These days, clients are inundated by news of the rising costs of tuition, mounting student debt and the decline in value of a bachelor’s degree. But even if college planning is not a huge part of your practice, you can strengthen your relationships with clients who have teens or pre-teens by learning a few basics about late-stage college planning.
Here are four easy action items that you can incorporate into your practice that will help parents or grandparents make college more affordable.
1. Tell your clients to use net price calculators.
Net price calculators are invaluable new tools that could end up having as dramatic an impact on higher-education practices as U.S. News’ college rankings.
A net price calculator will provide your clients with a personal estimate of what a particular school will cost them after scholarships/grants are subtracted. To use the calculator, your clients will have to provide information that can be found in their latest tax returns and investment statements.
The federal government has mandated that all schools maintain a net price calculator on their websites. Often the easiest way to find the calculator for an institution is to Google the name of the school and “net price calculator.”
Tell your clients to use these calculators long before their children are applying. If the net prices are way beyond your clients’ budgets, they should keep searching for schools that will be more affordable.
2. Advise your clients to obtain their Expected Family Contribution.
An Expected Family Contribution or EFC is a dollar figure that represents what a family can be expected to pay, at a minimum, for one year of college. If a family is destitute, their EFC will be $0. If a family is wealthy, there is no ceiling to how high an EFC can go. I talked to a corporate executive in San Diego once who told me that his EFC was $108,000.
Clients with lower EFCs should look for schools that are generous with need-based aid. Clients with a high EFC, who don’t want to pay full price, should look for colleges that provide merit scholarships to rich students. The vast majority of schools award scholarships to wealthy applicants.
It will be easy for your clients to obtain a preliminary EFC. Direct them to the College Board website and type “EFC calculator” into the search box in the upper right hand corner of the homepage.
Clients should be using an EFC calculator as early as middle school since this will give them a heads up about what kind of college costs they will be facing in the future.
3. Tell parents how assets impact financial aid.
Parents tend to worry about how their assets might sabotage their chances for need-based aid. But the truth is, assets rarely impact need-based financial aid. In fact, Mark Kantrowitz, the publisher of FinAid.org and a national expert on financial aid, estimates that only 7 percent or so of families have enough assets to reduce financial aid chances.
One big reason why so few families have to worry about this issue is because the aid formulas don’t consider retirement assets. Your clients could have millions stuffed in qualified retirement accounts, and colleges wouldn’t care. In fact, the Free Application for Federal Student Aid (FAFSA) doesn’t even ask about the value of a family’s retirement accounts.
The FAFSA, which is universally used by schools participating in the federal financial aid system, also doesn’t ask parents if they own a primary residence. Consequently, home equity won’t hurt aid chances either. In addition, the aid application isn’t concerned with the assets of family-owned businesses with 100 or less full-time employees.
Four hundreds schools, nearly all private, do use an additional aid application called the CSS/Financial Aid PROFILE, which takes a deeper look at family finances.
While PROFILE schools also ignore retirement accounts, they do inquire about home equity and family-owned business. What schools do with this information will vary, which is another reason to use net price calculators.
4. Direct clients to four-year grad rates.
Tell your clients to check the graduation rate of any schools on their children’s lists. They will probably be shocked when you tell them that just 52 percent of students graduate from private schools in four years and only 31 percent manage to pull this off at public universities.
Your clients can find four-, five- and six-year grad rates at a microsite within The Chronicle of Higher Education’s website. They will locate the site by Googling “College Completion.” Parents can also check grad rates by ethnicity and gender, which can vary significantly.
By knowing some basics about late-stage college planning, you can promote deeper connections with your clients and prospects. Even though college assets don’t represent the bulk of your clients’ wealth, starting a conversation on this subject can represent the linchpin of many of your relationships.