A Better Way to Coach Clients (and Their Children) Through College Enrollment

This exercise will put a client family in one of the four potential quadrants. The top right will be populated by families with dedicated students and sufficient financial resources to fund an education upfront, whereas families on the bottom left will have less financial certainty and less confidence in the ability of the prospective student to graduate.

There is particularly rich ground for deep discussions for families on the other two quadrants. Just because a family has considerable wealth and could easily afford to send an academically disinclined child to a costly university, does that make sense? And conversely, if a lower-means family has a gifted student who would excel in a top college, what resources might be available to make that possible?

Of course, clients aren’t going to use a framework like this as the sole information source around college enrollment. Instead, Riskin emphasized, the goal of the exercise is to spark open conversations about a family's options.

“If you’re on the bottom left, that doesn’t mean a student can’t or shouldn’t attend college, but it does mean that you’ll likely have to have some tough conversations about taking on student loan debt and ensuring the student will succeed academically,” Riskin said. “Many families actually end up being closer to the middle of the grid, and that’s also important to see.”

One key message for advisors is that clients can borrow to fund an education, but they really can't fund retirement that way. So, it’s important to balance parents’ support for their children with the reality of longevity risk.

Don’t Skip the FAFSA

Riskin also highlighted the importance of families filling out the Free Application for Federal Student Aid to learn if they might be eligible for grants, scholarships, work-study programs and loans for college or career school.

“The truth is that, with college tuition costs climbing as high as they have, families a lot further up the income scale actually can qualify for aid,” Riskin said. “You don’t know what you might be eligible for until you apply, so it’s just an important thing for everyone to do, in my view.”

In addition, college enrollment growth has slowed meaningfully, so schools are in a position of having to compete harder for students.

“At the end of the day, schools are like businesses in that way, and the laws of supply and demand are at play here,” Riskin said. “All of this means that the sticker price of an education is often going to be higher than what a family actually ends up paying, especially if they are savvy about the aid application process.”

Reconsider 529 Plan Investments

Finally, Riskin encouraged advisors to take a closer look at their clients' 529 college savings accounts.

“Many people who are investing in 529s are using target-enrollment funds that are supposed to work like target-date retirement funds, where the risk is lowered as the anticipated enrollment date approaches,” Riskin said. “The reality is that a lot of these funds are underperforming their benchmarks and actually generating losses in what is supposed to be the distribution period."

With current interest rates, it could be a good time for some clients to pivot their investment approach and seek out both safer and higher-returning assets, especially if the enrollment date is near.