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Bay Area Planners 19925 Stevens Creek Boulevard Cupertino, CA 95118-2358 Tel: (408) 725-7135 www.collegeplannersonline.com

College Planning for the Middle-Class Family What College Admission Counselors should know about f inancial planning The Problem Facing Middle-Class Families 65% of families describing themselves as middle-class list ‘Paying for College’ as being a concern. Many of these families have neglected to save for college and finally wake up to a crisis in their child’s Junior, or even Senior, year of high school. Most middle-class families in California are not going to be helped by federal or state financial aid to any significant degree. College is typically their second largest expense after the house, yet comes at a time when they also need to put money aside for retirement. These families are often engaged in a financial balancing act, worried about maintaining their lifestyles while potentially only a few steps away from significant financial reversals. Their issue is how to pay for college without ruining their retirement. They have very few people to turn to for help. High school counselors are neither trained in this aspect of college admission nor willing to give advice because of liability concerns. The family’s CPA may know the tax rules concerning continuing education, but usually not how these impact financial aid. Most financial planners receive no formal training on the financial aid system or how to finance college. Finally, parents cannot trust the advice of other parents – a true case of the blind leading the blind!

Results of an Informal Survey of Counselors Bay Area Planners conducted an informal telephone survey of local College Admission Counselors in the first quarter of 2008. The following notes are from that survey. •

Professional training for counselors on helping families fund college is limited to Financial Aid.

Counselors know virtually nothing about financial planning techniques beyond financial aid.

Overall, schools do not actively support making information available to parents beyond offering a Financial Aid night, typically given by an FAO from a local college. •

Typically, schools say as a matter of policy they cannot recommend or work with financial planners because they are ‘commercial companies’ (though they often do recommend companies such as CollegeBoard, Princeton Review, Kaplan, etc.). Some schools do accept literature to be added to a ‘resource list’, but usually will not allow informational presentations to parents.


All Counselors spoken with agreed there is a great need for middle-class parents to receive help in figuring out how to pay for college. This paper proposes a way for this need to be reconciled with the concerns of schools and Counselors.

How Financial Planning Can Help Middle-Class Families Ideally, families will plan for college costs while their child is young, by opening a 529 Plan or a Coverdell Educational Savings account. There are other places to put money aside, some better than others, and most financial advisors can help a family with this intent – it is mainly a matter of optimizing the efficiency of the investments. Late-stage (crisis) planning in the years immediately preceding college is a much more specialized field. A comprehensive college plan will contain the following: Preliminary College Budget: Information on typical costs of attendance and an estimate of the family’s Expected Family Contribution (EFC) under both Federal and Institutional Methodologies. The plan should identify key financial statistics for colleges under consideration by the student – applying a ‘financial filter’ to college selection. Financial Aid and Tax Planning Strategies: Identify legal and ethical strategies that would increase financial aid and/or maximize tax savings (without adversely affecting any financial aid strategies). Cash Flow Strategies: Identify the most efficient sources for meeting out-of-pocket college expenses without impacting the parent’s retirement. There is no magic wand when it comes to middle-class families paying for college – it takes a mix of advice that reduces out-of-pocket expense and maximizes the efficiency of all available financial resources. The overall result can be significant – but the family will only benefit if it understands that help is available. By encouraging the family to find such help, the Counselor can ensure a great college opportunity is not let go due to financial concerns that could have been resolved with the right advice.

Selection of a Financial Advisor Who Can the Family Turn to For Advice? Families need advisors who are trustworthy, knowledgeable, and competent. Nobody wants their child to suffer due to a fraudulent financial aid application; to be subject to an IRS audit for inappropriate tax deductions; or to be misled into taking on unnecessary and expensive loans. College Admission Counselors should understand which types of financial advisors might offer appropriate college planning advice, so as to be able to point parents in the right direction.

Desirable Attributes What should a parent look for in an advisor when seeking help with college financial planning? Consider these three attributes:

Trustworthiness First, let’s make a distinction between advisors who have a Fiduciary Duty to their client, and those who do not. A Fiduciary is someone acting in a position of trust, and is subject to a standard of accountability that places the client’s interest above their own. Fiduciaries are required to inform clients of any conflicts of interest and the procedures used to address those conflicts. They are

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required to inform clients of all types of compensation, including indirect compensation and any additional compensation they may receive from someone other than a client.

Overall Financial Proficiency The financial services industry is so broad and complex that no advisor can be familiar with the entire range of products and services offered. However, some advisors are narrowly focused on just one type of product or service. A suitable advisor will have proficiency in taxation, debt management, insurance, and investing.

Specific Knowledge in College Planning Here the distinction is between those advisors with only general training in financial planning, and those with additional specific training in college issues such as financial aid and college admission procedures. Let us consider which types of financial advisor have all of the attributes needed.

The Main Types of Financial Advisors Broker-dealers (Stock Brokers), Mortgage and Insurance Brokers Each of these advisors is regulated differently, but they are all non-fiduciaries. They are oriented to the financial products offered by the companies they represent and their primary responsibility is to their company, not the client. Their usual method of compensation is through sales commissions, but may include fees for service. Very few will have specific training in college planning, or in overall financial planning.

Bank Lending Officers Loans are a fact of life in paying for college and many banks offer student and PLUS loans. These are good business for banks. The recent scandals in the student loan industry should be sufficient to show that banks are not a good source of unbiased advice for parents.

Registered Investment Advisors These advisors owe fiduciary obligations to their clients. They concentrate mainly on investing, so are good choices for advice on college savings plans, but they may not have any specific training in college planning, or in general financial planning.

Certified Public Accountants CPA’s are regularly identified by the public as their most trusted financial advisor. However, they too are not routinely knowledgeable about college planning issues.

Financial Planners & Certified Financial Planners, CFP® The CFP® mark is the highest designation in financial planning, with excellent accreditation and continuing education requirements. However, there is no emphasis in their professional training on college financial planning and financial aid issues, requiring the financial planner to do their own additional research.

National Institute of Certified College Planners (NICCP) This organization does offer specific training in college planning, but has limited requirements concerning background and the general financial education for holders of its ‘Certified College Planning Specialist’ designation (CCPS). This qualification alone does not guarantee sufficient financial competency and integrity. 3


The attributes of the various types of advisor are summarized in Table 1.

Table 1: Summary of Advisor Qualifications for College Planning

Type of Advisor

Fiduciary Relationship

Financial Proficiency

Specific Knowledge

Stock Broker

No

Maybe

Usually Not

Mortgage Broker

No

Maybe

Usually Not

Insurance Agent

No

Maybe

Usually Not

Bank Lending Officer

No

Maybe

Maybe

Registered Investment Advisor

Yes

Maybe

Usually Not

Certified Public Accountant (CPA)

Yes

Yes

Usually Not

Financial Planner

Yes

Yes

Maybe

Certified College Planning Specialist

Maybe

Maybe

Yes

Qualifying Questions Consider providing the following questions to a parent for use when selecting an advisor for college planning. The parent should demand a ‘Yes’ answer to each: 1) Is this an advisory relationship? (as opposed to a sales relationship) 2) Are you held to a fiduciary standard in all dealings with me and my financial affairs? 3) Will you disclose all conflicts of interest that exist or might exist in my relationship with you? 4) If you will be providing investment advice, are you registered with the State or SEC as required by the Investment Advisors Act of 1940? 5) Please describe your specific training and experience in college financial planning?

A Challenge to College Admission Counselors By using the Qualifying Questions above, or some other agreed variation of these, schools and qualified financial advisors could form a partnership to improve access and service to parents, thus providing an incentive for more advisors to gain the specialized knowledge required for successful college planning. By proactively partnering with qualified advisors, the College Admission Counselor community would be in a position to request pro-bono work from the advisors for families in need of financial aid. Then everybody wins! Your comments are welcomed: info@collegeplannersonline.com A series of e-Learning modules on college planning is available at LearnCollegePlanning.com The ‘Overview’ module is free for all parents and gives a basic understanding of the issues involved.

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College Planning for the Middle-Class Family