Recently, on an episode of my radio show, “Your Money,” I spoke with Steve Stanganelli, Founder of Clear View Wealth Advisors, LLC and creator of CollegeCashPro.com, which educates parents on how to save money for college.
As a certified financial planner, Steve has been providing college funding advice for more than 20 years in and around the Greater Boston area. His interest in college planning and funding began with a typical question from his clients: How do I pay for my kid’s college education?
A father of three, Steve has special personal reasons to focus on this area. He realized long ago that dealing with college funding without a plan jeopardizes retirement, so he regularly provides action steps to save parents money on college costs.
Deposit deadlines are looming at most colleges and universities, so it’s a good time to talk about planning, especially if you have a junior in high school or other children you eventually want to put through college.
“This time of year I get a lot of phone calls from people about how to pay that (tuition) bill,” Steve said. “I encourage folks to plan ahead as best they can, and even at this late stage, it’s still a good idea to sit down and work out a cash flow plan.”
The most frequent questions parents ask revolve around financial aid: How much aid are they eligible for? How do they qualify for aid? What can they do to qualify for more aid?
“The reality is that any kind of aid is usually based on need,” Steve said. “Most people with an income over six figures will not qualify for need-based aid. It’s all about finding the right school for the student so you can get the best value. If it’s the wrong school, you spend a lot of money and a lot of time and burden the parent.”
Most people think that merit-based aid still exists, but it has largely been replaced with need-based aid. Still, Steve suggests parents look beyond the sticker price and at least apply to schools of interest. “A lot of families will look at an in-state public higher education school as a first choice, but you actually have more flexibility at private schools, which have deeper pockets to grant institutional aid, which is a discount off the sticker price,” he said.
“I have many clients who have found it’s sometimes the same or even less expensive to go to private school than an in-state college for that reason.”
I have many friends who went to Ivy League schools like the University of Pennsylvania and said it actually was cheaper net of all the aid they received than going to their own state school. But qualifying for the Ivy League is no easy feat. Most people don’t realize it’s like “Hunger Games” now to get into a top Ivy League school. Even with a perfect GPA and SAT score, there’s only a 40 percent chance your child will get accepted.
What are some other common mistakes that parents make during the college planning process? Listening to the advice of a financial aid officer at the college who tells you to apply for a Parent PLUS Loan (a federal loan parents of undergraduate students can use to help pay for educational expenses not covered by other financial aid), Steve said. It’s not worth it. “It’s granted to anyone but the rate is expensive and it’s not tax deductible,” he said. “There’s interest. You’re strapped in to that loan and there are very few ways to get rid of it.”
Steve also advises against having assets listed in the name of the child. “The best thing to do is change the primary owner of the account to the parent, because the parent tax ID number means it will be assessed at a lower rate than if it was in your son or daughter’s name,” he said.
There’s obviously a lot of confusion surrounding financial aid. There are also a lot of myths out there. One of the biggest is that your child is going to qualify for merit-based aid. I think the reality is that most students pay for college through loans they or their parents have taken.
Steve urges parents to save. “The biggest strategy for a family is not just to choose any school, but one based on the expected net cost,” Steve said. “Families want to stretch and sacrifice or stop contributing to their 401K. The biggest problem I find is that many families don’t have a lot of savings dedicated to college. The average 529 account covers one year’s cost of college attendance.”
A caller from Ohio asked about applying for college Early Decision or Early Action and the commitments required for each. There are roughly 450 Early Decision schools in the country, many of whose final offers are binding. With Early Decision, if you are accepted to that college and offered an aid package, you have to attend. Steve is a proponent of Early Action, which is more flexible and doesn’t require the same level of commitment.
“Part of the problem when you apply early (decision) is that you’re closing your options,” Steve said. “It takes your leverage off the table.”
Penn is an Early Decision school. With more and more schools getting their students through Early Action or Decision, the benefit if you go that route is that your probability of getting accepted increases. The probability decreases considerably with a normal application.
The same caller asked whether there was room for negotiation if her child gets offers from multiple schools but one offers a better aid package than the others.
Yes, Steve said, it’s possible, but “the more elite the school, the more difficult it becomes. As you go down from the top-tier schools, it can be easier to negotiate.”
Kent Smetters is the Boettner Professor of Business Economics and Public Policy and faculty director of the Penn Wharton Public Policy Initiative at the Wharton School of the University of Pennsylvania.