College planning is a major element of most people’s financial lives. Many parents start planning and saving for their child’s education from the day the baby is born; some may begin even earlier. Next to retirement, college planning is a long-term financial goal for many investors.
Whether or not you felt you had a handle on how to guide clients through the college planning process before, it’s a whole new ballgame since the global health crisis. From new application procedures to picking schools that can still deliver on their financial aid packages, there are many new considerations for parents and advisors.
To learn about these changes and how they’re impacting college financial planning, we spoke with Jerry Inglet, family legacy advisor at Wilmington Trust in Buffalo, New York. He shared the biggest changes that financial advisors, parents and students are likely to see and how advisors can guide their clients through the new college planning process. Read on for excerpts from that interview.
What are the most important financial considerations for students and parents in this new environment?
As financial and other advisors guide families through the college planning process, incorporating an overriding framework where the principles of return on investment are elevated in concert with the same watchful eye used to purchase consumer goods can often lead to good decisions that mitigate the emotion of the moment.
In addition to this mindset, there are other more granular financial items parents, students and advisors can focus on specifically in this new environment. For example, the existing lower-interest-rate environment could prompt a family to take on some student debt even if the family can pay out of pocket. An awareness of free tuition possibilities that vary by state and a mindful understanding of a college’s refund or credit policy during the time of closures are a few points of financial interest.
How should financial advisors guide their clients regarding refunds or any changes to financial aid packages?
Only time will tell if students are asked to return home with a semester interrupted once again. In cases where 529 resources were used to pay for qualified college expenses and those charges were refunded, advisors and families should become familiar with the 529 recontribution process, as defined by the The Protecting Americans from Tax Hikes Act of 2015, and any other IRS provisions connected to 529s, so that the family does not incur any tax consequences.
(If the beneficiary or account owner of a 529 plan receives a refund of a qualified higher education expense from the college or university paid for with a 529 plan distribution, then the refund can be recontributed to the 529. The recontribution needs to take place within 60 days of the date of the refund to avoid tax consequences.)
Are colleges offering more robust financial aid today?
Colleges are managing these moments with varying approaches. Some are offering more aid, some are offering the same aid but lowering sticker prices and some are remaining relatively constant in their pricing patterns. For families experiencing a downside change to their economic or medical circumstances, there is a process called professional judgment where the financial aid office of the college reviews these changes submitted by the families to see if there can be any modifications to the financial aid award letter. Since each college is nuanced in this process, a family will want to inquire with the college’s financial aid office to uncover their formal process in the matter.
What are some of the financial pressures bearing down on smaller liberal arts colleges?
Increased college closures and mergers are likely in the near future. Not many students would want their undergraduate experience interrupted as a result of the financial insolvency of the institution. In addition to all of the other metrics and parameters which matter in the college evaluation process, families and advisors should include a review of the college’s fiscal strength.
For private nonprofit colleges, it could be the incorporation of an analysis of the institution’s 990 tax statements. Among all accredited colleges both private and public, consider developing a familiarity with tools found on the federal government’s website studentaid.gov. An individualized scorecard and financial responsibility composite score may provide insight into the financial viability of that institution.
There are other metrics which can demonstrate concern, such as a dwindling endowment, a propensity for the college to borrow at an unsustainable pace, an accreditation that is in jeopardy for an entire school or specific programs, dissipating enrollment numbers over time, increased and progressive use of adjuncts over tenured faculty along with sliding retention rates.
Has the value of community colleges changed in the pandemic?
For some families, the flux and unknowns attached to (the pandemic) have steered college learners to enroll in a college closer to home. And for many, the local institution is a community college. Since the vast majority of community colleges are commuter-driven, many two-year schools are removed from challenges connected to dormitory life and the associated complexities, thus allowing them to focus fully on academic delivery. This focus, proximity to home and relatively cheaper cost have made this a worthy option for some students during (the current health crisis).
The largest caution with this academic path is the ability to transfer credits to a four-year college. A best practice could consider contacting the four-year school to see if they have a matriculation agreement with the community college or to have a documented discussion on what credits would transfer to that school.