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Why Clients Need a Financial Plan for College

July 13, 2021

Sending a kid to college is a huge milestone in a parent’s life. An activity that brings a lot of excitement and joy, can also bring a lot of fear and stress when it comes to figuring out how one is going to pay for the experience. According to Student Loan Hero, “Among the Class of 2019, 69% of college students took out student loans, and they graduated with an average debt of $29,900, including both private and federal debt.”1 Not only that, but 14% of parents also took out Parent PLUS Loan.1 There is no doubt that a lot of money is involved both from the student and parent end in regards to college planning. To help minimize stress and better prepare your clients for the future, they may want to consider utilizing a financial professional to help with their college planning.

Financial professionals empower clients at each step in the college planning process

Starting a college savings fund is a big investment, especially when you’re trying to manage day-to-day expenses, plan for retirement, and have an emergency savings fund. There are many ways that financial professionals can help their clients in each step of the college planning process and provide value along the way.

Clients will likely have many questions that a college financial professional can help with. Some common questions could be:

  • How much should they be saving each month?
  • When should they start saving?
  • How do I apply for financial aid?
  • How does a college savings plan affect taxes?

Whatever it is, having a knowledgeable financial professional can help empower clients and can likely provide a greater return on investment.

The stats don’t lie either – according to Scholar’s Edge 529, many parents have found great value out of using a financial professional for college.

  • “86% of parents with a financial professional have started saving for college.”2
  • “64% of families said their financial professional keeps them on track to meet college savings goals.”2
  • Close to 30% of parents also said that they’d like a financial professional’s help when determining their college major.2

Ways a financial professional can help with college planning

1. Start a financial plan for college

It is never too late for a client to begin their financial planning for college. While it’s better to start saving earlier due to compounding interest, financial professionals can help no matter when a client starts their planning process. There will likely be many questions for you about how their family can afford to save with all of their other financial priorities and you can be their prime resource to help make the dream of college a reality. This college funding calculator provides estimated total costs and potential savings needed.

2. Provide savings plan options

Clients may come to you wondering what type of savings plans are available to them. Depending on their needs, there are a few different options to choose from.

  • 529 plan. The first option is a 529 plan/qualified tuition plan. This is a way to pay for college that provides special tax benefits. When you use the funds made from this plan on qualified college expenses, you don’t have to pay any taxes on the earnings. When funding the account, the person pays taxes on the money before it goes into the 529 plan. Each state also has its own 529 plan that can potentially offer tax benefits to residents who open and use that state’s 529 plan.
  • Coverdell Education Savings Accounts. This option is only available to certain people who are below a specific income level. It is also another tax benefited way to help contribute to college savings. The Coverdell Education Savings Account allows you to save up to $2,000 a year to a child’s account. The fund then grows free of federal taxes and sometimes there are also state tax advantages.
  • UGMA account. Another option that isn’t a traditional college fund is a UGMA account or Uniform Gifts to Minors Act Account. This allows parents to set up an account for their children and allows them to own investments like stocks and mutual funds. This allows them to have the assets, but the parent or guardian controls them until they are of legal age. This money does not grow tax-free and can impact financial aid eligibility.

3. Establish a tax strategy

As mentioned above, there are a variety of different savings options for your clients when it comes to college and university planning. As the expert, you’ll be able to help them figure out which option may be best for them when it comes to tax strategy as well. Each option has different nuances that can benefit or disadvantage a client in the future, so you can use your expertise and strong relationship with them to help the client best understand the best college savings plan for them.

4. Provide financial aid consulting

Most students apply for FAFSA (Free Application for Federal Student Aid) to apply for loans, grants, work-study, and more. FAFSA can be used either for undergraduate college or graduate programs. Financial professionals can help families with financial planning for student loans. They can also help fill out their FAFSA each year, which will help eliminate errors and cut down on the time it takes to file. A trusted financial professional can also help find scholarships and other ways to help pay for college.

College is one of the biggest investments that your clients will have throughout their lifetime. Whether it comes to initial planning, tax strategy, financial aid, or understanding savings plans, you can help educate your clients to make the best possible decision for whatever their situation. Establishing this trust and value to your client will go a long way in strengthening your relationship with them throughout the years.

Sources / Disclaimers

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