Help your client navigate the college planning maze

By Raymond D. Loewe, CLU, ChFC
and K.C. Dempster, ChFC

Every year, the media runs stories about the high cost of college. The hype is well founded.

Consider this: Students entering a state college in September 2005 will pay an average of $86,855 for their four-year education. Even more staggering, freshmen at an Ivy League-type school will shell out $204,590 on average for their degree.

Parents of younger children should be extremely concerned about this. In 10 years, a four-year education at a state college is projected to cost $154,177. And parents who aspire to an Ivy League education for their children should be prepared to pay a whopping $344,873.

Faced with these numbers, it is easy to see that there is a need for significant college planning help.

Parents and financial advisors often understate the cost of college when making projections. Total college costs should include:

tuition and general fees,
room and board,
books and course-related fees,
personal expenses, and
transportation.

And then there is something we call "pizza money." Pizza money is that $20 or $50 parents slip to their students periodically. We have had parents tell us it can run as high as $2,000 to $3,000 per year!

Our experience has taught us that there are two types of college planning problems, and they need to be treated differently.

Crisis planning

The first is called crisis planning, which describes the situation of parents with a student in high school who don't have money put aside for college. It's too late to save now.

Crisis planning parents have two problems — a cash flow problem and a retirement problem. The cash flow problem is easy to recognize. Where will they find the cash to pay the college bills when they appear in the mailbox? The retirement problem, on the other hand, is less apparent. But consider this: How old will your client be when the youngest child finally graduates from college, and they have depleted their savings, borrowed, even dipped into retirement savings to pay the bills? Will your client have to pay education debt on his fixed retirement income?

Financial advisors can help crisis planning parents in four areas:

Help cut the cost of college: Financial aid planning, careful college selection and scholarship searching all can help reduce the list price of college.
Help find cash flow by evaluating resources and borrowing power.
Develop a plan that will get them out of debt before retirement.
Review retirement accounts, protect them and help them grow.

As a financial advisor, however, doesn't it make sense to help your clients avoid becoming a crisis planning parent? College planning can be complex because there is no "one-size-fits-all" savings vehicle. Long-term savings tools are more than 529 savings plans or Coverdell Education Savings Accounts.

Furthermore, savings tool choices can vary widely depending on the client's situation. For example, a doctor might be most concerned about finding a savings vehicle that will provide creditor protection. Grandparents might be looking for estate reduction. Executives are often looking for alternative funding sources, such as stock options.

The best way to make a difference with long-term college savings is to help your clients build a "family scholarship plan." A family scholarship plan is a strategy, not a product. It focuses on the benefits that can help make the plan fit the family's situation. Once the family prioritizes the benefits they desire in their plan, the advisor can then help them choose the appropriate tools to achieve them.

Finally, bringing other family members into the plan can make it a real winner. Grandparents, aunts, uncles and family friends often want to help out. Frequently, these additional contributions can make the difference for parents with limited resources.

The emotional hot button of college is an ideal way of acquiring clients and building a relationship of trust then enabling them to build assets under management, not just for college but for retirement as well. Additionally, fee-based planning where needed and multi-generational sales are revenue sources that are to be had though college financial planning.

Raymond D. Loewe, CLU, ChFC, is founder of College Money, a Wharton School MBA graduate and a specialist in the complex field of paying for college. K.C. Dempster, ChFC, is director of programs development for College Money. Visit their Web site at www.collegemoney.com.

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