry as a whole. By reducing debt and prioritizing financial success, you will be able to shape your clients’ lives and the industry for the better.
Ready to integrate college planning into your practice? Our software can help! CAP is designed to empower advisors with the tools, resources, education, and support they need to thrive in the college planning space. Book a free demo to see for yourself.