College Planning: It's More than Just Your 529 Plan

By: MICHAEL HOWELL

Guess what? The date today is 5/29, which means the day you've been waiting for has finally arrived. TODAY is National 529 Day! I think this might be made-up awareness holiday #20,273,438, but in honor of the day, I bring some thoughts on what you should really be thinking about with respect to college planning.

This might be the understatement of the century, but college costs are becoming absurd! For one child, the average cost of attendance for a four-year college education ranges from $96,000 at an in-state university to $188,000 for a private college.[i] Furthermore, the cost of attending college has increased more than 3 times the normal rate of inflation over the past few decades and continues to increase at 4-5% per year with no slowdown in sight.

As I said - Absurd.

As the father of an 18 month old son, my wife and I ask ourselves, how in the world will we ever be able to afford this? Like us, many parents are concerned about the cost of college and wonder how they’re going to make it work. They love their children and want to give them every chance at success, but would prefer not to lose an arm or a leg in the process. Moreover, they ask why our education system seems to reward some students but leave others with staggering debt?

Fortunately, I have good news for you parents and grandparents reading this, but it may require redefining your understanding of what college planning really is.

Imagine yourself for a moment at your annual family holiday party. Your cousin Hank has had a little too much egg nog and starts to boast of the 529 plan he’s been putting money in for years for his (of course) brilliant daughter earning all straight A’s whom he claims should easily have her choice between Harvard, Berkeley, or Vanderbilt. Hey, we don’t doubt it cousin Hank. Please tell us more about this genius!

All humor aside, think about the focus of almost every college planning discussion you hear. For most, the extent of their college planning is related to what they have saved. In fact, the conversation is almost always about savings. “Save early and often” is the mantra you hear from every expert.

Please don’t misunderstand me; I completely applaud savings. Families that save are in a far better position to pay for college than families who have not. However, savings is only one component of a comprehensive college plan. Your 529 plan, despite having the word “plan” in it, is not your college plan. It is a resource. A good plan will factor other components, including academic preparation as well as the process of strategically applying for, selecting, and funding college expenses. 

College planning is NOT saving for college; it’s saving ON the cost of college. 

More importantly, there isn’t anything cookie cutter about the process. Paying for college is much like paying for airline tickets.  One family paying for tickets from San Francisco to New York on Wednesday is likely to pay a different price from another family booking the same flight on Friday. My point is this: The price your family will pay is entirely dependent on your specific financial circumstances and the academic aptitude of your student. The only way to minimize out of pocket expenses is to apply the aspects of college planning strategies to YOUR specific circumstances so you avoid paying more than necessary.

Yes, college is an investment toward the future success of our children. It also needs to be viewed as a major purchase, which requires the same amount of diligence you would ascribe to any other major purchase. Think about it. With any other large expenditure (home, car, vacation, etc.), you will probably look for ways to reduce the cost through various cost-reducing strategies. And why wouldn’t you? When something is expensive, who doesn’t like a deal?

Unfortunately, most families don’t approach college planning the same way. Too often parents view the complexity of the process as a mountain too steep to climb. So they fill out the required forms hoping for the best, all the while telling their child not to worry themselves with the costs. We’ll “figure it out somehow” says Mom and Dad, hoping they can keep their promise without going broke or depleting their retirement savings in the process.

Thank goodness you can do more than hope for the best. If you take the time to become an informed parent and surround yourself with a qualified support team, you’re more likely to experience a favorable outcome. Your graduate will have you to thank for helping them attend a quality school, with less debt, for a bright future.

To learn more about how you can better plan for college, visit www.blomassociates.com (See Resources/College)

Have college questions? Email Michael Howell at michael@blomassociates.com.

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[i] College Board, 2014 Trends in College Pricing

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