Commentary: A Holistic Approach to College Planning

St. Louis Business Journal
By By Dr. Kat Cohen, IvyWise and Danae Domian, Edward Jones
July 12, 2018

Despite the increased conversation about tightening college admission rates and spiking costs of higher education, students and parents alike tend to only focus on the former when preparing for college, leaving financial planning until the last minute.

Higher education is an investment, and it’s one that deserves greater thought than waiting until students are a year or two out from graduating high school. College planning requires a holistic approach, both academically and financially, and should start as early as possible.

Because universities look at all four years of applicants’ grades, courses and activities, all of these elements need to be a priority early on. This can be as simple as putting your child on an appropriate academic track and having some casual conversations about his or her college goals. The same effort extended to ensuring your child is in the best academic position possible should also be applied to setting your child up financially — affording them the ability to explore and accept all available academic opportunities.

According to an Edward Jones survey, 43 percent of respondents used, or plan to use, personal savings to pay for college expenses. While relying on savings to foot the bill may sound like a good option, many do not consider the implications (i.e., having to de-prioritize retirement planning or saving for unexpected emergencies). Furthermore, with dwindling state and federal financial support and rising student debt, options like financial aid and student loans are becoming less favorable financing options.

One of the most overlooked savings strategies is a 529 plan, which can significantly help families plan and pay for education expenses grades K-12.

A 529 is an educational savings account with certain tax advantages designed to encourage families to save for future education-related expenses. As long as the intended use is for qualified education expenses, anyone, regardless of age or where they’ll attend college, can be the beneficiary of a 529 plan. In the event a beneficiary decides not to attend college, the owner can generally change the beneficiary to another family member.

Contribution limits depend on the state’s plan but are typically more than $200,000, and a federal gift tax exclusion allows a contributor to give up to $15,000 per year per beneficiary. For example, Missouri’s maximum contribution per year is $8,000, at the time of this writing.

It’s never too early to start planning for college. Done properly, beginning academic and financial prep early alleviates pressures later, preventing those “If I had only done this differently” moments. Whether you’re focusing on academics or finances, it’s important to do your research, consult with experts, and create a plan that allows for flexibility. While your student prepares his or her mind for their college experience, you can prep your wallet, making the day when those college acceptance letters arrive joyous and without the cloud of financial decisions looming overhead.