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James
Guarino

Ahoy, mateys! Do your clients need college-planning life jackets?

How to navigate out of rough waters.

August 16, 2012

By James Guarino, CPA/PFS

Paying for college is becoming increasingly challenging for each generation due to the seemingly unending tuition increases that occur each year. I have long maintained that the cost of a college education should be treated more like an investment rather than an expense. Successful college planning requires fortitude, diligence, and ingenuity.

An experienced tuition-paying parent with two children currently in college (and another only two years away), I have performed my share of research when it comes to finding creative ways to finance a college education. On the professional side, I have used my personal experiences to assist clients through this daunting process.

When discussing planning strategies for long-term funding of college education costs, most people have some level of familiarity with the usual suspects, such as 529 plans, Coverdell educational savings accounts, custodial accounts (UTMA/UGMA) and U.S. savings bonds. Each of these investment vehicles offer tax-efficient advantages for individuals looking to save money for college. The 529 plan, when used early and effectively, is the general consensus “hands down” winner of the group although each investment vehicle offers its own unique benefit. What makes each of these plans so powerful is longevity … the longer your client has to use these plans, the greater likelihood for success.

However, what can your client do if the college planning window has nearly closed and the student has a limited amount of time left before graduating high school? What if the remaining amount of time to plan for a child’s college education has dwindled to a few precious years or less? Surprisingly, numerous tactical planning alternatives are available, even for those who have already begun the college application process. Similar to plotting a course for an excursion out to sea, a savvy adviser can help clients navigate these potentially treacherous waters by providing a value-added service in this area, especially for clients who are embarking on this voyage for the first time.

As is the case with any academic undertaking, parents (and students) should be prepared to work hard, do their homework, and persevere against challenging obstacles. Though not intended to be an all-encompassing parental “How to Get Started” instruction manual, the following information will provide more than enough material for CPA/PFS professionals to augment their position as a client’s most trusted adviser; that, along with keeping their clients from feeling as if they need to abandon ship! Here are some ideas to share with clients who are in the final phases of the college planning process:

  • Coping with rough waters: Financing and payment
    1. Become familiar with the myriad financial-aid based loans.
    2. PLUS—non-need based
    3. Stafford—need-based: subsidized and unsubsidized
    4. Perkins—need-based
    5. Pell grant—need-based
    6. Consider debt options not based on financial aid (home-equity loans, CSV life insurance, family loans).
    7. Establish payment responsibilities, such as who will pay (parent/child) and how much.
    8. Evaluate merit-based financial aid when need-based financial aid is not an option; typical categories include:
      • Academics
      • Athletics
      • Talent based (musical instrument, art, etc.)
      • Extracurricular, social group, family legacy, volunteering
      • Search out scholarships for students possessing unique talents or areas of study
    9. Consider using an installment payment plan rather than lump-sum payments
  • Locating a safe harbor: Financial aid fundamentals
    1. Understand how the financial aid process works by taking advantage of income-deferring options whenever possible.
    2. Estimate the Expected Family Contribution (EFC)—this number is the key for determining a family’s ability to receive financial aid.
    3. Be aware of which assets are reportable for the various financial aid applications:
    4. Learn how to skillfully and diplomatically negotiate throughout the admissions process.
  • Docking ship: Creative payment planning alternatives
    • Parents—inquire whether your employer sponsors an education assistance program.
    • Students—work part time while attending school.
    • Students—accelerate graduation from four years to three by taking summer classes and/or classes online.
    • Self-employed parents—provide a source of income for your child by hiring them in your business.
    • Consider obtaining financial assistance from a grandparent via gifting, i.e., 529 plan funding or payment of the student’s tuition directly to the school.
  • Adrift at sea: Other college selection alternatives
  • In some cases clients might need an alternative plan. Here are some options to consider, depending on the circumstances:

    • Attend school abroad.
    • Attending a community college if students are still unsure whether they are ready to make a college commitment.
    • Evaluate the savings in room-and-board costs by selecting a school within commuting distance instead of living on campus. Note: Commuting costs and possibly the purchase of a car will offset room-and-board savings.
    • Defer enrollment for one year after high school.
    • Join the military—ROTC options.
    • Earn college credits while in high school, i.e., have the student select advanced placement (AP) classes in high school.

Conclusion

Being aware of the above strategies and suggested planning ideas further enhances the CPA/PFS professional’s overall client relationship and, it just might be the difference between a client feeling as if they are sailing without a compass and piloting their college planning ship safely to shore.

The AICPA's PFP Section provides hundreds of pages of additional education planning resources for CPAs through Forefield Advisor, an online library of consumer-friendly presentation materials.  For more information, go to aicpa.org/pfp.


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James H. Guarino, CPA/PFS, CFP, MST is a partner with Moody, Famiglietti and Andronico LLP, in Tewksbury, Mass., providing tax and financial planning consulting advice for individuals, closely held business owners, and family office clients. He is a member of the AICPA Tax Section and AICPA Personal Financial Planning Section.

The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management, and investment planning advice to individuals and closely held entities. All members of the AICPA are eligible to join the PFP Section. If you are a CPA who wants to demonstrate your expertise in this subject matter, become a Personal Financial Specialist credential holder. Visit www.aicpa.org/PFP to learn more.