Here Are the Biggest College Funding Mistakes, According to Financial Advisors

Jody King, director of wealth planning, Fiduciary Trust Company: One big mistake is the failure for the student and parents to have an honest discussion about the financial impact of choice of college. That means the impact on the family’s wealth as well as impact on the child if there are loans to be repaid.

The college choice process is very emotional for both the family and the student, and sometimes it becomes hard to have those honest discussions about the financial impact of the student’s school choice. Families need to understand what the actual cost of attendance would be after non-loan financial aid. A lot of families think there’s more financial aid than there is, and they’re sorely disappointed when they don’t get what they expect. And then the family would agree on what they can reasonably contribute and the extent to which loans will be used. The concern with loans is how they impact the future financial flexibility of the student or sometimes the family.

And within this needs to come a discussion about the student’s intended major and how it will affect cash flow. You have to think about it as a family: Will it affect the parents’ ability to fund the college education for the next child? Or the parents’ ability to fund their retirement? That whole conversation needs to happen up front, before the school selection process gets too emotional.

Charles Thomas III, founder and president, Intrepid Eagle Finance: One common mistake is giving up before you start. Too many families assume they don’t qualify for any financial aid. They believe that if you’re in the middle class there are no scholarship opportunities. In reality, there are families who fit firmly in the definition of middle class and still qualify for financial aid by going through the process. Some families are surprised when they find their student is considered “in-need” at one school but not at another.

Another mistake is not spending time on the right things. I see families misallocate effort on which financial aid they pursue. I’m all for getting all the dollars you can, but not all aid is created equal. Private and nonprofit organization scholarships make up a fraction of the money available to students. The most money available comes from direct aid from the school, federal, and state aid. I encourage families to budget their time and effort with this in mind.

Finally, there’s starting too late on planning. Getting an early jump on paying for college goes beyond just saving in a 529 plan. For example, families who want financial aid for the 2026-2027 school year will be asked questions about their financials for 2024. Numerous financial aid questions are on a two-year lag. That means a decision your family makes this year could help or hurt your student down the line. An early start on dual enrollment credit, test prep, AP classes, and other strategies can pay off if you start early enough.

Kelly Regan, financial planner, Girard Advisory Services: Parents should avoid putting assets—a brokerage account or a gift from grandma or whatever it is—in the student’s name. Depending on the amount of assets an individual has, that can have an effect on what they qualify for if they apply for grants or loans.

Another mistake is not communicating with your child as far as contributing and what you expect the child to pay for and what you expect them to pay you back for. And not being honest and realistic about what you can afford could leave either the parents’ retirement in jeopardy or could mean the child starting off with loads of high-interest debt. Another is failing to consider costs other than tuition, such as rent and food. Make sure you’re accounting for those, and if you have a 529 plan, do research because many of those items, as well as things like books and computers, can be paid for through a 529.

Timothy Smith, founder and CEO, Aurora Private Wealth: First, most people lack a plan of any kind. If they’ve done anything it is haphazard. Second, most don’t make an effort to calculate how much college may cost by the time their kid gets there or what amount of savings is needed over time. Therefore, most people don’t have a disciplined savings approach.

In addition, many only consider 529 plans as vehicles. For most people this is fine, but there are some situations where the investment limitations of 529 plans make them a bit less attractive. As an example, if you work for Google or

Nvidia
,
you might want to gift or transfer some of your company stock, with its anticipated high growth rate, to help fund college. You can’t do this with a 529 plan. You could use an [Uniform Gifts to Minors Act] account or a trust account instead, depending on other factors. You wouldn’t get the tax benefits of a 529, but you could do it if you believed the stock could outperform the 529 even on an after-tax basis. You could also consider a Coverdell IRA for this, but the annual contribution amounts are limited.