Paying for College Without Overpaying: Smart Strategies for Families

Good morning, good afternoon wherever you are.

Really pleased to be able to present on advanced college planning, paying for college without overpaying and smart strategies for families. Looking forward to some great conversations here with my partner, Keith Wayne. And Keith and I share responsibilities at Mercer Advisors to educate advisers and clients on advanced college planning topics.

So before we actually get started, I just wanted to give a couple of comments, housekeeping comments, that all of the information that we’re presenting is educational and informational. It shouldn’t be construed as personal financial advice. If you have questions specific to your own portfolio, your own financial plan, please reach out to your wealth adviser.

Additionally, we really appreciate the questions that you submitted in advance. It really helps us tailor our content, and we’d like to answer as many questions as possible during the broadcast.

But if you have additional questions, we would very much like you to put them into the Q and A. And if we don’t get to those questions during the webinar, we will create an answer key to those questions, get them off to the adviser, and then the adviser can follow-up with you directly.

So with that, I’m gonna jump right into the presentation.

So with regard to college, we really like to say that choosing the right college requires three fits. So we really wanna make sure that we’ve got the social fit, academic fit, and the financial fit all in sync. So, of course, we’re going to talk about the financial fit today, but let me just pause on the social and academic fit.

It’s so important that when you’re visiting colleges to make that decision, that we’re looking at the fact that a lot of high school students have had a ratio of, let’s say, one teacher to ten students or fifteen students.

And they may be going to a college situation where they’re going to one professor to four hundred students. That’s very different. And so we need to take that into account. Parents, you know your kids best and whether they can handle that significant change.

Other kids, that’s not a problem at all. Academic fit. So when we look at academic fit, we wanna make sure that the kids that we’re sending off to, let’s say, I don’t know, Duke or Harvard, Yale, we wanna make sure that they can handle the academic rigor of that college. So if we’re if we have a student that’s, let’s say, a C student, even if they could get into Harvard, we wanna make sure that they’re going to succeed in that environment.

So, again, we’re not just looking at, hey, can we afford it, but is this the right school all the way around for our child to succeed?

Now, college costs, everybody knows, have been rising over the past, I would say, couple of decades.

And right now, just national average wise, we’re looking at about almost twenty six thousand dollars for public in state school. If we look at private schools, again, national average, just below sixty one thousand dollars for a one year period. And, of course, then we tack on inflation.

So really what the graph is showing us here is we have a newborn child, so grandparents, you’ve got a newborn, for public instate, we’re looking at about two hundred and sixty eight thousand dollars by the time that they go to college. So we’re looking at the far right graph. And if we’re sending them to private school, well, we’re almost looking at six hundred and thirty two thousand dollars. So this could be the largest expense other than somebody’s mortgage. It could be the second largest expense. So we wanna be very thoughtful and considerate of how much this is gonna cost and start saving accordingly.

So this is actually the first generation where we see parents that are still paying on their own student loans while they’re taking on their children’s loans.

And that in itself is a problem. Right? So there have been a number of initiatives to actually trim the federal loan programs back so that people can’t get into too much trouble with the federal loans, that does not exclude private loans. And so, again, we need to be very thoughtful about the way that we strategize for paying for college. Look, financial aid is confusing, and it has changed a ton. Even in the last year or two, financial aid has had significant changes. We’re gonna talk about some of those changes today and ways that you can succeed in the financial aid game.

So parents often expect that there will be more aid than is offered. I was just on a call with a client yesterday, and their expectation was that they were going to be able to get significant financial aid. But just based on their own personal situation, they literally were not gonna get any aid. So here, they had an expectation before the call that they’re gonna get substantial aid helping their child get through school, and they were actually eligible for zero aid.

So they’re gonna be on the hook for the entire amount. So we wanna, again, choose very carefully for which schools that we’re wanting to attend. The difference between the top one and two schools was significant. One school was discounted by up to fifty percent.

The other school, what they were paying full vote for. So why was that difference? One was a small private school, the other one was a state school. So, some significant differences just in choosing schools.

So aid can either be need based or merit based, and today we’re gonna discuss need based aid primarily.

So the choice of the major does have a significant impact on the starting salary. And I always like to say, look, choose carefully and guide your student, guide your child carefully in this because you saw that the expenses are significant. Let’s just say, round numbers, we’re gonna pay one hundred thousand dollars for four years of school.

And if we’re going to get an education degree, I love our teachers, but if you’re gonna get an education degree and the average salary is forty three thousand dollars, consider how much we’re paying for the degree versus how much we’re gonna make when we get out of school, right? Versus, let’s say, a computer science degree.

And, again, in making those decisions, of course, we’re not gonna have everybody just go get a computer science degree, but consider the degree program when you’re looking at the cost of school. So maybe we don’t wanna spend as much to go get that education degree as we would, let’s say, that computer science degree.

When we look at guidelines for how much to pay or how much to borrow for school, we typically wanna set a guideline and say, Look, for every ten thousand dollars that you borrow, you’re gonna pay roughly one hundred dollars a month back. And that could be for a twenty year period of time. So be aware that with interest, that we’re gonna be paying that back for a very long period of time.

And another guideline is don’t borrow more than your student will make their first year out of school. So, again, if that average salary is fifty thousand dollars then that’s our guideline, but don’t borrow more than that. So, pay the difference? Well, I would say the first thing is saving, right? So saving over a long period of time, allowing the compound growth, hopefully, in a five twenty nine savings plan where it could be tax deferred and then tax free growth.

So we’re gonna talk about some strategies first, then I’ll launch into some five twenty nine’s information. So find a college, and I know I’ve emphasized this, find a college that fits your budget. Very, very important.

Small private colleges, as I just mentioned a few minutes ago, will actually discount up to fifty percent. So the client that I was working with yesterday, their child was looking at Ithaca College. Well, it was exactly fifty percent that the college was discounting their tuition. And so that looked like a much more reasonable college for the child because they had not saved into five twenty nine, much more reasonable than their second choice, which was USC, which, by the way, after the discount, they were gonna give them a whopping four thousand dollars a year, and it was gonna be four hundred thousand dollars for four years of school at USC. So a significant difference. Other ways that you can save.

Start at a community college and then transfer to a four year institution. So go get the associate’s degree at the community college and then simply transfer. Look, the degree certificate that you get at any four year institution doesn’t say, with an asterisk, Hey, they went to a community college for the first two years. This could also be a way for parents, when the kids are not ready to go away to school, this might be a way for them to get their GPA up to get entrance into even a better school. So that’s a key strategy that parents can take advantage of.

What’s another way that we could reduce costs? Well, kids can now take dual credit courses in high school. So while they’re taking the course in high school, it counts towards their degree program in college. They could take AP, so advanced placement, or the international baccalaureate classes in high school.

You could qualify for merit scholarships or grants.

Certainly, those are definitely out there for merit scholarships. I often tell people, look, the best investment that you may make is in doing test prep for SATs and ACTs. So improving the test scores could really help you qualify for more scholarships or grants. Private scholarships are also offered. There are many private scholarships that are unused every year. We have a private scholarship database in the tool that we use that has over six thousand different private scholarships. Again, you can select those down by using different criteria.

There are also public sites that you can use for private scholarships. We’ve got a narrowed down list that we think are better than other lists of private scholarship sites. But private scholarships are not necessarily the easy button. They take work.

Generally, we say don’t apply for scholarships from, let’s say, a lottery system. And a lot of places are like, Hey, enter your name in here, and you may get a scholarship. Probably not worth your time. But those that have an essay may have an oral interview. As long as there’s some skin in the game, typically, your competition is gonna be significantly reduced because not a lot of people are willing to do the extra effort to write those essays to get private scholarships.

And then opportunities to reduce your student aid index. Keith’s gonna be talking in just a few about FAFSA and the student aid index and how that works. But we can look for opportunities to improve our ability to get more financial aid. Now, it really depends on your own situation, and all of those are different. We’re happy to consult with clients on those numbers and what that might look for you individually.

And then, of course, graduating early. Would you be surprised to know that ninety percent of kids think they’re gonna graduate in four years, yet only forty eight percent do, Right? Ninety percent think they’re gonna graduate in four years, only forty eight percent do. So what happens what happens there?

The counselors are pretty laissez faire there. They’re like, hey. You know what? You’re just gonna have to be here a fifth year.

Not a big deal. Well, not a big deal if you’re not footing the bill. Right?

So I’m gonna talk just very quickly about five twenty nine education savings plans. I think this is one of the best tools to prepare for college. Obviously, better to start early and allow compounding to help with those funds. I’ve known a lot of people who have literally put in fifty thousand dollars, and by the time the student was ready to go to college, they had two hundred thousand dollars.

Now your experience may be different. Obviously, those growth rates can vary in different markets. But a five twenty nine education savings plan was named after both section five twenty nine of the internal revenue code. They are extremely flexible.

So the reason I say that is you can change the owners of the accounts. You can change the beneficiaries of the accounts. You can move them from custodian to custodian. They are, managed by the individual states.

So there are actually forty nine states that participate in five twenty nine plans. The state of Wyoming is the only state that does not. You also have significant federal and state tax considerations. So there are about thirty states that have a tax benefit associated with five twenty nine plans, either a tax deduction or a tax credit.

There are actually nine states where it doesn’t matter what state’s plan you own, you still get that individual state’s tax benefit. That is so cool that you could literally choose from any state’s plan.

Professionally managed investments. So a lot of the investments that you and I would invest in for our retirement accounts may be the very same investments that you would find in five twenty nine. So very good investment choices all the way from stocks and bonds to what we called enrollment based funds that actually are on a glide path that get more conservative as the student gets closer to college. Of course, we wanna make sure that that money is not at high risk if we should have a market pullback. And then there are a number of estate planning and gift tax advantages as well with with five twenty nines. So the government continues to expand on the five twenty nine code, and we’ll talk a little bit about that going forward as well.

Michael, we have a a question from Frank. Great question. Frank asks, is it better as a grandparent to start a five twenty a new five twenty nine plan or just contribute the one that the parents opened?

Yeah. That’s a great question. So first of all, I’ll just, steal a little bit of your thunder, Keith, on the FAFSA side. So the fine the federal financial aid, the rules changed two years ago so that grandparents and literally anybody other than the parents who own the five twenty nine, those funds are not counted on the FAFSA.

So if a grandparent is the owner of the five twenty nine, not counted for federal financial aid. So from that aspect, I would say if the kids are a financial aid candidate, absolutely. I think the grandparent should be the owner, realizing that if you’re the owner, you’re also responsible for making the distributions. So keep that in mind.

Now, FAFSA looks at the assets or parents as of the date that they submit the FAFSA application. So you could do some a little bit of juggling, let’s say, with the owner of the five twenty nine. As long as the owner is not the parent at the time they submit the FAFSA, then those assets are not countable. Now, let’s say that the grandparents are in a state where they could get the tax benefit.

Of course, I think that’s great.

It also helps with federal financial aid. I would encourage the grandparents to take advantage of that. If the grandparents are in a state, let’s say, like California or Texas, and the child is not going to be eligible for financial aid, then I would say have the grandparents give the money to the parents, let the parents invest the money. Again, it just is really dependent on their own tax situation and federal financial aid.

Thank you.

So I I think I mentioned before, five twenty nine plans have significant tax advantages. Thirty states have a state tax deduction or a credit for contributions into the five twenty nine. The funds also grow state and federal tax deferred. We say tax deferred because unless they’re used for qualified education expenses, so tuition, fees, room and board, books and supplies, computer and Internet, those are the qualified categories. If it’s for something other than that, then it would be a non qualified withdrawal and we would suggest not using the money for that because there’s simply too many ways to use five twenty nine funds and and to take a nonqualified withdrawal.

If you did I’m sorry.

Sure. Mary has a a question on this. What would the steps be for the concrete steps be for selecting the best five twenty nine plan for a two year old grandchild?

Yeah. So so first first and foremost, I would say grandchild is important because I I like when grandparents are the owner of the five twenty nine. And then secondly, if we’re looking at which state’s plan that we want to invest in, and, again, you can have a five twenty nine plan in any state and use that money in any state. So there are no boundaries for that.

It’s not like, hey, I invested in the Colorado plan and therefore I need to the kid can only go to a Colorado school. That’s not the case. It can be used nationwide. In fact, five twenty nine funds can be used not only in the US, but there are four hundred institutions outside of the US where five twenty nine monies are allowed to be used as qualified funding.

Now, how would I go about selecting the best five twenty nine plan? I would look at the investment managers. I would look at I’m not as concerned about fees, although I try to select the lowest fees. I will say that five twenty nine, by and large, are not gouging on fees. Now, are some lower than others? Of course.

In Colorado, our direct plan is about twenty nine basis points, so point two nine percent. And I think you’ll find that most five twenty nines have a pretty reasonable internal fee for managing the plan.

So I would look at the management, who the investment managers are. You could look at the fees. You could also look at who’s running the program. So, to me, this is more important. The service aspect is quite important.

If you’re working with a smaller state plan and they don’t have a very good service arm, it could be difficult to process service requests. It could be difficult to do transactional items if they’re not doing it allowing it online. So I like the bigger plans, frankly.

We actually like the Utah plan very much. That’s the one that Mercer works the most closely with. We can actually manage the account for the client if it’s under our account bridge program.

So I mentioned before that money that’s invested or contributed into a five twenty nine plan can be used across the country, even, again, across the world. Four hundred foreign institutions will allow the use of the 529s. But I wanted to key in on this, that vocational schools, trade schools, apprenticeship programs are also eligible for five twenty nine funds. In fact, you can use five twenty nine funds now with recent legislation for certificates that let’s say for the certified financial planner certificate that Keith and I both hold, that we could have under the current law, we could have used monies from a five twenty nine plan to pay for that as well as the renewals of those, so the education on the renewals. So, lot of great uses and the government continues to expand the use of 529s.

So a lot of questions come up around, What do I do if I have leftover money in a five twenty nine? Well, in the old days, it was a little bit more restricted. But I will say now, significant changes, one of them that we’re gonna talk about is the five twenty nine to Roth rollover. I love this provision.

I was actually working out the five twenty nine program for the state of Colorado when this came out, so it was an awesome talking point to educate advisers on. But, before we get to the five twenty nine to Roth rollover, I wanted to mention kind of the easier things that you could do with extra five twenty nine funds. You could change the beneficiary. There’s no limit on the number of times that you can change the beneficiary in a five twenty nine. You could actually change the beneficiary back to yourself.

So you don’t even have to change it to, let’s say, a sibling or, you know, another relative. You could literally change it back to yourself. And let’s say you’re retiring and you wanted to go back to college because you really didn’t get to enjoy your college experience before, but now you have got some interest and you wanna go back to school. You could certainly do that with five twenty nine funds.

You could use the money for, let’s say, your student’s graduate or doctoral program. So let’s say they finished their undergrad program and they still have got money left over.

Just save it for the grad or the doctoral programs.

You could also use it for legacy education planning for grandchildren, for great grandchildren, and so on. So it could be legacy education money. That’s just such an awesome use that I always encourage that avenue. As well, you can do the five twenty nine to Roth rollover.

Now there are some rules, and I’ve got those on the slide. So there is a lifetime limit. This was just enacted not very long ago, but it’s thirty five thousand dollars, is the lifetime amount. Now the plan has to have been in place for at least fifteen years.

So that does limit some people because they may not have had their five twenty nine in place for that period of time. But for those who have been saving for a long time, this is a great option.

The rollover amount is the Roth contribution limit. So whatever the annual contribution limit is, that’s the amount that you can move per year.

Now, it does take the place of your Roth IRA contribution. So if you do a rollover, it does take the place of the Roth. So, you can’t do both a Roth contribution and do this rollover.

Presumably, let’s say you’re moving the entire amount, that’s it for your Roth for that year.

The beneficiary must have earned income equal to at least the amount transferred in a given year. But there are no AGI limits. So, in other words, let’s say under the Roth contributions, once you have certain income level, you can no longer make Roth contributions. But under the five twenty nine to Roth rollover, you’re still allowed to roll over the money even if you made, let’s say, a million dollars. Okay?

Oh, we have, Michael, a question here from Lewis.

Lewis is asking, what are the options for using leftover five twenty nine funds without incurring a penalty? I guess, beyond the rollover to a a Roth IRA, what else can you do?

Yeah. So I think beyond what I’ve already talked about, one other item that comes to mind is people who get scholarships. So students who get scholarships, there is it is still considered a nonqualified withdrawal, but you are allowed to take out dollar for dollar out of the five twenty nine based on the amount of scholarship that you received. So, if you get a scholarship for, let’s say, dollars one hundred thousand, you literally could remove that one hundred thousand dollars Now, the penalty is removed, Keith, but you’d still pay ordinary income tax on the earnings only. So keep that in mind. Earnings only is what you would pay ordinary income tax. Even for death and disability, they remove the penalty but you still pay ordinary income tax on the earnings only.

So, I think we talked about all of those different options of what you could do with the leftover five twenty nine funds. If you have a specific question around that, we would be happy to engage with you to discuss maybe the specifics of that. But again, I suggest changing beneficiaries using the money for grad school, doctoral programs, again, legacy money for grandchildren, great grandchildren, and so on.

Great. Thank you.

Absolutely. And with that, Keith, I’m gonna turn it over to you, to start through the financial aid section.

Thank you, Michael.

So FAFSA. What is the FAFSA? I think Michael’s mentioned that term already, and that is the free application for federal student aid, which is the form used by colleges and schools to determine financial aid, which includes loans, grants, scholarships, work study funds. These are all different areas of financial aid.

Now a question that we get quite often is should I file the FAFSA if I’m not gonna qualify for financial aid? I I think I make too much money.

Is it worth my time to even filling out the FAFSA?

So here you see, the answer is yes, and, you see some different reasons for this on the screen. If you have a job loss or you’re disabled or, you or your spouse should pass away unexpectedly, then you can file what’s called a professional judgment appeal with the college, based on changing income or changing financial situation.

And if you go to the college making an appeal like that, which would which would come through the student, they’re going to want to know, did you fill out the FAFSA? And and they want to have that in place if you go to them if if your financial situation has changed, and now you do need or you think you may qualify for aid.

Another other reasons would be, if you could back up, Michael, merit based scholarships, grants, they’re going to, want to know that you’ve completed the FAFSA. That’s gonna be a prerequisite for those. Yep. Private scholarships, may require them.

And then the last one, the last point there, that’s an interesting point. FAFSA, then show an admissions office that you can pay for all four years. So if you don’t need financial aid, but you’re in maybe a competitive, you know, situation where your student is applying for a school. Everything being equal, schools will take a student that they know is not gonna be dropping out because they can’t pay.

So, you know, this could help show, yes, we are going to be able to pay for all four years. Go ahead.

FAFSA rules have changed, in just the last few years. This is important to be aware of if maybe you’ve had a student in school before, and now you have another one, or maybe you’ve talked with your neighbors about the way things used to be. Important changes in the last couple of years, grandparents and, and other family members or or friends that might have a five twenty nine plan for your student are no longer considered in the FAFSA calculation. So that that’s a big win. That’s a good thing.

You know, the five twenty nine plan in your grandparents name doesn’t count anymore, for your child. Multiple on the negative side, if you have more than one student in college at the same time, there’s no longer any benefit to that in financial aid with the FAFSA, the federal form.

We have the five twenty nine fund for the child that’s applying for the FAFSA. That’s the only five twenty nine account that counts. If you have multiple children that have, you know, multiple five twenty nine plans, only the five twenty nine plan for the child that you’re doing the past before, that’s the only one that’s assessed. And then another big change for divorce parents, whoever is providing the most support for the child, that’s the parent who’s going to be counted on the FAFSA, not not necessarily the one that has custody.

And, Keith, Christy asked if five twenty nines will hurt your FAFSA financial aid package.

Yeah.

Great question. So the five twenty nine plan is counted, and and so the normal way that you do a five twenty nine plan, it’s in the name of one of the parents or and with the child as the beneficiary. So a way around that now because grandparents, or or maybe an aunt or an uncle, their a a five twenty nine plan is owned by them, they are the owner and your student’s a beneficiary, then that’s not counted on the FAFSA. So that’s a way around that now that didn’t exist, you know, before the last couple years. Great question.

So when the FAFSA is filled out, you do that application, there’s some of your assets are going to be accessible and some of them are not.

You see on the left side, you if you have nonqualified assets. Right? Cash, stocks, and five twenty nine plan for that student. Maybe there there’s an old education, plan that some people still have, Coverdell, ESA, that gets counted.

Mutual funds bonds. Okay. So anything that would be like a like a nonqualified asset, including if you have rental property or if you have vacation property, that gets counted. Your home equity does not get counted.

That’s on the right side. You’ll see there. The one, typo that we have, I think, through the whole presentation here, small business value, that’s that’s recently been moved over to the right side. So if you have a small business, that that for a little while, that did count, and now it’s moved back to the right side.

So small businesses are now nonaccessible again along with retirement accounts are nonaccessible. You’ll see pensions, annuities, and then, yeah, cash value, life insurance. Those are all not assessed on the FAFSA.

And this is a kind of a busy slide. Let’s go from left to right.

And on the left, you’ll notice on that kind of that purplish, lavender part on the left side that your family’s income is going to count for a lot more on this formula that’s used to figure out your student aid index. It’s gonna count for a lot more than the assets. Alright? And then you’ll also see that the student income and assets are going to count for more than the parents’ income and assets, and that’s part of why we recommend for a college savings, five twenty nine plan is is going to be that that’s one reason a five twenty nine plan is is a great way to go versus an UGMA or an ATMA, which would be considered a student asset.

And then, you see upper right hand corner, important point to remember, the FAFSA and also the CSS profile, which we’ll talk about here in a minute. Those are available in early October, and I’d recommend just go ahead in October, and you wanna fill those out. And those need to be filled out annually. Every year, those get filled out.

And then some people ask, well, what what is the student aid index? So over there on the right, that’s not the amount that the college is saying that that you’ll need to pay for college, but it’s the number used to calculate how much aid a student’s eligible to receive. Okay? And that’s that’s what’s the number that’s used to determine your financial need.

Okay. Now we have the CSS profile. And the CSS profile, this is a application beyond the FAFSA that’s used by I checked today, and it looks like about three hundred and fifty schools. So, you know, something over three hundred schools, highly selective, mostly private, but there’s some public schools that use the CSS profile.

And I’ll warn you, if if you’re looking at a school and you can check, you can, like, Google it, you know, CSS profile schools, or you can if you’re applying for school, you can, you know, do a search and see, and they’ll they’ll let you know. But it is more invasive, more complex, takes longer than the FAFSA.

An upside of the CSS profile is they do, at times, if they will provide institutional aid if multiple siblings are in school at the same time, which is, you know, that’s a benefit that the FAFSA doesn’t have.

How can you cut the cost of college?

What can you do? So over on the left side, if we’re looking at families that that don’t have a lot of need, you know, start with that, you know, private scholarships. Right? And and we can help you with that.

If you, you know, talk with your wealth adviser at Mercer, we can set up an appointment with Michael or myself, and and we can give you access to our private scholarship database that Michael mentioned. Test prep is a big thing. Test prep and GPA have an impact on merit aid, and and so that can help. And then Michael mentioned, before college credit plus, I believe, over there on the kind of the bottom left hand side.

And then something else, and and it depends on your state what this is called. And and I’m in Virginia. And in Virginia, they call it early college. And my youngest son just graduated, you know, couple months ago in May with his high school diploma and also an associate’s.

So he was able to finish an associate’s degree while in high school, get dual credit for high school and college. That’s a great way to, to really get ahead. And so now he’ll be able to with the help of CLEP exams, he’ll be able to finish his four year degree in two years of college. And so a CLEP exam is a college level entrance, you know, exam for different subjects.

And so my son’s gonna be taking three of those. And so, yeah, you can save a lot of students are able to save, like like, a semester of college by taking those those exams.

And going over to the right side, if we’re looking at somebody that has a lot of financial need, you know, we’ve talked a little bit already about student aid index and and what you can do as far as asset location.

Having five twenty nine plans in the grandparents’ name is one example.

You know, having more of the assets and more in the parents, which is natural rather than the students.

And then the private scholarships, some private scholarships do consider financial need. So that is something, you know, you can go ahead and apply for those. And then I would also recommend to double check the scholarships that are awarded through, the college or university when you get that financial aid award letter. I would double check and see what all scholarships and grants are offered through the school.

When our oldest son, was a sophomore in college, we found out about a a scholarship that he qualified for as a freshman, but his freshman year had already passed. So he did not get that scholarship. So I would always double check even what you get from the financial aid office in case they miss something because they are people too and can miss things. Okay?

Keith, we got a question from Debbie, and she asked, what are the options for college students that don’t qualify for financial aid?

Yeah.

One one thing, I guess, that’s not on here, of course, would be, getting a job. Right? So, yeah, that’s still something that people do is they’re working their way through school can can really make a difference. There’s there’s work study that that you may still qualify for on campus, and then that that can be used for helping to pay for school, you know, off campus jobs.

Another opportunity comes to mind would be internships. So summer internships, you know, there’s a, you know, two or three summers, you know, during the college years. Some of the internships now actually pay, and some of them pay pay well. So there’s interns out internships out there that can really help with school expenses, so I would look into that.

And and I would look into scholarship opportunities once you start school, you know, such as, honors programs are available, resident assistance, you know, that are in dormitories where you’re in charge of a of a dorm.

All can be a way still that that can help pay for school. So there’s definitely options out there. Your your student’s major may have, you know, some scholarships or grants specific to that major that that you can ask about, you know, just talk with, you know, that school that they’re involved in, and that can be also a great way beyond, everything that we have here on the slide already, you know, those those things. Good question.

And, you know, I I mentioned, you know, looking into things once you get rolling in school, and and this slide reminds us that when we’re looking at college, we’re looking at a four year experience.

And it’s when you’re looking at how much you’re gonna borrow, you really wanna keep in mind when you’re looking at your financial plan, we’re looking at not just one year, you know, just not just what is the cost of college, but what is this gonna cost us over all four years? And you really want to build, like, slide, you know, points out. You wanna build a strategy and think of it as part of your part of your overall plan. I think sometimes people think that way about a house, but in college, people sometimes say, well, hey. Pick where you wanna go, and then we’ll find a way to pay for it. And that’s not really the greatest strategy to find out a way to pay for something after the fact. So you wanna, like, find a school that’s in your budget, look at all four years, and then then you can put a great strategy in place.

Next.

And and so yeah. On on this, how families actually pay the college bill, and this slide points out ways to do that. And we wanna start on this slide in the upper left hand corner. And I would add before grants and scholarships, like I just said, start by finding a school that fits the budget that you have as a family.

Like, we don’t approach buying a home that way. Right? We don’t we don’t go home house shopping for whatever house. And then after we decide the house that we love, we say, well, what is our budget?

Right? We we find out what our budget is, and then we go look at at houses. So do that with colleges.

Then grants and scholarships, upper left hand corner here, which is free. So free is great. So you always wanna start with whatever grants and scholarships that you can get because those don’t need to be repaid. That’s different from loans. Alright?

Let’s start there, including the scholarships offered through the university and then also private scholarships that are outside the university.

And and some sometimes, you know, parents think, well, my son or daughter will get an athletic scholarship, and maybe they will, but most do not. So you you wanna look in just everywhere you can for grants and scholarships. Then five twenty nine savings plans, which Michael’s talked about already, you know, then then go to those, then federal direct student loans after those first two items. And advantages to federal direct loans, they have fixed rates. They don’t need the credit check.

So that’s that’s different from private loans. And then there’s some some repayment protections that are in place with federal direct loans. So that’s where you would wanna look first, and and students can borrow. We’ll We’ll we’ll have another slide on this up to twenty seven thousand over four years. We have then go to the lower left hand side, college payment plans. Some colleges, you know, will have payment plans, so you could ask, you know, the individual schools because those vary. You could ask about those.

And then another one that’s that’s out there, there are state schools that have some loans available. Massachusetts and Iowa have have loans available wherever you live in the country, and then some different states will have loans. Usually, you need to live in that state or go to school in that state. So that’s something to look into and and seeing if your state has a a loan if you need to go that route. Okay? And then after that, you you could look at private lenders, which right now, among private lenders, if your credit is strong, you can get rates that are lower than the parent plus loans, especially in in you know, which is the last choice there, which we’ll talk a little bit more about that in a minute.

Okay.

Keith, Don Don asked a question that actually comes up quite a bit. We were talking mostly about undergraduate, degrees and, paying for the cost of that, But how can these strategies be used for graduate school, and does parental income affect financial aid for older students?

Yeah. That’s a great question. Yep. Absolutely. So these these, strategies, all they apply to grad school. Now grad students are would be considered independent students, so the parental income is not going to be a factor in the the financial aid that you’re going to get. It it’s also it would also apply, you know, if your student is independent, maybe they’ve gotten married.

But but, yeah, for grad students, these strategies all are going to still apply. Right? The grants, the scholarships, five twenty nine savings, yep, federal direct loans. And, yeah, you can talk about with states or colleges about payment plans, private lenders. Yep.

And so those those strategies would still be in place for and now there’s a Grad Plus. You’d you’d you’d be borrowing on your own rather than with the Parent Plus if you’re a grad student. But good question.

And then let’s look at kind of the talk about loans here just for a minute. There’s federal direct student loans, and that’s what we we said a couple minutes ago that students can take out, and they’re subsidized. That’s the need based version. And with the subsidized loans, interest doesn’t start until repayment begins, which would be six months after graduation.

That’s the difference between a subsidized and an unsubsidized. And unsubsidized, there’s not financial need, and the interest begins right away.

And I just mentioned twenty seven thousand, that’s how much a student can borrow over four years of undergrad, and, nineteen thousand then would be the max that could be subsidized. An important point is you’d need to you borrow it year by year because it’s a use it lose it kind of thing. So if you don’t borrow anything your freshman year and then you come to your sophomore year, then it would be the the max that the student could borrow would be twenty seven thousand minus five thousand five hundred, and that and that’s the way that that works.

Some parents, by the way, like to have their students go ahead and take this out even if it’s not needed, even if the family doesn’t have a financial need to give their kids what we call skin in the game and might talk with their students and say, okay. Keep your grades up. Stay on track. You’re graduating in four years, and then we’ll pay the the loans back. And you can pay this back right away. If you do that, that can help your student build up credit. So it’s an excellent way to build up credit.

That can be a a strategy that some families use.

Private student loans. As I said before, there there’s some rates that are better than especially the parent plus loans that are out there now. And, yeah, borrowing from this by the student or the parent, we’re talking banks and unions or maybe a cosigner requirement for the student.

And there’s there’s a lot of of of pretty good rates out there right now as long as your credit is strong.

And that this this would be, you know, if, you know, if you need some funds beyond the, you know, the federal direct student loans, this would be another place to look. Alright. Let’s go to the next slide.

And then finally, the federal direct parent plus loans, big origination fee, and it’s over four percent on the origination fee. And the interest rate is now over nine percent and, yeah, starts accruing right away by by the parent. And so that this is truly this is a a loan that’s legally the responsibility of the parent. Even if you have an agreement inside your family that the student’s gonna pay it off, it’s legally the, the obligation of the parent.

And the rules around this have changed with the one big beautiful bill act from a year ago. So as of July first, twenty thousand dollars per year is what you’re able to borrow. It used to be more unlimited, and now it’s twenty thousand a year that the borrowing is capped up to sixty five thousand over four years.

So if you borrow the sixty five thousand in the first, you know, you know, three years plus, then then you’re out. And the sixty five thousand is the the max on that. And, you know, limited repayment flexibility. It’s not eligible.

A parent plus loan is no longer eligible for income driven repayment plans. They used to be, but they’re not anymore. So that is a very important thing to keep in mind. It’s still a a strategy for some families if, you know, you’ve you’ve talked everything through and and your credit is not great.

It’s it’s still a strategy that’s out there.

Thank you. You can go on. Alright. And then one thing that we have that we can offer that we could share with with anybody that would would like one, we have some college planning calendars that we’ve put together that just kind of help you keep on track.

And if you look over there at this this example of the the senior year, you know, academic focus, you know, don’t coast. This will be a time, you know, talk with your guidance counselor and and help with kind of the items up there, just lining everything up, you know, your classes that you’re taking and so forth. And then under the next part down on that sheet that you see, meet with Mercer advisers for advanced cost planning discussion. So, you know, at Mercer, you can arrange with your wealth adviser to meet with Michael or myself.

And and what we can offer at Mercer advisers is to really help with the financial part. Going back to the beginning of the presentation when Michael was talking about the academic, social, and financial fit, we can take a look at, you know, your whole financial picture and how the college planning piece fits into that. So, definitely, that’s a resource that we are able to provide. But, yeah, we have some, some checklists, some calendars to keep you on track through the four years of, high school.

Thank you, Michael.

Keith, thanks so much for for that discussion. I, did look in the queue, and there were a couple of great questions. Tom asked, is there a good way for grandparents to save for college without interfering with financial aid.

Yeah. There there is. And we’ve talked about how the five twenty nine plan is is generally the best way to do that. It’s not going to be counted against students for financial aid if it’s owned by the grandparent.

And you can fund those, by the way, if if if you have the resources available up to to five years ahead as far as your annual gifting funding that you’re able to do.

And another way, you know, if you have the means, you you can give, or you can you can give money directly to the school where the student is going, And and that is a a better way to do things outside of a five twenty nine plan than giving money to the student. If you give money to the student, then it gets counted against the student for financial aid. So, they have you wanna you wanna give money either through a five twenty nine plan or directly to the school would be the two best ways for a grandparent to do that. Yep.

Keith,

Martha also submitted a question.

Said how can five twenty nine funds be used for graduate schools abroad?

Oh, wow. Good question. So grad schools abroad, there’s there’s a lot that do qualify. They need to be a title four eligible school under the Department of Education, and and you can do a Google search, and there’s a list that you can, look out for that.

So as long as they’re a title four eligible school, if they’re international grad school, then then you can use five twenty nine funds, you know, the same way that you would here for qualified education expenses that that Michael went over early earlier. Thank you. Yeah. That’s a good question.

Yep.

And the last one that I’ve got, noted was, from Karna. It was, about how you can search or apply for scholarships. Can you hire a company or a person to do the search for you?

Yeah. You can. You can. And that can be helpful because people that that you might hire are are generally they’re, you know, doing this all day or that’s a focus of theirs. You can obviously, there’s there’s places you can search for scholarships on your own online. There’s great resources out there. But, yeah, some there are companies that specialize in this.

You know, if you talk with us through Mercer again, you know, set up an appointment with your wealth adviser, and Michael and I can get on, and we can share that private scholarship database and work with you and help get you pointed in the right direction for for those scholarship searches. Yep. Good question.

Michael, I have some questions. I a couple other questions maybe maybe you could ask.

Stan has asked, could you compare and contrast Trump accounts with five twenty nine plans for grandchildren?

Yeah. That’s a that’s a pretty common question since Trump accounts recently came into being. So we really look at five twenty nine accounts as being the premium education account. So if we separate the two, use the right tool for the right job.

Five twenty nine plan should be used for education, again, all the tax benefits surrounding those versus the Trump accounts, again, a great account, but look at that more as a let’s look at it like a child IRA, if you will. So until the child is eighteen, it’s not technically an IRA. When they turn eighteen, it becomes an IRA for the child, but look at it more as a retirement account. Or look at it more like this is a great way to help the child buy a house, let’s say, because we can save the entire time until they’re eighteen, and then literally, we could convert that money that’s in the Trump account and convert it into a Roth, giving them a, literally, a tax free IRA account, right?

A Roth account at that point. So that’s a great strategy. But, I separate the two five twenty nine’s for education, Trump accounts for, let’s say, home purchase. Retirement is a great starter for retirement for kids.

I think it’s a great way to encourage kids that once they hit eighteen, they’ve already got an IRA established, and that could be the conduit for all of their retirement accounts in the future, all their four zero one ks’s. When they leave companies, they’ve already got the IRA set up. That’s, you know, I think that’s really foundational for families.

Thank you, Michael. And and maybe one more question here from the, questions that have been submitted. Sherry asks, we do not qualify for financial aid due to income.

What are our best strategies to manage cost?

Yeah. So we talked a little bit about, some of those strategies, within the presentation. So I would say, you know, from a cost management standpoint, doing the dual credit courses like we talked, Keith, and you gave some great examples about your son.

CLEP tests, again, being able to CLEP out of a class saves money going to a community college up front and then transferring to a four year school.

Really great ways, very strategic, that you can save money.

Again, the selection of a school is probably the largest dollar impact. Don’t overpay for college. You know, go get a great education at some of these private schools that discounting their education up to fifty percent is a wonderful way to save money.

Great. Thank you, Michael. Any closing thoughts today?

I really just appreciate everybody’s time today.

Hope everybody enjoyed the information that was presented today in the webinar.

If we did not get to your question, we will be compiling answers to all of questions that were in the Q and A that we did not get to answer. And we’ll get those answers sent to the advisers. And of course, the advisers will reach out to the clients that asked the questions. So we appreciate your time so much and hope you have a great rest of your week.

Thank you.

Thank you.