What You Can Do To Prevent The Market From Making A Mess of Your College Plan!

Well I’m not sure where to start today because there is A LOT that I had wanted to talk about this week – like the fact that the College Board finally released scoring tables for the newly designed SAT, and it appears as if the math curve may be a little more forgiving than I had thought it would. Which is nice. Or that as we had hinted at a few months back, the ACT is gonna be making some major changes of its own; and those changes — which primarily impact the essay section — will be implemented with the Sept 12 Test – what, take that SAT!

But both of those topics will have to keep for another week because this week the market got all 2008 on us. And just like in 2008, families holding onto the very popular 529 college savings plans, especially those with students heading off to college this Fall, are really feeling the pain! Just like they did 7 years ago. I remember it well because I was the one fielding frantic calls and despondent emails… like this one:

‘We opened a 529 plan with about $6,000 for my daughter when she was 4 or 5, and then we promptly forgot about it. I went to check it today because she’s starting to apply to college and was sick to learn that it had actually dwindled down to just over $5,000…’

Fast forward to yesterday morning; and sadly, but not surprisingly, we got more than a couple of calls from people with similar stories. So, ‘buyer beware’, I’m about to get back onto my soapbox and rant (again) about what you should be doing to properly safeguard your college plan in these volatile times. Hopefully in doing so I’ll be able to motivate you to take action now, so you don’t find yourself in this man’s shoes someday.

But before I get goin’, let me first give a little background on 529 Plans, one of the most popular ways people save for college. (full disclosure: we save for our own children’s college educations in many different instruments and among them are two 529 Plans).

529 Plans were first enacted as part of the Tax Payer Relief Act in 1997; they get their nickname from the regulation under which they were created, Section 529 of the U.S. Internal Revenue Code. 529 Plans come in two distinct “flavors”: prepaid tuition plans like FL Prepaid – which I am on record as saying might just be the most confusing financial instrument on the market today (it’s where you essentially purchase future ‘tuition credits’ from your state at a guaranteed price today). The second typ of 529 is a savings plan, a professionally managed program where your contributions are invested by professional managers in mutual funds and other investments with the goal of increasing the value of your contributions.

Both flavors are considered tax-advantaged ways to save for college. And for simplicity-sake, by ‘tax advantaged’, I mean that these plans have certain distinct tax advantages and estate planning advantages (including being exempt from federal taxes if withdrawn for qualified education expenses). There are other advantages, but the tax and estate planning benefits that these plans offer to many families are their biggest selling points.

The downside: both types of 529 Plans are professionally or politically managed, which means that in either case, you won’t have much control over how the money is invested. And therein lies the problem. Because markets don’t always go up and politicians, well…I’ve written pretty extensively about my concerns with my state’s pre-paid tuition plan on earlier blog posts.

But today I want to talk about the consequences of the ‘fixadent and forget it’ approach most of us have taken with regards to our college funding plan.

Though fewer than 3% of Americans actually have enough saved for college, most have a little something set aside for their children’s college education. The problem is that most people initially investigated and put this money aside (or had parents who did so for estate purposes) years ago; and frankly very few have really paid much attention to them since.

Until they have to – which is inching closer with each passing day. Folks, this is absolutely the WRONG APPROACH. It’s a common misconception that you let your kid apply and get into the best college they can and then figure out how you’ll pay for it. Ok, that may have worked in 1986, but it’s absolutely the wrong strategy for this decade and these circumstances.

It’s well documented (by me at least) how vastly different the college landscape is today from what it was when we were getting ready to apply to college. Notice that I said different – not worse – because it’s not worse, but it is different. And it requires a different strategy.

At its core, applying, getting into and paying for college is like a very high stakes, but nuanced game. And IT IS WINNABLE, but there are new rules, tools, landmines and loopholes. If you know them – the rules that is – and have the tools for this college game, then you can avoid the landmines and take advantage of the loopholes. If you don’t know the rules and tools, or you’re playing this new game according to old rules and with outdated tools, then you’ll miss out on maximizing your admissions and financial opportunities.

That may be harsh, but it’s a fact. So, if you’ve been sitting on the sidelines for years, maybe reading my blog or attending my free classes and just nodding your head at some of my ideas, or chuckling at my corny jokes (or Jill’s), and then forgetting all about what you had just learned and going on with your life, it’s time to enter the arena.

It’s natural to feel some concern and frustration at what’s going on – especially when the market is so unpredictable and volatile that an entire decade of savings can be wiped out by one bad day in China. But the natural wait and see response is simply not prudent now. If you are unsure as where to even start or have questions about what the right strategy is for your family in these times, we’re here to help.

We’re holding a live, interactive WEB-CLASS on Thursday evening (Aug 27) at 7pm ET/4pm PT. It’s free and it’s going to be jam packed with information and some sanity-saving perspective. We’re even going behind the scenes and sharing our advanced college planning strategies and secrets. And we’ll be on the line and ready to answer all of your questions.

So, if you haven’t already reserved a spot, you can register here. If you have a student in high school, I really hope you’ll join us for this game changing call.

I hope to talk to you soon.

-Peter

P.S. Share this post with a friend with high school age children. They’ll thank you for it!

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