“Everything is in flux,” says Martin Schamis, head of wealth planning at Janney Montgomery Scott. “There are lots of questions about what higher education is going to look like going forward for which we don’t have the answers yet. The best advice we can give is that college will still be a major expense.”
J.P. Morgan Asset Management has just published a report about investing for a college education in the current uncertain environment, which highlights three key factors for successful college planning to guide families and the advisors they work with:
- Know the amount to be saved and invested in order to finance a college education. “Colleges may be forced to cut prices if distance learning remains the only option … and more families may start to consider community college as a way to reduce costs … [but] chances are college still won’t be inexpensive. And prices could quickly return to previous highs once the pandemic is behind us.”
- Set realistic financial aid expectations and invest for the costs that financial aid is unlikely to cover. “Total financial aid has been trending lower over the past decade and may fall even further in the wake of COVID-19,” according to the report. Families, however, should consider renegotiating financial aid packages because schools want to secure their yield — the percentage of accepted students that choose to enroll — and because their finances may have suffered because of the pandemic, says Michael Conrath, head of education savings at J.P. Morgan Asset Management.
- Don’t just save; invest to achieve college planning goals. Increased volatility in financial markets shouldn’t derail college savings plans, especially if college goals haven’t changed. Put 529 plans on autopilot with monthly contributions but review the portfolio mix regularly. Note that COVID-related college refunds for room and board financed with 529 plan funds can be redeposited in the plan without any tax penalty by July 15, courtesy of the CARES Act.
Despite the havoc that the COVID-19 pandemic has created for college students and their families, there are also some positive developments. “The power has shifted somewhat” between institutions and families, Conrath said. Parents have more flexibility around choices and negotiating for financial aid because colleges understand the need to attract students as competition heats up with local community colleges and public institutions, according to Conrath.
One example of that flexibility is the postponement of so-called National College Decision Day, when students are directed by colleges to declare their college choice. Before the pandemic that day was May 1. Today it’s June 1 or later, depending on the school.
But even if students delay their decision to choose a particular institution or take a gap year, “college will continue to be a major life expense” and “529 plans will remain the best option” to help finance that, says Schamis of Janey Montgomery Scott. Earnings in 529 plan accounts grow tax-free, and withdrawals are tax-free so long as the money is used to pay for qualified education expenses.
The COVID-19 pandemic will not alter the college landscape but will shape students for their whole lives, Schamis says.
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May 28, 2020 at 12:41 PM
