Most parents either cant estimate or else substantially overestimate the cost of college, according to a recent study by the National Center for Educational Statistics in Washington.
College planning experts agree that exaggerated ideas about costs can discourage some boomer parents from trying to get their children into top-ranked colleges or even from trying to get them into college altogether.
NCES, a unit of the U.S. Department of Education, found that only 30% of parents of high school children actually had obtained information about what it would cost to pursue a college degree.
“Im not surprised,” says Joseph Hurley, senior partner, Bonadio & Co., Pittsford, N.Y. and founder of the Web site, www.savingforcollege.com. “A lot of parents dont have a good grip on what college costs.”
Some give up on even trying. Thats when financial advisors need to step in, Hurley says.
“More and more families are hearing about the tax-advantaged alternatives, including 529 college savings plans and Coverdell plans,” he adds. “We see a dramatic increase in these accounts.”
529 plans are state-sponsored savings plans that exempt contributions and earnings from federal income taxes and, in many cases, from the state tax, where the buyer resides in that state. Distributions from these accounts also are exempt from federal income taxes when used to cover qualified college costs.
Coverdell accounts can be used for educational expenses from elementary school on up, not just college. However, the most that can be contributed each year per child is $2,000, compared to $11,000 for 529 plans.
“I dont know how many parents are discouraged [by exaggerated ideas of college costs], but I think that clearly does happen,” says Timothy Hayes, president, Landmark Financial Advisory Services, Pittsford, N.Y.
Hayes, who is executive director of the National Institute of Certified College Planners, says 529 and Coverdell savings plans are not the universal answer for boomers who plan to put their kids through college. To provide value to these clients, the financial advisor needs to be aware of the alternatives.
For instance, many students can qualify for financial aid or assistance, whether needs-based or merit-based, or because the college simply wants that student for some reason.