Financial planning that helps families avoid college debt

In 1996, when Scott Moffitt formed Summit Financial Group Inc., he did so with the intent of focusing on the middle class.

As the years rolled by, Moffitt built a respected firm in Loveland, Ohio. Summit offered clients comprehensive financial planning, insurance and mortgages. Many of his clients were married couples in their 40s with growing families and, during client consultations, Moffitt heard a recurring theme.

“Scott,” the conversation would often go, “Suzy is going to college in two years and we really don’t have the money. What should we do?”

“I recognized two things,” says Moffitt. “One, I saw this issue as a trend. Two, I had to admit, I really didn’t have answers for them and realized they didn’t want to hear a lecture from me telling them they should have started saving earlier.”

Instead of staying in the dark on the topic, Moffitt studied the existing literature on college planning and was shocked to find very few advisors were doing extensive work in that field. “I found that college planning for parents with college-bound high school students was not only a glaring omission in my practice, but it was a glaring omission in our industry,” Moffitt says. “In many cases, people were putting their retirement plans at risk because of the ever increasing cost of college and large financial hurdles families had to clear.”

Related: Many would put off retirement to help pay for college

The debt epidemic

More than 40 million Americans have at least one outstanding student loan, according to U.S. Department of Education data, and the amount of college debt owed by student borrowers has increased from $260 billion in 2004 to the astronomical figure of $1.3 trillion today. In fact, college debt has become such an epidemic that it ranks second only to home mortgages among consumer debt sectors in America today.

A 2016 study by Fidelity Investments found that 70 percent of college graduates left school with college-related debt. More than 50 percent of those polled were surprised at how much debt they accumulated during their time in school and 39 percent say they would have made different choices about their education had they realized they were going to accumulate so much debt.

“This year’s study finds that on average, parents are on track to reach just 29 percent of their college funding goal by the time their child heads to campus,” says Keith Bernhardt, vice president of college planning at Fidelity. “Parents still need help identifying how to maximize opportunities to save while meeting other family financial demands, and how to invest that savings in order to help their college dollars grow.”

The college debt problem goes beyond the limited scope of higher education. It has a profound impact on today’s economy, limiting the purchasing power of college graduates — meaning the acquisition of fewer big-ticket items like the latest technology, vacations, cars and homes. The ripple effect also hinders parents who are working to grow their nest egg.

But Moffitt believes he’s found a solution.

“These statistics are absolute proof that too many families are simply not doing enough pre-college planning before making these costly choices,” he says. “Unfortunately for so many families it is only after the fact that they realize their plan, or lack thereof, may not have been the best. The good news is that it doesn’t have to be that way.”

The verdict is in: Too many American families are simply not doing enough pre-college financial planning. (Photo: iStock)

Early days

One of Moffitt’s first steps was teaching courses in financial planning at universities in his community. After he realized the problem with last-stage college planning, he eventually reached out to guidance counselors at local high schools, offering to help parents understand their options in paying for higher education. Word got around, and pretty soon high schools throughout the region were contacting Moffitt to tutor student’s parents on college planning strategies.

See also: How to prepare your clients for life stages

“In a perfect world, you would love to tell everybody that when they start thinking about having kids they immediately start saving for their kids’ college,” says Moffitt. “The reality is the vast majority of people just don’t do that. Most people are getting to that freshman or sophomore year in high school looking up and going, ‘Oh my gosh, where did the last 15 years go? We thought we were going to be far more prepared and here we are already in high school thinking about college and we are not where we thought we were going to be financially.’”

Getting an early start and being consistent with saving can make a huge difference. Fidelity asked parents with kids in the 10th grade or above if, looking back, they could have saved more. Fifty percent of those parents said they could have set aside at least $50 monthly.

“For many families, finding an extra $50 or $100 per month may seem out of reach, but these extra dollars could potentially boost college savings by nearly $20,000 or even $40,000,” says Fidelity’s Bernhardt. “This potential could be a powerful motivator to consider strategies to carve out additional savings.”