How many purchases in life would you spend hours searching for without knowing the rough cost? College is the second-largest purchase your clients will make, next to their home. Imagine looking at homes and obsessing over their details to find the right one, only to then be told by the seller that they will get back to you on the price, just meet them at the closing, everything will be fine, we’re customizing a price just for you, or something else just as frustrating. Seems crazy, right? Yet that is essentially how the college pricing model works. It is unclear to families when the sticker price is the actual price and when it isn’t. Your clients are left to search with strategies that sound like this: “Well we’ll see where they get in, then we’ll figure it out.” Can you imagine your clients purchasing their home that way? No!
No purchase—let alone one as significant in amount and impact—is so vague and hard to understand. It is no surprise, then, that myths and inaccuracies abound regarding paying for college. If your families are taking your advice and saving for college, be sure they are aware of the way to really maximize the value of that savings!
Here are five myths that every family you work with should be aware of:
Myth #1 – Families will get a scholarship if your son or daughter has a phenomenal GPA and test scores.
Unfortunately, for those families counting on their child’s 4.0 GPA to pay for a full ride, this is not true. In fact, a surprising number of colleges don’t give any scholarship money to students based on grades and/or test scores, otherwise known as merit aid. Some schools do, but sadly it usually is not the schools parents think it will be.
Myth #2 – Money saved in a 529 Plan under the child’s name will hurt their chances of getting financial aid.
While it is true that assets in the child’s name outside of a 529 Plan may affect the aid award, assets within a 529 Plan are treated the same as savings in your client’s name and are only assessed at a rate of 5.64%. Families are also allowed a savings allowance based on their age and a few other factors, meaning some part of their savings isn’t assessed at all. Remember, the growth is tax-free money for families to spend on college.
What impacts need-based financial aid far more is the family’s income, which is assessed up to 47%. So they should keep saving!
Myth #3 – Starting at a community college saves a lot of money.
If it went as intended, starting at a community college and transferring to a four-year school to complete a bachelor’s degree would indeed save a lot of money. But two big issues often get in the way of that happening:
- Only 20 percent of students starting at a community college transfer to four-year institutions, which defeats the point of starting at a community college to save money on the cost of a degree if none is actually acquired. The better news is that of those students who do actually transfer, around 70 percent end up with a bachelor’s degree.
- Depending on what school the student transfers to, not all credits may transfer, again defeating the point of the cost-saving strategy, or at least making it less efficient.
Myth #4 – A public university is always less expensive than a private school.
Because private colleges do not receive state tax dollars like public schools, they are far more dependent on tuition revenue to pay their bills and thus are far more aggressive price discounters. In fact, Inside Higher Ed reported that tuition discounting by private schools reached an all-time high of 48 percent last year, and only appears to be rising. But be careful, reread myth one!
Myth #5 – Colleges hold the leverage with their pricing.
Colleges have done a fantastic marketing job of promoting an air of exclusivity with the acceptance process, and they’ve used that to raise their prices nearly every year at rates substantially higher than any other industry, including health care. Since exclusive colleges do hold all the cards, families who want more flexibility in pricing should look beyond those to the thousands of other options.
There are many, many other myths that could be added to this list. The days of just filling out an application and heading off to college are gone, and college is far too expensive to let kids try as they buy. It’s much better to vet the schools well and assure right fit before accepting offers.
The national transfer average for college today is 38 percent, and heading off to the wrong school is an expensive venture, wastes tuition and delays graduation (and the opportunity to start making a salary). Most families make the decision with only a little bit of the information out there and sadly, many parents leave it to their children to do the search. At today’s pricing, that is like putting the kids in charge of their parents’ financial portfolio.
Cozy Wittman speaks nationally about college search, educating families, and training financial advisers and other professionals who work with families with high schoolers. Cozy will be speaking about helping families develop a strategy to pay for college at the 2019 FPA Annual Conference, and you can connect with her on LinkedIn at https://www.linkedin.com/in/cozettewittman.