“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 1

Higher education is expensive—frighteningly expensive. For most parents, providing for their children’s college education is second only to retirement as their largest investment goal. But even with diligent saving, the first tuition bill may be a shock to your clients, so you may want to keep a jar of smelling salts on your desk just in case.

How can you help your clients face this fear head-on? It’s all about creating a solid plan. 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. Sallie Mae recently published research titled “How America Pays for College 2016,” that reported families are paying less out of pocket for college as they take advantage of scholarships and grants. The report noted that scholarships and grants funded 34 percent of college costs in the 2015-2016 school year, up from 30 percent the prior school year.

Vanguard’s new research, Tackling the tuition bill, provides a practical framework to help you develop a plan with your clients. In this post, I’ll explore the factors that affect financial aid eligibility. (In Part 2 of this series, I’ll provide tips on how to help your clients maximize federal tax perks while also considering how to spend tax-efficiently from assets earmarked for college.)

As you know, household assets and income affect financial aid eligibility, but these sources are not treated equally, based on whether they come from the student or the parents. The graphic below summarizes the key points—income matters more than assets, and student income matters more than parental income.


The potential impact of student and parental income and assets on financial aid.

So what does this mean? Obviously, individual circumstances will vary, but here’s a savvy strategy to pitch to your clients:

  • Spend the student’s assets first.Because student assets affect aid eligibility more than parental assets (oddly enough, 529s owned by dependent children are considered parental assets), it can make sense to spend student assets before spending from a 529 plan. Such an approach gives 529 savings more time to compound tax-free. And by spending the more heavily penalized assets early, students increase their aid eligibility in later years, when inflation may boost tuition costs.
  • Tell the grandparents to hold off.Gifts from grandparents and others are considered student income, which has the greatest impact on your student’s financial aid eligibility. As a result, consider tapping those grandparent-owned 529s in the later years of college, when they will no longer be reported or considered in financial aid evaluations.
  • Don’t drain the 529 right away.Parent-owned assets, including 529 plan accounts, have more limited impact on aid eligibility. Unless a client plans to pay for the entire degree with 529 savings, it can make sense to spend from this account strategically over the course of a student’s college career. The account can benefit from continued tax-free growth. A client may also be able to time 529 withdrawals to create opportunities for additional aid or benefits.

I realize there’s a lot for you and your clients to think about; but with a bit of knowledge of the rules and some planning, the tuition bills can be tamed. Look for part 2 of this series, in which I’ll share some tax-savvy tips for tackling tuition.


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

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