Fellow parents, one stockbroker told financial aid expert and author Kalman Chany:1
We don’t take financial aid into account in our investment advice because … well, frankly, we assume that none of our clients are eligible.
Now, this was a broker talking, who may not necessarily be a financial planner. Still, this attitude (and ignorance about the domain) remains common among professionals. With some prestigious schools costing $70K per year or more, even parental income in the hundreds of thousands of dollars will not necessarily preclude your child from receiving at least some aid. There are a host of financial planning opportunities that may increase aid eligibility and reduce your out-of-pocket cost for college. What exactly can (or should) be done depends greatly on your family’s finances and need (as determined by the Department of Education and the schools themselves). As a wealth manager with expertise in this area, I can help you navigate the world of college aid from a financial perspective. But you need to get to me as early as possible, as I’ll explain.
Preparing for College Takes Years … and Not Just for Your Student!
While your student is busy learning, test-prepping, exam-taking, and rounding out their experience with extracurriculars, we need to be making decisions that will maximize financial aid and make it possible for you to pay any unmet cost when the time comes. For you to benefit most from my advice, though, we need to start working together well before your student starts applying to schools.
This isn’t just because it takes time to build up savings, although that’s part of it. There are some critical decisions about how to save for college (in addition to how much) that can make a big difference down the line.
Another reason to start early is that it can take years (stretching back even before your child enters high school) to maximally exploit some planning opportunities and fit college funding goals into your overall financial plan. Some people are not aware that the Department of Education and schools’ financial aid offices assess your income from two years prior. For the first year’s application, that would be the year your child started their Junior year of high school. Ideally, we’re working together during your child’s Junior, Sophomore, and even Freshman years and before on income-related planning opportunities.
Now, even if your student will be a high school senior later this year or next fall, it’s not completely too late. We can still optimize the asset side of your financial situation (which is assessed when you fill out aid forms), plan for your child’s subsequent college years, integrate a return-on-investment mindset into the school selection process, or fully plan for younger children.
For more details on the timeline of financial college preparedness, I encourage you to read through our Advanced College Planning Process outlined here.
Take Some of the Load Off
How the federal government and schools determine aid is complicated. Every school has a potentially different sticker price, business model, discounting policy, and methodology. As I mentioned in this article, there may be ways to increase the aid your child receives, but they’re not well known, the benefits depend greatly on your unique circumstances, and timing can be everything. And as if planning for college weren’t complicated enough, Congress recently passed major changes to how need will be determined at the federal level that may affect your student.
At Hesperian Wealth, long-term college saving plans, college selection analysis, and, of course, financial aid optimization can be included as part of our overall advisory relationship. If high school is still far off for your child, you may not be thinking too much about college yet, but there is much to do over time. Alternatively, if your child has entered high school or will already be applying to colleges this fall, FAFSA and other school and financial aid deadlines will be here before you know it. Consider reaching out to me for advice on truly every aspect of your family’s financial life—that includes college shopping and funding.
Eric R. Figueroa, CFP®
I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.
1 From his book Paying for College. If you’re going to DIY college planning, I highly recommend it. But it’s still a daunting and dense read. Almost every suggestion comes with caveats or qualifications. No book can provide personalized advice, so you’ll need to apply everything in it to your own situation. Plus, even though the latest edition was published last year, the exact timing of when upcoming changes to the Federal Methodology would come into force was not yet known. So even if you buy it, you’ll need to integrate the new rules using the text’s chapter notes or external resources. I’m biased, but I feel you’ll get your money’s worth outsourcing some of this complex analysis and the recommendations to me as your wealth manager.