4 Myths About Financing College

August 24, 2015

college-grad-377-177When parents or families contemplate the college admission process, the strongest emotion that they often experience is fear.  It’s only natural to dread the financial approach of this milestone, but as you prepare for it, here are some ideas to keep in mind.

Here are four myths about financing a college education that simply aren’t true:

1. We will be penalized because we saved for college. This can be an overstated worry because the financial aid formulas don’t consider all assets when calculating financial need. The aid formulas ignore qualified retirement accounts in their calculations. So a client could have $1 million sitting in retirement accounts, and it should not hurt aid chances. In addition, parent assets are assessed at a lower rate. The federal aid formula that’s tied to the Free Application for Federal Student Aid assesses relevant parent assets at no more than 5.64 percent. For every $1,000 parents have in non-retirement assets, the aid formula will reduce financial-aid eligibility by $56.40.

The formula also allows parents to shelter some of their non-retirement assets that are tied to the age of the oldest parent. A 50-year-old parent, for instance, can currently shelter $31,800.  Let’s say a married couple saved $100,000 in 529 accounts or other non-retirement accounts, and their federal asset protection allowance is $31,800. This would leave $68,200 of the money unprotected. This money would be assessed at 5.64 percent.

100,000 – 31,800 = 68,200

68,200 X 5.64% = $3,846

In this case, the family’s eligibility for financial aid would only drop by $3,846.

A family would be in much better shape if they had $100,000 stashed away for college than being eligible for an additional $3,846 in aid. And that extra aid could very well come in the form of loans.

2. My child won’t qualify for scholarships because she’s an average student. 
More than two-thirds of students who attend state or private colleges do not pay full price. And the scholarships and grants are even more plentiful if you look at who is capturing price breaks at private colleges and universities.   According to the most recent price study by the National Association of College and University Business Officers, 89 percent of freshmen attending private colleges receive a price cut, and the average discount is 53 percent. So if a college’s tuition is $45,000, the typical package would drop the cost to $21,150. With so many students receiving price breaks, it’s not just the “A” students who qualify for awards.

3. My child must attend an elite school to succeed.
Many families truly believe that getting into the Ivy Leagues and other elite universities will guarantee professional success in life.  Alan Krueger, the famous Princeton economist, coauthored two landmark studies that demonstrated quite convincingly that the largely wealthy students who go to Ivy League schools will fare just as well graduating from other schools. In the first study released 12 years ago, the researchers looked at students who attended one of the eight Ivy League schools and those who were accepted to these schools, but went elsewhere. When they examined their later earnings, however, the grads were essentially making the same income.  Even more compelling was Krueger’s second study, published in 2011, where he looked at the earnings of students who attended Ivy League schools and those who had the same excellent academic profiles but were rejected from the Ivies. Krueger documented the same salary phenomenon.

4. I’m worried about having money left in my 529 account if my child wins a full-ride scholarship to college.
This would actually be a great problem to have—not needing all the 529 money that you’ve saved for college.  In reality, less than a third of 1 percent of students receive true full rides that cover the entire cost of an undergraduate degree, according to Mark Kantrowitz, the author of Secrets to Winning a Scholarship. Parents with children who do capture fabulous scholarships can transfer any leftover cash to another child’s 529 account or even set up a 529 account for themselves. Parents who withdraw 529 money that isn’t used for college due to scholarships can avoid the 10 percent penalty, but the earnings on the withdrawal are subject to taxes.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110



Asset Allocation
Investment Review Selection
Portfolio Management
Risk Analysis Management
Tax Impact Analysis
Asset Transition Analysis

Copyright © 2017. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]