That choice is not practical for the parents of college-bound high school kids. Parents' college funds are down while economic turmoil may make it difficult to pay the steep costs of attending a dream college. Yet those parents can't tell their kids to stay in high school for a few more years until their 529 accounts regain lost ground.
At the same time, college prices continue to rise. Aggregate costs for public and private four-year colleges, comprising tuition, fees, room and board—but not books, transportation and other expenses—rose approximately 5% to 6% last year, on average. And it's hard not to imagine more increases coming. State schools will have to fight with other public agencies for dwindling funds; many private college endowments have taken serious hits. A few private schools, such as Reed College, have admitted that they're looking for students who can pay the entire tuition rather than hewing to their former need-blind admission policy.
As a result, many of your clients with teenage children may be feeling the college panic about now. They are looking at diminished net worths and an uncertain job market and economy—while their kids are plotting college tours. What can financial planners suggest to these clients? How can you help clients whose children are already in college and now find it difficult to pay the ongoing bills? There are many possible steps that parents can take, so advisors should be ready to offer sensible recommendations.
For starters, college planning should be done in advance whenever possible. Deborah Fox, who heads Fox College Funding in San Diego, says that preplanning can avoid a "whole family drama unfolding" about letting a child attend a university that's not affordable. "Worse yet," she adds, if a child already has applied and been accepted to an expensive school, "parents many times give in to their student due to the emotional component of the college choice. They don't want to prevent their child from attending his or her dream college."
Mary McGrath, executive vice president of Cozad Asset Management in Champaign, Ill., points out that the best time to start the conversation is when the child is around 15 or 16, in high school, but not yet ready to start applying. At that point, the family is thinking about college and has a reasonable idea of how much they can afford to spend. "Parents need to figure out their college budget ahead of time and then discuss it with their child before he or she applies," Fox says. "That way, colleges with the net cost above the predetermined budget can come off the list."
As the above comments indicate, financial planning for higher education might begin with budget talks, which could lead to a discussion of target schools. Among colleges, there are huge cost differences.
According to the latest numbers from the College Board, for the 2008 to 2009 academic year, total charges at private universities averaged over $34,000, including about $9,000 for room and board. That's the average; at some private colleges, the total is close to $50,000 a year. If college costs continue to increase at a 5% to 6% annual pace, parents of today's 10th graders could pay $40,000 for their freshman year at an average private college, while an Ivy League education could start at $60,000 a year—transportation, books, pizza and dorm-room decor not included.
If clients are willing to send their kids elsewhere, costs can come down dramatically. At public universities, total costs for in-state residents averaged just over $14,000—more than half due to room and board. Clients who send their kids to a nearby state university, close enough to permit commuting from home, are looking at costs that average about $6,500 a year.
"Community colleges can be less expensive," McGrath says. "Students live at home, and the fees are lower. After two years at a community college, they can apply to a four-year school."
If a student is contemplating taking this route, a planner can earn parents' gratitude by filling them in on the agreements many four-year colleges have with two-year schools. Called articulation agreements, these pacts guarantee that the four-year college will accept credits earned at the two-year school. "It is important to know this in advance," McGrath says. "Many universities have 'partner' community colleges, where they agree on the courses accepted. Some even guarantee admission to certain majors if a student graduates from the community college with the appropriate courses and a certain grade point average. But don't assume that any courses at any community college will get you into the university you want."