Strategies for College Planning - NY529 Advisor Site

Strategies for Successful College Planning

Five insights for achieving college funding goals


Start your plan with a college funding goal

The first step toward meeting college costs is knowing what they are. Costs are high today and will likely be even higher when your children attend college, thanks to annual tuition inflation that is outpacing the overall cost of living.1

Use this chart to estimate future costs and begin creating your investment plan. Simply find a child’s current age to see projected four-year costs at both public and private universities.

Next, work with your financial advisor to determine how much you plan to pay and how much might come from financial aid, family gifts, student income and other funding sources.

Piggy bank


For a 6-year-old, total costs are expected to be about $161,000 at a four-year public college and $363,000 for a private college.

1 J.P. Morgan Asset Management, College Planning Essentials 2017-2018 Edition, Tuition inflation, page 7.


Many families expect more free financial aid than they are likely to receive

Less than half of all students actually get grants and scholarships, and only 0.3% receive enough for a free ride to college.1

Even if your child qualifies, the average grant covers only 13% of the costs2 at a four-year public university, while the average scholarship covers just 18%.3

To make up the difference, families need an investment plan that can help them achieve their goals without taking out expensive loans or ruling out schools based solely on cost.

1 Based on full-time students at four-year colleges.

2 Sallie Mae, How America Saves for College, 2016.

3 Sallie Mae, How America Pays for College, 2017.

4 U.S. Department of Education, 2017.

Don’t let financial aid stop you from investing

It’s a common myth that investing for college will hurt your chances for financial aid. The fact is, family income counts much more than assets in the formula for awarding federal aid.

This chart shows an example of the dollar amounts used to determine federal financial aid eligibility. In calculating the Expected Family Contribution, the Department of Education considers up to 47% of parents’ income but only a maximum of 5.64% of their assets — even those in a 529 plan earmarked specifically for college.4


Put the power of compounding to work for you

The sooner you start and the longer you invest, the more time your college fund may have to compound and grow in value.

For example, if you start contributing $500 a month when your child is born instead of waiting until age 6, you would accumulate nearly $87,000 more. That’s the power of compounding.

Make college investing part of your monthly budget

Think of your college fund as another monthly bill. You can supplement your monthly investments by also contributing part of pay raises, bonuses, tax refunds and other extra money. Every small addition could make a big difference over time.

1Sallie Mae, How America Saves for College, 2016.

Don’t count on cash

More than 60% of college savers use savings accounts that earn minimal interest.1 Cash has historically underperformed tuition inflation. Instead of just saving, investing that cash gives families the higher return potential needed to grow college funds and keep pace with rising costs.

Invest in a diversified portfolio

The key to staying invested for the long term is avoiding large portfolio fluctuations over the short term. Because stocks and bonds tend to rise and fall at different times, owning both may help you smooth out investment returns and stay on course toward college funding goals.

This chart shows that a diversified portfolio has historically outpaced bond returns and tuition inflation, with lower volatility than stocks.


Avoid using retirement funds for college

Withdrawing money for college can jeopardize your retirement security. For example, this chart shows that taking out $25,000 to fund college now could mean $80,000 less for retirement in 20 years, due to lost investment earnings and compounding.

Spending retirement money on college may also result in taxes and penalties as well as reduced financial aid, because withdrawals are considered student income, with 50% being considered in the federal aid formula.

Consider opening dedicated accounts just for college, such as 529 plans, which offer special tax benefits for higher education.


Keep more of what your investments earn

With a 529 plan, investment earnings and withdrawals are completely tax free when used to pay qualified higher education expenses. Those who choose to open a 529 plan have higher levels of flexibility, control and contribution maximums compared to other college savings vehicles.

Large contributions are allowed and encouraged, which can increase your investment earnings and minimize the amount you pay out-of-pocket. Combine this contribution method with annual investments, and you will save even more.

The result: In this example, a lump-sum investment to a 529 plan saves you 65% on out-of-pocket costs. That is a savings of over $315,000.



529 plans have no income or age limits. You can invest for any child or adult planning to attend college in any state—including community colleges, four-year universities, graduate schools and vocational-technical schools.

Maximize special gift and estate tax benefits

529 plans allow five years of tax-free gifts in a single year—up to $75,000 per child from individuals and $150,000 from married couples.1

A lump-sum gift at birth may be enough to pay for four years of public college or of private college, as shown in the chart.

All 529 plan gifts and investment earnings are removed from the contributor’s estate without losing control over the assets. This can help grandparents, aunts, uncles and others invest for college while also reducing estate taxes, increasing inheritances and creating family legacies.

1 No additional gifts can be made to the same beneficiary over a five-year period. If the donor does not survive the five years, a portion of the gift is returned to the taxable estate. Please note, the annual gift limit for 2017 is $14,000 from individuals and $28,000 from couples; the maximum five-year/tax-free gift is $70,000 and $140,000, respectively.