That Time Again: Back-to-School Strategies for the College-Bound (and Their Families)

By Matt Quezergue, CFP®

As we pass the mid-point of summer, thoughts begin to turn toward the annual migration back to campus for college students. Whether your kid is heading back to complete a senior year or you’re packing up and preparing to transport an incoming freshman, there are some important things to consider about higher education funding. We’ve written previously on a number of these topics, but in this article we’ll recap some highlights and cover some new ground, too.

The Value of Getting Started Early

Time is one resource we can’t replace, right? And for those preparing for higher education funding, the best way to employ that resource is by getting an early start on saving. The earlier in your child’s (or grandchild’s) life you can begin setting aside funds for higher education, the more leverage you’ll obtain from compounding and growth over time. You’ll also need less reliance on education loans, which will benefit both you and your student when they graduate and start out on their own. Another benefit of getting an early start is that it creates a longer opportunity for others—especially grandparents—to help build the fund. And even if circumstances force you to reduce your contributions to the college fund, you’ll still get the benefit of compounding and growth over time for the assets that are already set aside.

Getting Your Kid into the Right School

Most parents have encountered the unpleasant results of a teen who doesn’t appreciate being told what to do. This sensitivity can be especially important during the process of deciding on which college to attend. Though you may have certain thoughts about where your student should go, it’s usually best to allow them a big part in the decision. After all, you want them to be in a position to thrive, building on their innate interests as they pursue learning that will propel them into a meaningful career. So, it’s natural that their interests and inclinations should guide the decision about where they will pursue higher education.

As you evaluate schools together, you should certainly compare and contrast the various advantages and disadvantages. One school may offer an impressive program in an area your child is interested in; another may have a more generous financial aid package. Perhaps a certain school is appealing because of family tradition, religious compatibility, or proximity. You should talk through all these factors with your student to make sure they are looking at the decision from every angle.

College Countdown

Speaking of picking the right school, there are some important ways you can prepare your student to make an informed decision and better prepare to enter college with the right frame of mind. We’ve previously suggested a four-year plan you can implement during the high school years to help your student start college on the right foot:

• Freshman year: Have a handful of prospective schools in mind. Meet with guidance counselors and others to get their input. Help your student choose challenging courses that will prepare them for the future.
• Sophomore year: Have your student take a practice SAT test, if offered. They should also explore extracurricular activities that can hone their interests in a future career.
• Junior year: Your student should take the Preliminary SAT (PSAT), also known as the National Merit Scholarship Qualifying Test (NMSQT). In the spring, they’ll take the SAT or the ACT, depending on which test is preferred or accepted by their target colleges.
• Senior year: If your student needs a higher SAT or ACT score, now is the time to prepare for and take the test again. This is also when they should be applying for scholarships. If parents haven’t already done so, they should complete the Free Application for Federal Student Aid (FAFSA; more on this below).

Get a Tax Advantage with a 529 Plan

Most, if not all states offer some form of 529 education plan, and many states honor other states’ plans. The 529 plan allows tax-advantaged accumulation of funds for education expenses; in fact, the ability to grow the plan without impact from taxes is what makes 529 plans an especially powerful tool. We’ve written previously about the advantages of 529 plans for parents and grandparents who want to provide for the education of the next generation, but here are the highlights:

• Versatile: Funds in the plan grow without taxation, and there is no tax assessed on disbursements from the plan that are used to pay for qualified educational expenses (including tuition in private K–12 schools).
• Estate planning: Assets placed in 529 plans are considered gifts, and grandparents with significant estates can utilize these gifts to reduce the size of their taxable estates.
• Control: The owner of the 529 plan names the beneficiary of the plan—typically a college-bound child or grandchild. And if the beneficiary graduates with funds still in the plan, the owner can change the beneficiary to a younger sibling or other family member. Excess funds can also be rolled over to a Roth IRA, to be owned by the beneficiary of the 529 plan—a great way to give a recent college graduate a head start on retirement funding.

Stay up to Date on the FAFSA

The Free Application for Federal Student Aid (FAFSA) is the core document for determining your student’s financial aid options. Our previous article outlines some important changes in the FAFSA for the 2024 and 2025 academic years. Here are the highlights:

• More compact: The updated FAFSA is about 60% more brief than the older version.
• Easier financial reporting: The new FAFSA allows for required parental tax return information to be transmitted directly from IRS data via secure Direct Data Exchange.
• Updated information for divorced parents: The application now requires information from the parent who provided the most financial support for the student during the previous 12 months, not necessarily the parent with whom the student was living.
• No “penalty” for use of 529 funds: Because disbursements from 529 plans owned by a student’s parents or grandparents are no longer required to be reported, students are less likely to have their financial aid reduced by the use of such funding sources.

At Aspen Wealth Management, we know that securing a child’s education is one of the most important financial goals many families hold. We want to help you understand all your options for saving and funding. If you have questions about education funding or any other important financial topic, we are here to help; please contact us!