This is the second in an occasional series looking at the student loan crisis and the role advisers play in navigating it.
College planning today is much less about doing everything to make sure students attend their dream schools and a lot more about how to mitigate the costs incurred while pursuing a degree.
Enter a new role for financial advisers, who are now serving as objective third parties in college planning discussions.
Those conversations with clients sound much like an investment talk, with advisers helping to weigh the costs of different schools, estimate the expected return in terms of the salary ranges of certain majors and size up the business risks of particular professions.
“In the past, it was more about getting into ... the right college,” said Marina Goodman of Giralda Advisors. “Now there's more focus on what happens afterward. You have to look at the cost of the degree and the expected salary, and make sure the two line up.”
Conversations about college have become more practical, with the costs of higher education far outpacing other consumer prices since 2000 and student debt soaring to $1 trillion, past that of credit cards.
Parents increasingly want their kids to attend a college that will not saddle them with too much debt and study a subject that's likely to lead to jobs with ample compensation, and they're looking to advisers for backup.
With the average graduate last year carrying about $30,000 in student loans, young people are burdened with large monthly payments and putting off adult milestones such as buying cars and homes.
Some are saving money by returning to live with parents, and parents watching friends and family deal with this phenomenon are worried about their own empty nests filling back up.
About 80% of parents believe student loan debt could hinder their kids' ability to be financially independent after graduation, according to Fidelity's 2014 College Savings Indicator study, which surveyed about 2,500 parents.
“Advisers should be prepared to talk about majors, and the cost of college and of loans,” said Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions.
Barry Korb, president of Lighthouse Financial Planning, is already working with clients to address those issues. Mr. Korb recently helped one family cut its tuition costs in half after their daughter said her only real requirement was that she go to school in the South.
It took research, but he found two midtier Southern schools — Tulane University and the University of Miami — that hand out hundreds of half-tuition scholarships.
The student was awarded one to the University of Miami, which made the parents “very grateful,” Mr. Korb said.
Melissa Levine, an adviser with Voya Financial, recently adjusted the financial plans for clients with a teenager who wants to be a firefighter. Ms. Levine reduced the amount the parents are contributing to a Section 529 college savings plan, as an expensive college would not make sense if that is the student's chosen line of work.
In addition, advisers are pitching in when assessing how much parents and students should shell out to achieve career goals.
Six out of 10 parents encourage their children to choose a major that is likely to lead to a better job or salary, according to this year's Fidelity survey, which was released Aug. 20. That figure is up from four out of 10 in the 2013 study.
About 28% of the parents surveyed said they would like their adviser to help them determine what their child's major should be, and 22% said their adviser already is helping with that process.
PARING DOWN COSTS
Parents also are bringing their kids in to talk with advisers more often. Many want students to help pay a portion of college costs so they have skin in the game, so to speak.
“Parents are involving kids more in the financial side because they want them to take some ownership of their education and know more about what is involved,” said Harvey Meldrum, founder of Meldrum Financial.
Financial adviser Donna Skeels Cygan, founder of Sage Future Financial in Albuquerque, N.M., sat down with her two daughters while they were in high school. She wanted to make sure they understood how much she and her husband would contribute toward college and give them an idea of what they would owe in student loans, depending on their school choices.
Both girls chose Washington University in St. Louis, which costs about $46,467 a year in tuition and fees, according to The College Board.
Kate, 22, graduated in May; Nora, 20, is scheduled to graduate in 2016. Each will have about $24,000 in student loan debt.
“We paid the majority of their college costs, but we had them take out Stafford loans because we wanted them to participate in paying,” Ms. Cygan said. “We didn't want to give them a completely free ride.”
Some advisers focus on helping clients pare the costs of college — for instance, by having children attend a two-year community college before transferring to the desired private school. Others suggest sources for seeking scholarship money.
Advisers may also talk with clients about whether students need a gap year after high school, hoping that when the student attends college the following year, he or she will be more focused on completing the degree in four years and securing a job.
“If they feel they need to take a gap year, they probably do,” Ms. Goodman said. “It can be useful if it will help them grow and mature, and not be a waste of time.”
Still other advisers recommend giving the family tree a good shake.
About two-thirds of grandparents whose grandchildren plan to go to college in the future are contributing financially to support their education, according to a Legg Mason Inc. study released earlier this year.
Of course, some parents are old-school thinkers and want to do whatever it takes to get their children into their favorite schools, even if it means jeopardizing their own lifestyles in retirement or saddling the new graduate with high student loan payments.
“Sometimes the interest in finding a more practical, affordable route to college seems to be missing,” Mr. Korb said. “A lot want to do for their kids what their parents did for them, but 20 or 30 years ago college was a lot less expensive.”