Navigating the financial aspects of college can be challenging, especially when emotions and expectations come into play. As a financial advisor, my goal is to help clients make informed, responsible choices, including those related to funding their child’s college education. This guide aims to provide practical strategies for balancing educational goals with financial well-being, ensuring a rewarding college experience without overwhelming debt.
Let’s start by recognizing the most dangerous words in college planning
I’ve heard many parents say the things below this during the college planning process. If you find yourself thinking or saying any of them, in my opinion, seek guidance immediately!
“You deserve to go to the best school you can get into.”
“They’ve always wanted to go to that school.”
“If you get in, we will figure it out.”
“This is the way I did it and it worked out fine.”
What would I like to hear you say instead?
“We want to find the best school for you – that means a school that matches your interests, your learning style, where you are most likely to succeed, and that fits our budget.”
So where should you start? Keep reading and we’ll get your head straight, before you say something you might regret.
Build a Smart College Funding Plan
With talk of federally funded grants evaporating, we’ve been getting more questions from families about how to plan for college. Many are wondering what this means for scholarships and how to prepare if aid becomes harder to get.
Having a flexible, well-thought-out plan—both for college saving and college spending—is more important than ever. Saving for college is about building the right accounts early. Spending for college is about making smart choices BEFORE the bills start rolling in. This guide will walk you through both.
Start Early: A Simple College Planning Timeline
- Start saving as early as possible. If you can, begin contributing to a 529 or custodial account by your child’s first birthday.
- Think of college funding as a mix: savings, cash flow, and student loans. Relying on just one source rarely works well.
- Determine how much you can and will contribute to your student’s college education.
- By sophomore year of high school, introduce the college search as a “best fit” and “value” decision. It’s not just about rankings – prioritize student well-being, individual interests, and strengths.
- If you’re considering hiring a college selection consultant, reach out early in junior year of high school at the latest.
- Aim to finalize college decisions early in senior year. That’s when many merit-based aid offers are at their strongest.
- As college gets closer, consider reducing contributions to 529s to avoid overfunding.
- A good benchmark: Try to keep student loans below what your child expects to earn in their first year out of college.
Your College Savings Plan: Where and How to Build It
A college savings plan is about building up the right accounts while your child is still growing. The goal is to put time on your side and give your money a chance to grow—without locking you into anything too restrictive.
529 Plans
529s are a popular choice—and for good reason. Plans like Vanguard (Nevada) and my529 (Utah) offer low-cost, age-based investment options.
- Pro: Tax-free growth if used for qualified education expenses.
- Con: A 10% penalty on earnings if the money is used for non-qualified expenses.
UTMAs/UGMAs (Custodial Accounts)
These are brokerage accounts set up for minors by a guardian.
- Pro: Money is out of the your estate, controlled by you at first, can be invested how you want.
- Con: The child gets full control of the money between age 18–21 (depending on the state), and the account can reduce eligibility for financial aid.
Brokerage Accounts
Standard taxable investment accounts can also be used.
- Pro: No restrictions on how you use capital nor earnings in the account.
- Con: Gains are taxed each calendar year.
IRAs
While IRAs can be tapped for college expenses, this is rarely a good move. You could be giving up retirement security and you could be hit with withdrawal penalties as well.
Savings Accounts, CDs, and Money Markets
These are safe, but the tradeoff is low returns—so they’re best for short-term needs or when college is very close.
Let Others Chip In
Many 529 plans allow you to create a custom gifting link, so family and friends can contribute directly to your child’s education savings. Birthdays and holidays can be a great time to ask for a gift that pays off in the long run.
A College Consultant Might Be Worth It
While we include college planning in our Comprehensive Wealth Management services, we often refer clients to a college selection consultant for the most critical decision in this process.
As a stereotypical Gen X’er, this idea sounded crazy to me. Can’t we just drive around to look at a handful of campuses – all of which are beautiful and teeming with the life we are dreaming about for our child? Then I’ll just ask my 18-year-old to make the biggest decision they’ve ever made in their life after a tour given by the sales team. That’s how I did it!
By the way, what do they call that sales team at the college? The admissions department.
No, I’ve come to believe this is literally the worst way to make this decision.
One of our favorite consultants, College Inside Track, says “The cost of a poor decision and other mistakes in the process has never been higher. The average college-related debt for both parents and child combined is nearly $50,000, and preventable mistakes in the financial aid process can unnecessarily cost families thousands more.”
College consultants can help your family approach the process with less stress and more strategy. They know which of the 3000+ schools in the U.S. might be the best fit for your student. They know which colleges have professors with connections to the grad school your student will want. A good consultant can help your student focus on schools that are a strong academic, social, and financial fit—potentially opening the door to better merit aid and fewer surprises down the line.
Your College Spending Plan: Making the Most of What You’ve Saved
Once college starts, the focus shifts from saving to spending. A college spending plan helps you use what you’ve saved wisely, borrow responsibly, and fill in any gaps with current income. The truth is, very few families hit the savings number perfectly—which is why flexibility is key.
Here’s a common starting point for how to break it down:
• 50–75% from 529 savings
• 15–25% from your household cash flow
• 10–25% from student loans (ideally no more than one year’s salary after graduation)
Keep reviewing your plan each year from the college search phase all the way through graduation. That includes:
• Managing 529 withdrawals to minimize impact on the FAFSA
• Taking maximum advantage of federal student loans (subsidized vs. unsubsidized)
• Keeping borrowing within reasonable limits
Want help reviewing your college savings or spending plan?
We can walk you through it and help you adjust it each year as things evolve. Just reach out when you’re ready.
