President's Blog - Paying for College


Choosing a college to go to, and determining how to pay for college, is much more difficult today than it was in previous decades.

The competition among schools for enrollees is incredible! The services schools provide to make themselves more attractive to high school juniors and seniors makes it seem like those students are selecting a spring break location rather than a school of higher learning.

With those services come expenses, and the cost of a four-year public school college education continues to rise. The same is true of private colleges, which are usually more expensive than public schools, even though they often have much smaller student bodies.

The percentage of high school students who go on to college continues to rise in America, even as societal observers express the need to increase our trade school offerings so that we have enough technicians in service trades for the coming years.

Whether it be a four-year public or private general education college or a trade school, there is tuition to consider, and somebody is going to have to pay for it. Very often, that someone is the parent of the child attending college, although those parents are often saddled with debt in the name of the person attending school.

There are various ways for investors to avoid going into debt to pay for college, and advisors spend a good portion of their conversations with investors with school-age children discussing the financial plans that will cover those college costs someday. But advisors don’t always suggest to investors that they look into 529 plans, the federally endorsed tax-advantaged method of saving for college.

According to Spectrem’s new detailed research into 529 plans – Wealthy Investors Usage of 529 Plans - only 16 percent of affluent investors are currently invested in the college savings plan, even though the money put into the plan and any earnings investors get from the plan are tax-free as long as the money goes to pay for a college education. The plans invite investors to put a sum of money into a plan and promise the plan will pay for a certain number of semesters at most public and some private colleges in the United States.

The plan providers invest the money in order for it to grow to the amount set forth in the original agreement. Many of the plans are administrated by the states, but there are private plans as well.

For firms that provide 529 plans, it would seem they might sell themselves. There are fees attached, and there are plans that allow for investors to jockey their investments within the plan, but the end result is that a college education will be paid for.

However, firms that do not offer 529 plans have little incentive to promote the idea. In fact, the Spectrem research indicates that many investors do not hear about 529 plans from their advisor at all. For advisors without a 529 plan option in their firm’s service list, it behooves them to move investors into products or vehicles for which the advisor has some incentive to sell.

Of course, it is that kind of thinking that gives advisors a bad name. It appears they are thinking about their own bottom line more than they are about the needs of the investor.

Consider the investor who hears from their advisor about a 529 plan sponsored by the state. They realize it is a very good way to save for the college education of their youngster, and they realize also that the advisor gets nothing out of the transaction other than knowing their advisor had the interests of their client in the forefront of their mind. That could lead to an improved relationship, an increase in respect and sales of other products down the line.

The Spectrem study explains why investors like 529 plans and also details why some investors have stayed away from those college savings vehicles. It also explains what kinds of investors are more likely to want to use a 529 plan.

There are obviously many ways for an investor to save for a college education, and advisors are charged with finding the best option for their investor clients. For some of those clients, however, a 529 plan might be very attractive, and advisors must be prepared to make a recommendation about that particular product when the time comes.