Managing the Costs of Higher Education

ROSELAND, N.J. – The cost of a college education is high and getting higher. A year at a two-year college costs, on average, $10,458, according to the College Board. The cost for a resident at a four-year state college is $12,841, the College Board says, and for a private college: $27,677.

Randall Rothstein, CPA, PFS, CCPS of Marlton, a member of the New Jersey Society of Certified Public Accountants (NJSCPA), will tell you that based on his experience with families in New Jersey, those estimates are low. “Total costs for private schools are running about $40,000 annually,” Rothstein says. “Rutgers University is more than $18,000” he adds.

Rothstein is an expert on the subject. He is a Certified College Planning Specialist with more than half of his accounting practice dedicated to guiding parents on strategies to decrease their out-of-pocket expenses for their children’s educations. To put the challenge of paying for college in a more realistic perspective, Rothstein points out that you pay for college with “after-tax” dollars. “If you are in the 28 percent tax bracket, you will need to earn over $170,000 to pay for the $120,000 college bill,” he says.

Here are Rothstein’s “Top Five” planning recommendations for parents who expect to help pay for their children’s higher education.

Plan Before You Plan
Before setting up a plan to pay for college, the parents need to determine how much higher education will cost and identify their best savings options. Rothstein recommends a multi-year cash flow analysis along with developing a solid understanding of how colleges calculate financial aid. Some savings plans such as 529 plans can actually decrease your eligibility for financial aid and educational tax credits, Rothstein notes.

“The bottom line is that the more time before the child will attend college, the better your options and the more strategies that could be implemented to help pay for higher education. College planning involves both tax and financial strategies, and how they are both interrelated to achieve the optimal results. Hopefully parents will begin the process by middle school,” Rothstein says.

Be a Little Selfish
College funding involves looking at not only the cost of education but also its effect on saving for the parents’ retirement. “You cannot jeopardize planning for your retirement to pay for your children’s college education.” Rothstein says. “The children will have 40 plus years after college to earn a living before their retirement. I try to find the ideal balance between these two major costs but your retirement must come first because you cannot make up the assets you’ve lost to pay for college.”

Always Complete All the Financial Aid Forms
A student may not receive merit-based aid if the family does not submit all the forms required to apply for need-based aid. Do the paperwork. Colleges may require the completion of as many as three different financial aid forms. Up to 90 percent of the financial aid forms colleges receive have errors and inconsistencies, Rothstein says. This results in families not receiving all the financial aid they are entitled to. And be aware: the definition of “need” varies from college to college. “You may be making $150,000 a year and be considered ‘needy’” Rothstein says.

Review Financial Aid Award Letters Carefully
“There are many important details in these letters, such as did the college meet your need, what percentage is in gift aid (grants and scholarships) and what percentage is in self-help aid (student loans and work-study programs),” Rothstein says. Check the math to be sure that the “need” is met. Do research and gather facts for the last step.

Negotiate Price
“Paying for college is like buying a new $40,000 car every year,” Rothstein says. “There are many variables involved.” They include historical percentages of aid offered by the school in the past, the class rank of a student in an incoming freshman class, the school’s ability to meet funding need and the possibility of playing one school against another.

The most important time to negotiate is in the first year. But “special circumstances” such as unemployment or health-related issues may also make it important to negotiate with a school.

Rothstein says that he negotiates with schools on behalf of about three-quarters of his clients, and has an 85 to 90 percent success rate. However, parents negotiating on their own are successful between 40 and 50 percent of the time. “The result could be a difference of between $5,000 and $10,000,” he says. “Multiply that by four years and again by the number of children in the family.”

Summing Up
“There are two ways to pay for college,” Rothstein says. “You can use your own money: income, savings or loans. Or you can use other people’s money: financial aid, gifts, or the benefits of tax and financial strategies.” He encourages parents to look for ways to maximize the use of “other people’s” money. He cautions parents, when meeting with college funding planners, to be skeptical. “Many just sell insurance products. They don’t focus on tax and financial planning strategies, or maximizing financial aid.”

To find a CPA to help you plan for paying for a college education, or for any other personal financial planning needs, visit the NJSCPA’s free online referral service at www.findacpa.org. For more useful information about all aspects of financial planning and money management and to subscribe to Your Money Matters, a helpful, free electronic newsletter, go the NJSCPA’s public service website: www.MoneyMattersNJ.com.

May 17, 2006