When I embarked on the college planning process for the first time as a dad of four, I was looking forward to helping my daughters find the perfect college for them to thrive academically, socially and personally. At the same time, I was also considering the financial impact.

There are many factors to consider, and you may sometimes feel like you’re not doing enough. But don’t worry; you’re not alone. 

College tuition rates continue to rise at an alarmingly steep pace nationwide. If you aim to pay for your child or grandchild’s college education, you may want to start saving early. For many of us, this means establishing and funding a 529 college savings plan before the future student can even walk.

529 PLANS & SAVING BASICS

As an investor, time is one of your best friends. The longer an individual has before fund(s) are needed for a specific goal (e.g., college), the higher the probability that an investment can grow. Albert Einstein is famously rumored to have said, “Compound interest is the 8^th wonder of the world. He who understands it, earns it … he who doesn’t, pays it.”

A 529 college savings plan offers several key advantages for today’s younger generations and their families. These investment vehicles are a tremendous way to set aside money for future college costs while also maintaining parental/custodial control and flexibility. Some of the key benefits of 529 plans include the following:

• Tax-Free Growth
  As long as distributions are used for qualified higher education expenses, the growth portion inside the 529 plan is eligible for tax-free distribution. If non-qualified distributions are taken, the growth portion of the 529 plan is subject to ordinary income tax plus a 10% penalty.
• Tax-Free Return of Principal
  You can always withdraw your contribution to a 529 plan (i.e., basis or principal) without taxes or penalties. This feature is a key benefit to individuals and families who may find themselves in financial hardship without access to other sources of liquidity. It’s also an important consideration for families that think scholarships are a likely scenario for their child(ren).
• Up to $10,000 can be Distributed to Repay Student Loans
  This relatively new 529 plan benefit allows account owners to use $10,000 from within the 529 plan to pay down student debt. 
• Rollover or Consolidation
  Money in a 529 plan can be rolled over or consolidated into a 529 plan for qualifying family members. Eligible family members include spouses, siblings, children, aunts, uncles, nieces, nephews and first cousins. This is an excellent source of flexibility, particularly if the original 529 plan beneficiary chooses not to attend college.
• Compounding Investment Returns
  The younger the 529 plan beneficiary, the more significant the potential impact of time and compound investment growth. This is a fantastic planning opportunity since it creates more time for the account to grow tax-free, assuming the 529 plan is established early in a beneficiary’s lifetime.

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STATE TAX BENEFITS OF 529 PLANS

Some states offer income tax benefits (e.g., deductions or credits) if contributions are made to a 529 plan. Depending on your primary state of residence, this may or may not be an essential reason for utilizing your in-state offered 529 plan. For more detailed information on possible state tax benefits, check out www.savingforcollege.com

The North Star Promise Scholarship Program

As a result of recently passed legislation, Minnesota residents may now be able to take advantage of free college tuition, assuming the family earns less than $80,000 per year (as measured by Adjusted Gross Income). The North Star Promise Scholarship Program will officially go into effect in the fall of 2024. It is estimated that this could help as many as 15,000 to 20,000 Minnesota students find a tuition-free pathway to attend college.

•  North Star Promise - https://www.ohe.state.mn.us/sPages/northstarpromise.cfm

For those who aren’t eligible for the North Star Promise, where does this leave you? Well, that’s what we are here to talk about. It’s becoming increasingly difficult for college students to earn an undergraduate degree without incurring any debt. For that reason, we encourage clients to begin saving money in a 529 college savings plan as early as possible.

Financial situations vary from person to person and family to family. Saving for short-, medium- and long-term goals should be based on a series of decision factors and priorities. Because there is never a one-size-fits-all approach to achieving goals, we work with clients to help them outline a roadmap and develop a plan to increase the likelihood of funding their goals.

There are currently about 4,000 degree-granting postsecondary institutions in the United States. Narrowing this list down to a select group of 5-10 schools can be overwhelming, even for the most diligent of planners.

If you’re like me, you may have spent the last 17 years saving for college, and now is the time to start evaluating different higher education institutions to determine what you and your family can afford, which schools offer the major or academic area your student may wish to pursue and which schools have the right social fit for your child.

ACADEMIC FIT & REPUTATION

Let’s start first with academic fit and reputation. It’s essential to ensure that the college or university offers the major your child is interested in pursuing. When researching this for my oldest daughter, we came across several schools with specialized or unique majors that others didn’t offer. Also, some schools provide what’s known as “direct entry” into some of the more specialized programs (e.g., Nursing, Engineering, Business, etc.), while others require entry into a “pre-level program.”

Generally, pre-level admissions require one to two years of general education before the student can apply for formal admission to the college or program of their choice. Understanding how the college or university determines its admission criteria is crucial to making an informed college decision.

Nearly one-third of all undergraduate students change majors within the first three years of college. For this reason, I strongly encouraged my daughter to focus on schools that offer solid backup options, so making a change in her course of study doesn’t have to mean changing schools, too.

The key to academic success is flexibility. Make sure there is more than one option because changing interests, majors and careers is almost a sure thing.

PUBLIC VS. PRIVATE

Have you considered the difference between public and private schools? Have you done any research to determine the true cost difference between these institutions? In general, private schools have a much higher price tag than public schools, but it’s important not to get too focused on the “sticker price.”

Families rarely pay the stated “sticker price” associated with private schools. Instead, most private colleges offer sizable merit-based scholarships and grants, which can significantly reduce the cost of attendance. In my experience, the merit-based scholarships provided by private schools were typically quite significant and, in several cases, resulted in out-of-pocket expenses that were lower than those published by public universities. In most cases, merit-based scholarships were automatically determined based on my daughter’s ACT score or Grade Point Average (or a combination of the two).

On the other hand, the costs for public schools are generally much closer to their published tuition rates; these rates can be found on all college and university websites. I found that while the published tuition rates were often significantly lower for public schools, public universities generally didn’t offer as many merit-based scholarships as private schools. 

Knowing the difference between a school’s sticker price and your family’s actual out-of-pocket financial responsibility is incredibly important when narrowing down the list of schools that meet your search criteria.

LOCATION & SIZE

While this may seem fairly straightforward, it can make the difference between a great college experience and a disappointing one. Many high school students are only aware of the schools they see on television or in major athletic conferences – think “sweatshirt schools” for lack of a better description.

The reality is that there are thousands of schools out there, and they all offer unique experiences, majors, faculty and opportunities. Plan on touring several different campuses to get a better sense of the following:

1. Size: How does your student feel about big, small, or midsize schools?
2. Location: Is it important for your student to be within driving distance of home? Does the student want to be in a neighboring state? Is the prospect of being halfway across the country appealing? Compare and contrast urban vs. rural locations.
3. Public vs. Private: While a private college may offer smaller class sizes and more personal attention for your student, a large public college may offer a wider choice of classes and majors. As you compare schools, make a pros and cons list to see what variables weigh more heavily than others in terms of importance.
   
   

SOCIAL CONSIDERATIONS

Spend time getting to know the campus culture and explore different activities, athletics or groups your student may want to join. College isn’t just about studying and preparing for a career. It’s about growing up and learning to be independent.

Social factors play a key role in a successful college experience. Will your student feel comfortable in the campus environment? Do the values of the school align with your own? Are there a variety of opportunities to make friends and get involved in campus life?  Are you looking for a college or university that has a highly competitive program in a particular area of study? Is it important that your child be able to attend a Saturday afternoon football game with 100,000 fans? 

Your student is about to embark on a solo journey to adulthood. Yes, you’ll still be there to help them along the way, but having a solid support system will help alleviate some of the pressure and stress that often comes with a new experience.

By now, you may have been saving for several years to build up your child’s 529 plan balance to help reduce the level of debt you or your student will need to rely on during the next four years. In addition, you’ve worked diligently with your student to narrow down the list of colleges and universities that check all of the boxes regarding academic fit, social aspects and considerations, location and size, and public vs. private.

SUBMITTING APPLICATIONS

It's now time to make a shortlist of schools and begin the application process. Most colleges and universities open their application windows in September of your student’s senior year of high school. Pay close attention to whether the schools on your shortlist encourage early applications or if there are financial reasons to apply in one month versus another.

For many schools across the country, students can choose to apply using one of two methods:

1. The Common Application: This is an undergraduate college admission application that can be used to apply to more than 1,000 colleges and universities across the United States, Europe and Asia. Once the Common Application is completed, it can be submitted to multiple schools simultaneously. This can be very efficient, especially if several colleges and universities are being considered.
2. Specific College Online Application: These applications can be found directly on the college website. This can be a great option if your student is only looking at a few schools. However, if multiple schools are being considered, you may want to consider using the Common Application.
   
   

WRITING ESSAYS

It has become commonplace for many schools across the country to require college applicants to write an essay. My experience working through this with my oldest daughter has taught me that not all essays are created equally! Some schools require one essay, while others may require three to five different essays.

Essay topics tend to vary from one school to another, and it became increasingly clear to me throughout this process that today’s college and university admissions counselors are looking for students who can:

1. Write clearly and intelligently, highlighting their unique strengths.
2. Articulate who they are and why they are an ideal student for this college.
3. Differentiate themselves from their peers and other applicants.
4. Give examples of how they excel outside the classroom.
5. Highlight academic, athletic, volunteer and extracurricular activities.
   
   

COMPLETING THE FAFSA

Now that the applications and essays have all been submitted, we don’t just get to sit back and relax. Instead, families (i.e., the student and at least one parent) need to begin work on completing the Free Application for Federal Student Aid (FAFSA).

The FAFSA underwent significant changes in 2024. Generally, it opens to the public on October 1^st, but the process was pushed back to late December 2024 as a result of several hiccups due to the changes. Ultimately, the delays in going “live” created a major issue for both families and schools.

From my personal experience and what I’ve heard from clients over the years, completing the FAFSA as early as possible is in the best interests of all those involved in the college application process.

The sooner you complete the FAFSA, the sooner you will know what level of need-based financial aid you may be entitled to. Also, some colleges base their merit-based aid and scholarships on information contained in the FAFSA.

Even if you are fairly certain that your student won’t qualify for financial aid, completing the FAFSA is still recommended, as it opens the door to additional funding opportunities for you and your student.

At this stage in the game, your student has submitted their college applications to a handful of carefully selected schools and has filed the FAFSA.

By now, you have reviewed the scholarship and loan options associated with all the schools where your student has been accepted. Now it’s time to do an apples-to-apples comparison of each to determine your family’s actual out-of-pocket costs.

When it comes to “aid,” it is essential to understand any conditions you must meet to stay eligible for aid, and whether these scholarships and grants are available during all four years or only during the first year of post-secondary education. Knowing this information ahead of time can save you and your family a lot of time and possible frustration at the end of your student’s first year.

Hopefully, you’ve been proactive and contacted your student’s admissions advisor during the application process. Do NOT be afraid to contact the college or university for clarification or to appeal their financial award decision.

Financial Award Appeal

Once you and your student have narrowed your list of top schools to a select group of two or three, and you’ve done a comparison of financial aid offers, consider contacting the school(s) to see if they will allow you to appeal the financial award decision.

Some reasons why students and families may want to appeal include:

• The FAFSA is based on assets or income sources that are no longer relevant.
• The school(s) under final consideration are competing with each other. As a Minnesota resident, a typical example would be if your student has applied and been accepted to St. John’s University and the University of St. Thomas. Each school is a well-known Private Liberal Arts college that attracts students with similar academic, economic and cultural backgrounds. Consider contacting each school to see if they’re willing to offer more aid, given the competitive nature of attracting their “ideal student(s).”
  
  

Decision Day – May 1

College Decision Day occurs annually on May 1. This is the deadline for high school students to commit to the college they plan on attending in the fall. Don’t let this deadline slip past, as many colleges and universities may pull their acceptance and financial awards after this date.

Along with making your official commitment, most schools require the student to submit a non-refundable deposit at this time.

Accept or Decline Financial Aid

Your student must accept or decline their Financial Aid offer through the College or University’s web portal. If accepted, loans will be applied toward the upcoming year’s tuition, along with any scholarships or merit-based awards received.

You and your student will make the Financial Aid decision each year, as the FAFSA application is required to be filled out every year (starting in October).

Make the Commitment and Know It’s Not Permanent

Like anything else in life, circumstances change from year to year and person to person. Many high school students are terrified when making their college decision because of the immense pressure they feel.

It’s important to remember that this decision does not have to be permanent. Students transfer schools for a variety of reasons, including family obligations, a change in academic program or major, a need to be closer to home, or to find a better fit. Whatever the reason, if your student changes his/her mind and decides a change is necessary, there are numerous options to make a change — whether that be at the semester break or at year-end.

Trust in the process you’ve followed to this point! You and your student have done all the hard work, and an exciting college experience awaits.

Overall, navigating the college planning process can be daunting, especially for parents of multiple children. However, by starting early with savings, particularly through a 529 college savings plan, and carefully considering factors like academic fit, financial aid, and campus culture, you can empower your child to make informed decisions. Remember, this journey is not just about securing a degree; it’s about fostering independence and personal growth. Trust in the groundwork you've laid, and embrace the exciting opportunities that lie ahead for your student as they embark on this transformative chapter of their life.