Trust Services and SIMPLIFY
Three Important Questions for College Planning
August 13, 2018
The following was written by Nolan McClure, a Financial Advisor with Everyday Steward®, a division of Ronald Blue Trust.
Every new school year brings all kinds of transitions and changes with it, including new classes, teachers, friends, and opportunities. With each passing school year, the financial responsibilities also seem to grow larger, whether you’re shopping for school supplies, kids’ clothes, sports uniforms, or textbooks.
Perhaps the ultimate challenge is preparing for that first fall semester after our children’s high school graduation. Even if your children are still years from that day, it will, no doubt, be here before you know it. With that in mind, we wanted to offer three important questions that you can begin to ask yourself as you think about saving for your child’s college expenses:
Who will pay for it?
It is no secret that the costs of college have been steadily rising and are expected to continue to do so. A recent survey from the College Board lists the average cost of a “moderate college budget for an in-state public college for the 2017-2018 academic year” at $25,290.
Unless there is already a trust fund in place to cover tuition, the first step in meeting these costs is assigning responsibility. Will the child be responsible for the cost? Will the parents help? Will grandparents be involved? Do each parent’s expectations align with the other’s and their child’s? With college costs looming large and the nation’s student loan crisis reaching “epidemic” levels, it is never too soon to begin this all-important first part of the conversation with children and loved ones.
How will they pay for it?
Once responsibility has been assigned, we can begin the discussion around tactics. There are a myriad of options and vehicles available for college savings, including Education Savings bonds, Coverdell Education Savings Accounts (ESAs), state-sponsored 529 plans, Uniform Transfers to Minors Act (UTMA) accounts, and prepaid tuition plans. Each has unique features such as tax savings opportunities or flexible investment options. For a comparison of different options, you can visit
Unfortunately, the decision regarding which vehicle to use is often more difficult than one may think. With higher tuition costs has come the increased importance of the Free Application for Federal Student Aid (FAFSA), which allows students to apply for federal student aid in the form of grants, work-study programs, or even subsidized federal student loans. But, different savings vehicles can have very different impacts on a student’s eligibility to receive this aid.
For example, qualified withdrawals from a 529 plan owned by a parent are exempt from federal income tax and also do not have to be reported as income on the FAFSA application. However, withdrawals from a grandparent-owned 529 plan are assessed as “student income” at a 50% rate, which affects their “Expected Family Contribution” and subsequent eligibility for federal aid. Proper planning can save a student thousands of dollars in costs and student loan interest!
What are the alternatives?
Finally, it is worth mentioning that pursuing the traditional four-year college degree may not necessarily be the best route for everyone. Knowledge can help you determine what you can do to achieve a college education, but wisdom seeks to answer the deeper question: “What should we do?”
Proverbs 22:7 reminds us that “the borrower is slave to the lender,” and many students barely make it off the college graduation stage before they feel the crippling effects of student loan debt. Hamstrung by their monthly payments, they are often unable to pursue their God-given gifts and callings for years due to their responsibility to pay for a program that might not have been suitable for them in the first place! Gap year programs, online courses, and technical schools are becoming more and more common among students and can provide enormously attractive alternatives to the traditional college route.
At Ronald Blue Trust, we want to walk with you through each season of life as a trusted advisor who can help you focus on the things that matter most to you. If you would like to speak to your advisor about college savings options or starting a financial plan, please call 800.987.2987 or email
Be sure to visit our
channel and follow us on
Disclaimer: Ronald Blue Trust obtains historical and other information from a wide variety of publicly available sources. The information and material provided is for informational purposes only and is intended to be educational in nature. We have taken reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, we do not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information. The information may not in all cases be current and it is subject to continuous
change. Accordingly, you should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. We recommend that individuals consult with a professional advisor familiar with their particular situation for advice concerning specific investments, accounting, tax, and legal matters or other matters before taking any action. We shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information contained here. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Investing involves risk and the value of your investment will fluctuate over time and you may gain or lose money. Past performance of any security, sector or investment style is not necessarily indicative of future results.