For many families, saving for college has become nearly as challenging as funding retirement.
Sticker prices are steep at many public and private universities, but they don’t always reflect a family’s actual costs. A college diploma can increase the lifetime earnings of its recipient by hundreds of thousands of dollars, but the decision to send a child to university is often about more than dollars and cents.
For financial advisors, this means college planning can spark an important conversation with clients. And the conversation doesn’t end after determining how much — and where — to save.
Ron Lieber, the Your Money columnist for The New York Times and author of “The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make,” would tell you such conversations only scratch the surface of the real question surrounding college planning.
In his free guide for financial advisors, ” How to Have Better Client Conversations About College,” Lieber argues that the question advisors should walk clients through is not how to save or pay for college, but what to pay for college.
U.S. News spoke with Lieber to discuss how financial advisors can use this question to add value to client conversations about college planning. Here are edited excerpts from the interview.
You make the point that the real question facing parents — and the one where financial advisors can add the most value — is not how to pay for college but what to pay. Why is this the case?
How to save is pretty much a closed case at this point. Or I think it’s a closed case since 529 college savings plans provide incredible tax advantages. I get that advisors have lots of other options for people who want more flexibility, but the “how to save” question seems like something where advisors can only provide limited value at this point.
The question of how to pay, as opposed to how to save, is another place where advisors can add value in terms of thinking about the options and walking people through the loan options. But that’s another conversation you have once, and it’s pretty technical and kind of boring.
But the question of what to pay is a question of value, and any question about value quickly turns into a question of values. Advisors can walk a parent through an expansive conversation about their own experience of going to college, what their own parents did or did not do, what they hope to do with their own kid or kids and, if there are two parents in the room, whether they agree. That’s an opportunity to cement a real relationship that feels less like a transaction and more like humans having a deep conversation.
Anybody has the ability to Google facts about how need-based or merit-based aid works, but most people are not capable of self-diagnosing when unhelpful emotions are getting in the way of clearheaded decision-making.
Then there’s all the snobbery and elitism around the process. There’s the idea that something is wrong with you if you go to community college first or go to a school 1,500 miles away that nobody has heard of. Or that there’s nothing wrong with you, but there are a whole bunch of snobs hiring 22-year-olds based on the school they went to. These are assumptions you probably haven’t tested yourself but that you use to determine whether to spend $150,000 or $15,000 per kid.
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How can financial advisors help clients determine how much to pay for college?
The central questions animating this discussion are things like these: What is the definition of success here? How much is enough? What does college mean to you? What does it mean to your kid? Have you considered all of the possible ways to define it? What is your willingness to pay and how does it differ from your ability to pay? And if there is a difference, how are you going to explain that to your kid without your kid hating you? None of those are questions Google can answer for you, and none of those are questions a robo advisor can answer for a client.
One of the first things that’s helpful to do if you’re trying to help walk someone through this experience is to make sure everybody is defining the terms in the same way. It’s perfectly fine to take a term from investing life — return on investment, for example — and try to apply it here. But then you have to drill it down and say, “What do you mean by returns? And what do you mean by investment?” Because return can be measured as the additional dollars in salary you’d earn with a college degree over what you’d earn if you hadn’t gone to college. But it could also be measured in less tangible ways.
What about the return on having your mind blown and grown? What about the return on kinship? What about the return on friendship and mentorship? It’s not easy to put dollar figures on any of these, but they can still be central to the value question around college.
What about families with babies? There’s a lot of uncertainty when you’re trying to plan for a college education that won’t happen for another 18 years. College may look radically different by that time. How can advisors address this uncertainty with clients?
The decision you have to make at the outset is whether you’re going to operate under the assumption that the system itself will come apart at the seams and be replaced by something better and cheaper. But residential undergraduate education hasn’t changed all that much in a generation.
The pricing system and aid system are much different than they were, and advisors fail to study up on that at their peril, but the product itself hasn’t changed that much. And I think there are some people, advisors included, hoping this will all be blown to smithereens by some neutron bomb that will make the whole system obsolete. But I’m not sure I see that coming, and good planning is planning for all possible outcomes. I think there’s a good chance that for parents of kids who are 2 years old, the University of Texas will look a lot like it does today.
What else do advisors need to know about education planning?
If you don’t have a thorough understanding of the need-based financial aid system, how it’s changed, how “gapping” works, you need to go back to school. If you’ve never heard of merit aid, you’re in trouble. If you don’t understand how merit aid works in different segments of the market, not just private but also public, you need to do some homework.
There are credentials that can help people get up to speed. It might be worth considering more formal continuing education. For many people, this is the biggest financial decision they ever make, not just in dollar terms but also emotionally. If you call yourself a holistic financial planner, but you can’t walk a family through every aspect of this potentially $300,000-per-child decision, you may need to learn some more.
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Q&A: Ron Lieber on How Financial Advisors Should Address College Planning originally appeared on usnews.com