For years, Colorado-based financial advisor Andrew Hathaway would see clients who had screwed up their finances by paying too much for their kids’ college tuition.
“Common things mom and dad would say are: ‘We didn’t realize it was so expensive,’ or ‘We just thought scholarships would be more generous,'” Andrew said. “It was too late…You’ve already dipped into your IRAs, or you took a HELOC on your house.”
Andrew, who’s now a college funding specialist, reminds us that a college degree costs as much as a house except there are no 30-year mortgages for tuition.
In this interview, he shares his best insider advice, including biggest college funding misconceptions, the truth behind 529 plans, and why asking college financial aid counselors for help is like asking the IRS for tax loopholes.
Check out our latest conversation:
What causes parents to get into the financial pickle of paying too much for college?
The last thing parents want to do is tell their son or daughter “No.” At the end of the day, I think a lot of parents are just like, “Well, we’ll just figure it out.” And this is just it’s such a large expense. College is such a unique thing. It costs about the same as as buying a house, but you can’t split it up over a mortgage, like 30 years, like what most people do. But if you actually think about it, putting one, two, or three kids through school could easily cost you between $120,000 to $500,000.
What have you noticed are some of the biggest misconceptions of paying for college?
Just believing scholarships will fall from the sky. Sticker price: looking only at the local school because it’s the “most affordable quote.” I don’t want to beat up on parents that have this philosophy, but I get frustrated when parents are like, “Oh, it’s all on them.” That drives me nuts because at the end of the day, I think you’re absconding or abstaining from responsibility. I do think it’s good at a point to have skin in the game, but basically what you’re saying is your child’s going to come out of college with a mortgage amount of debt. Time is on your side early, so we could have started saving, and any type of saving would have been fine rather than not doing anything at all.
Are there any paying for college tools that are more harmful than helpful?
People don’t know that home equity and things like that can be held against them. Another myth: “College financial aid officers will help me.” That’s one of my favorite ones. I steal this from Andy Lockwood. He’s like, “That’s basically like going to the IRS and asking for tax loopholes; not going to happen.”
What’s the truth behind college financial aid officers?
Financial aid officers, at the end of the day, are employed by the university, and they’re going to do what’s in the university’s best interest. I have on my team three former financial aid officers who worked at private universities, and they helped navigate this. One of them told me that when she used to be a financial aid officer at a school in Ohio, her coworker awarded based on how she felt that day. Having a good day, she gave a good offer; bad day, not as much.
One of your training videos talks about the little-known downsides to the common 529 college savings plan that many parents have. Can you explain that a bit?
Well, it’s not the worst thing in the world. When I was cutting my teeth in this industry, I set up 529 plans for clients, because that’s what I was told to do; it’s the status quo. It’s the way that most people do it. There are worse ways that you can shoot yourself in the foot. But 529s are counted as a non-retirement asset, and then when you start taking money out of the vehicle, it is counted as student income or sometimes as untaxed income.