‘Tis The Season for College Planning

Peter Pabich |

It’s college application season and, with that, brings new financial considerations for the families. According to a 2020 study from J.P. Morgan Asset Management, college tuition costs have increased 822% since 1983 - that’s more quickly than any other household expense in recent years. At the same time, financial aid has remained flat over the past decade.

The result?

Families are responsible for covering more college costs out of pocket. But, many are unprepared to do so. In fact, 77% of families have to rule out colleges due to cost.

The solution?

Start planning early. Families with a college savings plan save, on average, two times more for college than those without a plan. These same families end up with 47% less expected student loan debt.

College Planning Options

According to J.P. Morgan Asset Management, over 49% of families are using cash (savings, checking, CDs) for their primary college planning efforts. However, simply saving funds - as opposed to investing them - limits your growth potential.

Instead, when you invest funds - through a 529 education plan, Roth IRA, custodial account, or ESA account - you can potentially grow your funds faster and enjoy tax benefits on your investments.  

While each investment opportunity should be evaluated by you and your advisor to determine if it is the right fit for your goals, investing your funds rather than holding on to them in cash may be more aligned with your college investment goals.

College Planning Tips

  • The sooner you start investing, the better. One of the reasons investing is so powerful is because of compound interest. So, the earlier you start allocating money to your investments, the more time you may have to earn interest.
  • Consider breaking your investments down into smaller, monthly amounts. This makes it more manageable and increases your ability to be consistent with your investments.
  • Consider automating payments into your desired investment vehicle, so they are accounted for and transferred each month without requiring action on your part.
  • Over time, seek to increase your monthly payments and/or allocate extra money from bonuses or paying off debt to your funds.
  • Apply for grants, scholarships, and financial aid, but don’t expect them to cover the full cost of college. Additionally, keep in mind that your family may not qualify for these sources of support.
  • Do not use retirement funds to pay for college expenses.

Not sure where to start education planning for your family? We can help! Reach out to your advisor or contact us at (860) 838-3730 to learn more.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

Diversification and/or asset allocation does not protect against market risk. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.