“Buying” College in the 21st Century: Clients Should Search for Colleges They Can Afford

Last month, I went shopping for my dream car. I researched and then drove a few Mercedes, Infinitis, and Audis. They were all impressive in their own ways, but I settled on a beautiful dark grey Audi A7. It accelerated and handled better than the others, and the subtle baritone growl of its turbocharged V-6 was nothing short of seductive. It was luxurious and sporty, which was perfect for me! I told the dealer that I wanted to buy it, and we went inside the dealership and I signed the papers. I then looked up at the dealer and asked, “So how much does it cost?”

That would never happen, right? Nobody would ever fall in love with and commit to making a more than $100,000 purchase without knowing the price. Unfortunately, that is exactly what most families do with the college selection. They tour school after school, fall in love with the beautifully manicured campuses and the dorm suites with granite countertops. The student gets accepted to this “dream” school, but mom and dad turn pale when they get the financial aid award letter weeks later. The parents then must say no to the dream college or raid retirement savings and/or take on significant debt. The failure to limit the college search to affordable colleges has put many parents in this unenviable position.

This article lays out a strategy that shows you how you can help clients identify those schools likely to award their family the most aid and to eliminate those that are cost prohibitive. Armed with that list, clients can then calculate the net cost of each school. This way, they can begin their college search with a list of great schools that they know they can afford before they step onto their first campus.

Need-based or Merit Aid?

The vast majority of aid falls into the need-based and merit categories. Since need-based awards (on average) are larger than merit awards, the first step should be to see if they qualify for need-based aid, and that means calculating Expected Family Contribution (EFC).

Step 1: Calculate EFC

Calculating and minimizing EFC for both FAFSA and CSS Profile is a critical first step in the effort to save on the cost of college. My favorite calculator is the College Board’s calculator, because it calculates EFC under both methodologies. Once your client has their estimated EFC, they should do what they can to minimize it, but that discussion is beyond the scope of this article.

Step 2: Compare EFC to COAs

Compare the EFC it to the Cost of Attendance (COA, which is tuition + room and board + books and fees + travel). It will fall into one of these three categories:

  1. The Good—EFC is lower than the COA of in-state public colleges.
  2. The Bad—EFC exceeds the COA of most private colleges.
  3. The Ugly—EFC is lower than the COA at private colleges but higher than public colleges.

You can find the COA and other data on Collegedata.com, my go-to source. You can utilize the College Match search engine there to filter schools by over 15 different criteria, including geography, major, four-year graduation rate and financial aid criteria.

Step 3: Let “The Good, The Bad and The Ugly” Guide You

The following sections dive deeper into how the Good, the Bad and the Ugly can guide you and your clients in the search for affordable schools.

“The Good” Strategy—EFC is Lower than In-State Schools

If your clients have a low EFC and their student is a high academic achiever, the student will be a very attractive candidate and colleges will award a lot of aid to attract them. Search for schools in College Match that meet a high percentage of need (start at about 85 percent, then drop lower if necessary) and have a four-year graduation rate over 50 percent. If your client’s student is not a top achiever, search in College Match for “Moderately” or “Minimally Difficult Schools” and gradually lower the “percentage of need met” until you get enough colleges in your results.

Finally, don’t forget about in-state public schools. Since their COA is generally lower to start with, the net cost of a state school may be lower than a private school. Be wary of out-of-state public schools, however, as they tend to be priced similar to a private school but offer little merit or needs-based aid to out-of-state students.

“The Bad” Strategy—EFC Exceeds Most Private Schools

If your client’s EFC is exceptionally high, they will pay sticker price unless their student gets merit aid. Many parents make the mistake and assume that their bright honor student will get merit aid no matter where they apply and are in shock when they get their financial aid package that includes no aid at all. Elite schools like the Ivys, Northwestern, Amherst, Cal Tech, Stanford and Notre Dame do not offer merit aid because they can attract top students without “paying” them to attend.

If clients don’t want to pay sticker price, they should consider some lesser-known schools (e.g., Furman, George Washington, University of Miami) which offer merit aid to most students. These schools are trying to compete for the same students looking at Notre Dame and Boston College, but realize that students may need a financial enticement to attend. In College Match, select the appropriate “Entrance Difficulty” filter, select schools that offer merit aid to at least 20 percent of students in the merit aid pulldown and check the box “Include only students without financial need.”

Once you have the list of schools from the above search, check the “Admissions” tab for each school to see if the student’s SAT/ACT/GPA is in the top 25 percent. If they are, you likely will get at least the average merit aid award at that school. Go to the “Money Matters” tab, and under the “Profiles of Financial Aid—Freshmen” section, look at the last line which is the average award for merit-based gift.

If a student in a high EFC family has average grades or lower, look again at your in-state public schools.

“The Ugly” Strategy

The “Ugly” strategy is named accordingly as you need to deploy a mix of the Good and the Bad strategies. It’s messy and ugly, and there is no quick and easy approach. Clients may want to let the COA of the particular school they are targeting drive their approach. Similarly, if a second sibling will start college within two years of the first, the EFC will be split between the two and clients will be able to leverage aspects of the Good strategy.


The college selection process is no picnic, and has become excessively complicated over the years due to the rising cost of college. Unlike days of old, significant planning must be done before students even apply if your client’s goal is to minimize the net cost of college. By estimating EFC and net cost of college before your client’s student applies, they can eliminate those schools that will put their student’s future and their own retirement in financial jeopardy. If clients don’t have the time to invest in this process, they should seek outside help from a qualified college financial expert.

Robert Falcon

Robert J Falcon, CFP®, CPA/PFS, is the founder of College Funding Solutions LLC, and the founder of Falcon Wealth Managers LLC, both in Concordville, Pa. He holds his MBA from the University of North Carolina Kenan-Flagler Business School.

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Helping Clients’ Children Understand Student Loans

Many students entering college might not know enough about the costs of borrowing money for college.

That’s where you come in. Advisers can stand out by helping families graduate to a higher level of knowledge about a young person’s financial future.

You may be aware that when students first apply for federal financial aid, they must complete an entrance counseling session. Specifically, undergraduates borrowing under the Direct Subsidized Loan and Direct Unsubsidized Loan programs, and professional or graduate students applying for the Direct Subsidized Loan, Direct Unsubsidized Loan and Direct Plus Loan programs, must take an online, 20- to 30-minute tutorial that describes what they need to know before borrowing for college.

With student loan defaults surpassing $120 billion in the first quarter of 2016, researchers from Kansas State University’s Personal Financial Planning program undertook a study to examine whether effective student loan entrance counseling leads to higher financial knowledge and, ultimately, greater likelihood of repayment.

The Good News

After a robust statistical analysis (the details of which we will skip), the researchers found student loan counseling can contribute to increased borrower financial knowledge, which in turn increases both the borrower’s confidence and ability to situationally apply that knowledge to make better borrowing decisions. Further, increased confidence and ability lead to better financial management and ultimately to a reduction in expected student loan debt.

Now, The Bad News

One-third of students reported not remembering the entrance counseling and many reported that the entrance counseling was not useful. Financial advisers seeking to become their clients’ CFO or family wealth adviser can use this apparent deficiency to add value to their most important relationships. With the fall semester top of mind for many households, advisers can offer to help their clients’ children manage their balance sheet, and in particular, any liabilities they will face upon graduation. There are some immediate, actionable suggestions advisers can make including:

  • The repayment of federal student loans must not be taken lightly and needs to become the highest budgetary priority when due;
  • The easiest way to ensure payments are made in a timely fashion is through an auto debit program, rather than bill pay or payment by mail; and
  • There are a number of repayment options, some tied to income, that may be more beneficial for recent graduates compared to the standard 10-year repayment option.

Advisers looking to set themselves apart should consider incorporating these services into their business model. Offering assistance will not only help bridge relationships with the next generation, but will let existing clients know how much advisers care about each family member’s well-being and future success.

For more tools and tips, visit our Wealth Management program.

Editor’s Note: A version of this blog post appeared on the Janus Henderson Blog. You can find it here

Matt Sommer

Matt Sommer is Vice President and leads the Defined Contribution and Wealth Advisor Services team at Janus Henderson. In this role, he provides advice and consultation to financial advisers surrounding some of today’s most complex retirement issues. His expertise covers a number of areas including regulatory and legislative trends, practitioner best practices and financial and retirement planning strategies for high-net-worth clients. 


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Helping Your Clients Face Their College-Financing Fears—Part 2

In part one of this two-blog series, we established that higher education is frighteningly expensive. But with a proper plan in hand, you and your clients will be better prepared to tackle college tuition bills in an organized and financially sound way.

Recently, I explored the factors that affect financial aid eligibility. In this post, I’ll provide some tax smart tips to help your clients maximize their tax benefits. (Our new research, Tackling the tuition bill, has all the details on both topics.)

While it may seem intuitive to first tap into the qualified education savings accounts when the bills come, there are a few things your clients need to consider before doing so.

Educate your Clients on Potential Tax Breaks Before They Tap 529 Accounts
Consider the AOTC for the parent, or the child. Don’t rush to deplete the 529 account in the first year, as there may be some beneficial tax credits available each year. For example, the American Opportunity Tax Credit (AOTC) is available to taxpayers who meet income eligibility requirements.

The credit amounts to the first $2,000 spent on qualified education expenses and 25 percent of the next $2,000, for a total of $2,500. Funds counted toward this credit must come from current parental income or parental-owned assets held in taxable accounts. In other words, they cannot be funds from qualified savings plans, such as 529 plans. This tax credit can be taken each year in which qualified education expenses are incurred for a maximum of four years per student. With a total benefit of $10,000 over the student’s educational career, it may be smart for eligible parents to first take advantage of this credit before spending from 529 accounts.

Note that if the parents’ income exceeds the AOTC limits, but the child is reporting income for that tax year, the child may have the option to claim the AOTC. This would require the child to file as an independent, rather than as a dependent the parent’s tax return. Although this is possible, there may be other financial implications in doing so. The AOTC is refundable up to $1,000.

See if your clients qualify for the LLC or other deductions. Some taxpayers, such as those who have exhausted the AOTC, may qualify for the Lifetime Learning Credit (LLC). This credit is worth up to $2,000 for expenses related to tuition and other qualified expenses for students enrolled at an eligible financial institution (note that for the 2016 tax year, the Lifetime Learning Credit is worth 20 percent of the first $10,000 of qualified college expenses. The LLC is not refundable). The credit can be used each tax year and applies to undergraduate and graduate school, as well as programs geared toward professional degrees or expanding job skills.

If they do not qualify for the AOTC or the LLC, the Tuition and Fees Deduction may be another option. For the 2016 tax year, this deduction can total up to a $4,000 reduction in income. Note that only one tax credit or deduction (AOTC, LLC, or Tuition and Fees Deduction) may be claimed per tax year. Keep in mind that IRS Publication 970 is a good source for more information on education tax credits and deductions. The figure below provides a brief summary of the most basic information.


Tax benefits may ease both tuition and tax bills.

Be Mindful of Tax-Sensitive Withdrawals
Aside from the potential tax benefits that can be received from paying for college expenses out of pocket, there are tax implications to be aware of when your clients are withdrawing from retirement accounts and taxable savings accounts to pay for college. Withdrawals from parent-owned and student-owned tax-deferred retirement accounts (such as traditional IRA and 401(k) accounts) are taxed as ordinary income. Note that withdrawals that meet the criteria of qualified education expenses are not subject to the 10 percent penalty tax. Withdrawals from parent-owned and student-owned Roth IRAs, on the other hand, can be taken tax free as long as the distribution is composed of the contributions made into the account on an after-tax basis. Withdrawals that represent earnings will be taxed as ordinary income. Note that Roth withdrawals in excess of contributions are not subject to the 10 percent penalty tax if used for qualified education expenses.

As you’re aware, care should be taken when selling assets from taxable accounts, whether parent-owned or student-owned. Realized gains will be subject to capital gains tax, but they may be offset with realized losses elsewhere.

Although the challenges of paying for college expenses may seem overwhelming to your clients, proper planning is critical to a successful outcome. Remember that bottle of smelling salts I suggested keeping at your desk in part 1 of this series? Put it away! Remember that balancing financial aid and grant considerations with tax-efficient spending strategies is a good way to help your clients start facing their college financing fears.



Maria Bruno, CFP®
Senior Investment Analyst
Vanguard Investment Strategy Group
Philadelphia, Pa.


Editor’s note: This post originally appeared on the Vanguard Advisor Blog. See also Part I of the series. The author gives a special thanks to her colleagues Jonathan Kahler and Jenna McNamee for their research contributions.