College Financial Planning: Top Tips From Experts

Expert college financial advisors have identified several financial planning blindspots, such as starting too late, underestimating the total cost of education, not knowing your options, putting college investments in the wrong places, and selecting colleges based on price tags, which can lead to needless debts, dropping out due to lack of funding, and mental fatigue.

Over the past 20 years, college tuition for both public and state universities has risen by 180%—about 5.5% every year.  5 expert college financial advisors weighed in on the biggest financial planning blindspots,  and how you can avoid them. 

Starting too late

Many parents start thinking about saving for their kids’ college education too late in their lives, and this could incur needless debts, dropping out due to lack of funding, and mental fatigue. 

Jill Fopiano, the CEO at O’Brien Wealth Partners, says saving early gives families the additional benefit of the reinvestment of capital gains, dividends, and interest. This adds to the returns of the account and creates greater value over time.

“Even if it’s a small amount, the power of compounding is real and especially effective in a tax-advantaged account like a 529 where your investments grow tax-free until distributions are taken out for tuition and other expenses,” Fopiano tells Worth.

Fopiano’s best definition of starting early is opening a 529 plan (a tax-advantaged savings account for education costs) upon the birth or adoption of a child and making regular contributions—monthly, quarterly, or annually—along the way. “You may even want to encourage family members to contribute to it in lieu of outright gifts to the child,” she adds.

Starting early is also beneficial for financial aid applications, says Jack Wang, a board-certified college financial aid advisor at Innovative Advisory Group.

“If a highschool student is filling out a FAFSA [Free Application for Federal Student Aid] in 2024 against studies next year, they cannot maximize their chances for aid,” Wang says. This is because there’s only a limited amount of money to go around, and filing late may result in the loss of available grants.

“Start as early as Freshman of high school, which is a full two years before most high school students and families start to think about college,” Wang advises. 

Underestimating the total cost of education 

Some families fail to account for all expenses in their financial planning. These hidden expenses include housing, transportation, health insurance, visa fees, textbooks, and the cost of living—which can vary widely depending on the state. Director of strategy at MPOWER Financing, Sasha Ramani, says students and their families should develop a comprehensive budget before applying to schools. “This budget should cover not just tuition but also living expenses, healthcare, travel, and potential visa renewals.” 

Ramani also points out that it’s important to contact university financial aid offices, current students, or financial institutions for  insight into the true cost of education in specific regions. “Tools like cost-of-living calculators or financial planning templates could help supercharge the process.” Wilmington Trust’s family legacy advisor, Jerry Inglet, agrees. 

He advises that families extensively review the college bill so kids don’t opt into line items they don’t necessarily need. Going over each expense may uncover unnecessary fees,” Inglet says. 

Not Knowing Your Options

There are three options a family should understand and before they begin the financial planning journey, says Wang. They include:

• What the colleges think the family can afford—determined by the Student Aid Index (SAI) or Expected Family Contribution (EFC).
• What the family can afford—based on their savings, debt, cash flow, etc.
• What the family is willing to pay—usually based on their values, future plans, and equity between children.

These options drive which planning strategies parents should take, especially for financial aid applications. But many dive headfirst into planning after only understanding the first one, Wang said. “The most common answer I get when I ask families whether they’ve considered the other two options—[what they can afford and what they’re willing to pay]—are usually either “I don’t know” or “I haven’t thought about it,” and that’s a problem,” says Wang.

This mistake typically results in parents making plans to pay 100% of tuition—a truckload of debt in waiting—then hoping that some financial aid will come in along the way. “When I state that 100% of college costs could mean upwards of $90k per year, the family would then realize what their initial choice meant, and say what they really mean is something a lot lower, like $40k per year.”

Parents can avoid making this mistake by consulting expert college financial advisors to understand what options they have based on their savings, values, number of children, etc, and how to maximize them, Wang says. Afterward, they should sit with their children and have the difficult conversation about how much they’re willing to pay, not just what they can afford. 

Putting College Investments in the Wrong Places

You can get saving early, but saving poorly could mean losing money in the process. “Saving money in the student’s savings account is a prime example,” says Chandani Rao, the CEO of My College Planning Team. “These savings get assessed at either 20% or 25% depending on the college’s methodology for calculating aid, but if held in a parent’s savings account, savings are only assessed at 5% or 5.64%.” 

Under the new FAFSA rules, 529 money can now be owned by grandparents, instead of parents, meaning you don’t have to report them on the FAFSA. 

“These assets are subject to a much lower inclusion ratio—meaning a smaller portion is expected to be used towards college expenses,” adds Fopiano. Retirement contributions to tax-deferred accounts like 401Ks and IRAs also do not have to be added back as income. 

This process is tax efficient and more financial-aid friendly. However, Rao asstutely points out that it needs to be done in the family’s base years because of the two-year look back on income.  

Selecting Colleges Because of Their Price Tags

Sometimes, a hefty price tag doesn’t mean the college would cost you more. There are a lot of colleges across the U.S. with price tags of $75,000 or more that may cost less—even a lot less—than a student’s in-state university options.

“For need-based aid, colleges use different formulas for its distribution,” Rao shares.  

“Though some colleges only fill 40% to 50% of a family’s demonstrated financial need (based on the income and assets), others will fill 90% to 100% of their demonstrated financial need.” This is why a college with a price tag of $90,000 may cost less for families with an income of around $125,000 or less than their in-state university options.

 Colleges also use different formulas for how they distribute merit-based aid, according to Rao.  

“Some colleges are much more generous than others in how they distribute merit aid and other discounts to their students. While some distribute an amount only equal to 5% of their cost of attendance, others will distribute as much as 50%,” she tells Worth.  

Families need to do thorough homework when it comes to their kids’ education and do it early. The comprehensiveness of this homework will rely on the experts you’re speaking to. Consult financial advisors who specialize in college planning and stay on top of research about the financial viability of every institution you’re considering—and you can avoid these pitfalls.