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Higher education and student loan debt continue to be pressing concerns for many client households, driven by the rising cost of college tuition and the increasing burden of student loan debt. For many families, college funding competes directly with other financial goals, such as purchasing a home or saving for retirement.
While planning for your child’s education can feel stressful, here are actionable steps your clients can take to feel more prepared.
Key Takeaways
- Starting with a career-based salary target can help families make more informed decisions about education costs.
- The type of institution—public, private, in-state, or community college—can significantly impact the return on investment.
- Advisors can help clients explore a range of funding options, including 529 plans and UTMA accounts, tailored to their financial priorities.
What I’m Telling My Clients
1. Determine a Target Salary Range
When a client has a preteen or older child, I begin our planning discussion by asking what industry or profession the child is interested in. From there, I encourage clients to explore the Bureau of Labor Statistics Occupational Outlook Handbook to determine the average salary for that career path.
2. Decide on the Type of Educational Institution
Once we’ve identified a target salary range, we discuss the type of educational institution their child is considering: community college, four-year public or private university, in-state or out-of-state. We then project the total cost of attendance and evaluate whether the child will be able to repay any student loan debt, or—if the parents are covering the cost—will the investment yield a worthwhile financial outcome?
Important
After evaluating the tuition-to-income ratio, we explore various scenarios for funding college education. One rule of thumb is to take on no more student loan debt than a first year’s worth of earnings in the student’s chosen career. So, if the starting salary is $60,000 per year, you should not borrow more than $60,000.
We also discuss which attributes of a college or university are most important to the student and family. I direct clients to use tools like the Federal Reserve Education Portal to facilitate these discussions, along with additional resources on financial aid and college funding.
3. Plan for Younger Children
When a client has younger children, the planning approach shifts. Since the child’s future career path is still unknown, we focus on the potential cost of education and the types of institutions the family might consider. We evaluate savings strategies, such as 529 college savings plans and UTMA accounts, based on the client’s priorities and tax situation.
Note
After completing this due diligence, we work together to create a tailored and sustainable education funding strategy that aligns with the family’s overall financial goals and in the most tax-efficient and strategic manner possible.
The Bottom Line
The cost of college can feel overwhelming, but with early planning and a thoughtful strategy, families can fund higher education without sacrificing their long-term financial goals. By taking these steps, you can feel more confident and financially sound when it comes to planning for your child’s future education.
