Smart College Planning

Thanks for tuning in to today’s Smart College Planning webinar, where we’re going to discuss strategies to save, budget, and prepare for future college expenses. I plan to stay reasonably high level as we go through today’s content, but I think you’ll still find a few helpful takeaways, whether college is right around the corner for your family or still 15 to 20 years away.

Let’s start with our agenda. We’ll discuss why it’s important to start planning now, what college actually costs, how the FAFSA works, funding options available for families, the power of 529 plans, strategies for cutting college costs, ways to help students build financial skills while they’re still at home, and finally, how college planning fits into your broader financial and legacy planning goals.

Why Start Now?

The biggest reason to start early is that time is your greatest ally. Compound interest can be an incredibly powerful tool when saving for any financial goal, particularly one like college that has a specific timeline attached to it. The earlier you begin saving, the more flexibility and options you’ll have in the future.

Another important factor is that college costs continue to rise at a significant pace. Over the past decade, college expenses have generally increased by approximately 6% to 10% per year. As a result, giving your savings more time to grow can help offset some of those rising costs.

It’s also important to remember that college funding should not come at the expense of your retirement planning. We generally encourage clients not to sacrifice retirement savings in order to fully fund a child’s education. While there are multiple ways for students to finance college, there is really no substitute for retirement savings if you fail to prepare for it. Students may have access to scholarships, grants, work-study programs, and even loans, but there are far fewer options available for funding retirement.

What Will College Really Cost?

As you can see from current averages, the annual cost of tuition, books, fees, and related expenses at a four-year public institution is approximately $27,000 per year for in-state students. Out-of-state tuition can be substantially more expensive, while private colleges and universities may cost $60,000 or more per year.

When calculating college expenses, it’s important to think beyond tuition alone. Housing costs can vary significantly depending on whether a student lives on campus, off campus, or at home. Food costs, meal plans, transportation expenses, books, technology requirements, and other living expenses all contribute to the total cost of attendance.

Because of these expenses, it’s helpful to think about what resources may be available to help offset costs. Potential funding sources include scholarships, grants, work-study programs, student loans, parental support, and assistance from grandparents or other family members.

The Western Undergraduate Exchange (WUE)

One program that many families are unfamiliar with is the Western Undergraduate Exchange, commonly referred to as WUE.

The WUE program is an agreement among a number of western states, including Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico, Colorado, Wyoming, Montana, Alaska, Hawaii, and California. Through this program, qualifying students may receive significantly reduced out-of-state tuition rates at participating schools.

Generally speaking, WUE allows eligible students to pay approximately 150% of the resident tuition rate rather than the full non-resident rate, which can result in substantial savings. Not every school participates, and not every academic program is eligible, but the list of participating institutions is larger than many people realize.

My oldest daughter is currently attending an out-of-state university, and she qualified for the WUE scholarship. The savings have been substantial and have significantly reduced the overall cost of her education.

If you haven’t explored the program before, it’s absolutely worth researching which schools and degree programs participate.

Is the Degree Worth the Cost?

Another important conversation to have with students is not only what their education will cost, but also what that education is likely to provide in return.

This doesn’t mean discouraging educational goals. Rather, it means evaluating whether the economic benefits of a particular degree justify the costs involved in obtaining it.

For example, if a student attends a very expensive law school but ultimately enters a career path with relatively modest earning potential, there may have been lower-cost educational options that would have led to the same outcome. The goal is to strike a balance between educational aspirations and financial realities.

These conversations can help students think intentionally about career paths, educational requirements, and the long-term value of their investment.

Demystifying the FAFSA

The FAFSA, or Free Application for Federal Student Aid, serves as the gateway to many forms of financial assistance, including grants, loans, and work-study programs.

Some schools require students to complete the FAFSA simply to access certain scholarships or aid programs, even if the student is not applying for need-based assistance. For that reason, we generally encourage every family to complete the FAFSA.

The FAFSA process does require both student and parent financial information, and it can take some time to complete. However, even if you don’t believe you’ll qualify for aid, it is often worthwhile because it can open doors to opportunities that might otherwise be unavailable.

The FAFSA must also be updated annually, so families should expect to revisit it each year that the student remains enrolled.

Funding Options for College

There are several different ways families can save and pay for educational expenses.

529 Plans

529 plans are generally the most powerful college savings tool available. We’ll discuss these in more detail shortly, but they offer significant tax advantages and flexibility for future educational expenses.

UTMA Accounts

A UTMA, or Uniform Transfer to Minors Act account, allows assets to be transferred to a child while still being managed by an adult until the child reaches the age of majority.

These accounts can offer certain tax advantages because income may be taxed at the child’s rate. However, once the child reaches the applicable age, the money becomes entirely theirs. They may choose to use it for education, but they also have the freedom to spend it elsewhere.

Because of this lack of control, UTMA accounts are generally not our preferred college funding tool, although they can be effective in certain situations.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts were common before 529 plans became widely available. They offer tax-advantaged growth and can be used for both college expenses and certain K-12 education costs.

However, they have relatively low contribution limits and are less commonly used today because 529 plans are generally more flexible.

Investment Accounts

Some families simply save in a regular investment account. While these accounts do not provide specific college-related tax benefits, they offer maximum flexibility.

If a child ultimately receives scholarships, decides not to attend college, or chooses an alternative educational path, the funds remain fully available for other purposes.

Scholarships

Scholarships can play a significant role in reducing college expenses. Many scholarships are not based on financial need and may be awarded for academic achievement, athletics, music, community involvement, leadership, or affiliation with various organizations.

There are thousands of scholarships available each year, and many students fail to apply simply because they are unaware of the opportunities.

Student Loans

Student loans should generally be viewed as a last-resort funding option, particularly for undergraduate education.

While loans provide access to funding when necessary, they also increase the overall cost of an education because of interest expenses.

Understanding Student Loans

There are several major categories of federal student loans.

Direct Subsidized Loans are available to undergraduate students with demonstrated financial need. The federal government pays the interest while the student remains in school and during certain deferment periods.

Direct Unsubsidized Loans are available to undergraduate and graduate students regardless of financial need. Interest begins accruing immediately and remains the responsibility of the borrower.

Direct PLUS Loans are available to graduate students or parents of dependent undergraduate students. These loans are credit-based rather than need-based, and interest accrues from the start.

Direct Consolidation Loans allow borrowers to combine multiple federal loans into a single loan with one payment.

Current interest rates generally range from approximately 6.5% for undergraduate federal loans to roughly 8% to 9% for certain graduate and PLUS loan programs. Because of these rates, students should borrow carefully and only when necessary.

The Power of 529 Plans

When it comes to college funding, 529 plans are generally our preferred savings vehicle.

Think of a 529 plan as being somewhat similar to a Roth IRA for education. Contributions are made with after-tax dollars, and there is no tax deduction for making the contribution. However, the account grows tax-free, and withdrawals are also tax-free when used for qualified education expenses.

529 plans offer flexible investment options, allowing families to invest more aggressively when children are younger and gradually reduce risk as college approaches.

Contribution limits are generally tied to gift-tax exclusion amounts. Currently, individuals can contribute up to $18,000 per year per beneficiary without triggering gift tax filing requirements.

One common misconception is that 529 plans can only be used for traditional four-year universities. In reality, eligible expenses may now include trade schools, technical programs, vocational training, and other qualifying educational options.

Another recent enhancement allows certain unused 529 assets to be rolled into a Roth IRA for the beneficiary, subject to various rules and limitations. This greatly reduces concerns about overfunding a 529 account.

One additional advantage is beneficiary flexibility. If one child doesn’t use all of the funds, the beneficiary can often be changed to another child or qualifying family member. This allows families to continue leveraging the tax benefits over multiple generations.

Smart Spending for College

Budgeting remains one of the most important financial skills students can learn before heading to college.

Parents can play a significant role by teaching students how to manage spending, understand the difference between wants and needs, and make thoughtful financial decisions. Basic lessons about food costs, housing decisions, transportation expenses, and everyday spending habits can have a tremendous long-term impact.

Credit cards deserve special attention. College campuses are full of credit card marketing, and many students are offered credit opportunities before they fully understand how interest, minimum payments, and debt accumulation work.

Helping students understand these concepts before they leave home can prevent costly financial mistakes later.

Creative Ways to Reduce College Costs

One of the most effective cost-saving strategies is starting at a community college.

Tuition at a local community college may cost only a few thousand dollars per year compared to tens of thousands at a four-year institution. Completing general education requirements before transferring can significantly reduce the total cost of a degree.

Living at home is another effective way to save money. Housing and meal expenses represent a major portion of college costs, and eliminating those expenses can create substantial savings.

In Washington, the Running Start program provides another excellent opportunity. Students can earn both high school and college credit simultaneously by taking courses through a community college while still enrolled in high school.

My son currently participates in Running Start through CBC while attending Kamiakin High School. If he completes the program, he will graduate high school with a two-year degree already completed, substantially reducing future educational costs.

Building Financial Skills While Saving Money

College planning is not just about saving money. It’s also about helping students develop skills that will benefit them throughout life.

Internships, part-time jobs, budgeting experience, and financial literacy education all help students become more confident and financially independent.

Scholarship searches are another important area where students can take ownership. Many colleges now offer online portals that allow students to complete a single application and automatically qualify for hundreds of scholarship opportunities.

While some scholarships may only provide $500 or $1,000, those amounts add up. Every dollar received through scholarships is a dollar that does not need to be borrowed or paid out of pocket.

Protecting Your Legacy

College planning should be viewed as part of a broader financial plan and estate plan.

Educational savings accounts, beneficiary designations, trusts, and other planning tools can all work together to help create opportunities for future generations.

529 plans can be particularly effective from a legacy-planning perspective because beneficiaries can often be changed over time, allowing educational assets to pass from one family member to another while maintaining their tax advantages.

At Cornerstone, we view college planning as one piece of a comprehensive financial plan that also includes retirement planning, estate planning, risk management, tax planning, and wealth transfer strategies.

Final Thoughts

College is expensive, but early planning can make a tremendous difference. The combination of saving early, using tax-advantaged accounts such as 529 plans, pursuing scholarships, understanding financial aid opportunities, and making smart spending decisions can significantly reduce the financial burden of higher education.

Whether your child is preparing to leave for college next year or is still years away from graduation, there are steps you can take today to improve your family’s position.

Thank you for joining us. I hope you were able to take away some useful ideas and strategies from today’s discussion. If you have questions about your specific situation, please don’t hesitate to reach out. We’d be happy to help you build a customized college planning strategy that fits your family’s goals and financial circumstances.

Thanks again for tuning in, and have a great day.