Each client you encounter as a financial advisor will have different needs when it comes to saving for their children’s education and making the most of available aid. Walking the path with them can be complex. Fortunately, educating them on a few facts can change their options and level or lack of debt.
Integrating Financial Aid Considerations and Education Savings Strategies
Those who save the most may negatively impact their offspring's chances for financial aid. Projecting where help might come from allows families to save in wise ways that consider the finer points of grants and government loans.
When clients figure out how 529 plans and other savings all mesh together into a financial aid package, the path forward is clearer. The best way to figure out how much to save is to consider possible scenarios based on a child’s abilities and academics.
Grants
Around 6.5 million undergraduate students received the Federal Pell Grant in 2023. Unlike loans, Pell Grants apply directly to education expenses and do not have to be repaid. To help clients see if they are eligible for a federal grant, you must ask difficult questions. If the student has a child themselves, it may be one of the few times parental income isn’t considered in qualifying for a grant.
Depending on income range, your client may qualify for various need-based federal, state and university grants. However, they also aren’t as likely to have the discretionary funds to plan for their children’s education if this is the case.
Scholarships
Scholarships are the most likely avenue to help families pay for education costs. Some scholarships go unused every year because people don’t realize they qualify. Take the time to talk about likely schools and point parents to the financial aid department to determine which scholarships their child might be eligible for.
Many corporations and organizations also offer scholarships of varying sizes. Scholarships can be merit- or need-based. If the child loves a sport, they may get a partial scholarship to the school of their choice. A 529 savings plan likely won't impact sports or merit scholarships. However, explain that such awards can reduce how much the student can withdraw from the 529 without incurring penalties.
Loans
Finances are one of the top stressors causing college students to drop out, so go over loan options with clients early and get a game plan. If scholarships fail to materialize, savings aren’t what they should be, or there are zero grants, how will the family pay for college, and what does that look like?
Options include federal or private loans. Talk about paying back the loan and interest costs, and plan a path for as much financial freedom as possible after graduation.
Getting the Most From Aid and Savings
Applying for financial aid means filling out applications like the FAFSA, which looks at income, assets, tax rates and family size to get a Student Aid Index (SAI). This figure considers whether a family can pay for college or not. Tactics to lower the SAI include shifting assets and finding ways to reduce income.
The SAI and Expected Family Contribution (EFC) are the same. The more a family makes, the less likely their child is to qualify for aid. Shifting some assets into accounts with a lower impact on income can improve the likelihood of receiving funds the student doesn't have to pay back.
Clients can move money into parent-owned 529s rather than custodial accounts. You can also encourage grandparent-owned 529s, which do not currently impact aid. However, clients should always be honest about income and assets since the government can request repayment if they find out.
Clients should put as much money as possible into education savings while maintaining other financial goals. Suggest money-making and rebate apps, which can help save more each month. Clients should understand that starting early and contributing often allows them to tap in to compound interest's power.
Tips to Help Clients Prepare
Some of the best tips you can give your clients are the simplest.
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Use online net price calculators to decide how much their child will need to attend the university they prefer.
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Plan as early as possible.
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Apply for grants and scholarships before turning to loans.
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Take advantage of any scholarship or grant you qualify for.
Strategy Pays Off in the Long Run
Funding education looks different for every family. It can be an emotional and monetary stretch. Offering counsel about the best strategies allows parents to set aside enough funding to cover costs without compromising retirement planning. Financial advisors can provide value by staying updated on federal funding policy and discussing how scholarships and private grants add up.
Related: How To Help Clients Assess Their Readiness for Homeownership