Everything was going according to plan, at first.
Rosemary was investing in a diversified portfolio and saving for retirement. Over several years her adviser helped her negotiate pay raises, buy a home and pay for her dream wedding. In just a few years, she had 529 college savings plans for two newborns.
But life's unexpected expenses come at you fast, and 18 years later she was facing tuition costs she hadn't dreamed of when she began college planning.
"I think for some clients, it's a see-saw battle," said Ken Mahoney, president of Mahoney Asset Management. "If I save enough for retirement, it's not enough for college. And if I save enough for college, am I saving enough for retirement?"
College planning is as essential for families as saving for retirement today, but the rising price of higher education is making it challenging to afford college, even for wealthy clients.
Four years at a private university will cost $303,000 by 2036, nearly double what it is today, according to CNBC. Public college could reach as much $184,000, forcing many students to take on student-loan debt that can impact their ability to start a family or start investing.
Even though investments in 529 plans are at an all-time high of $319 billion, according to the College Savings Plan Network, financial advisers are increasingly tasked with finding new strategies to help families fund higher education without sacrificing other financial goals. Sometimes that strategy means giving up the expensive private university and sending kids to an affordable public option instead.
"Hopefully we as advisers can bring it out in a delicate manner," Mr. Mahoney said. "If I just don't see it, don't see how its going to work, you have to have a frank conversation."
To find out how advisers are tackling the issue, InvestmentNews reached out to people grappling with how to afford higher education for their children. We presented their case studies to college-planning experts and asked for ideas to help the families beyond the basic tenet of saving more in a 529 plan. Here are their solutions.
Though these are real-life stories, names have been changed to protect the families' privacy.
Carolyn and Kevin are both 46 and have three children. The oldest is in his second year at a university for which the family is paying $15,000 annually. In the fall, their middle child will begin freshman year at a much more expensive school. She secured a grant of $35,000 per year, but she still faces $40,000 for each of the next four years in total costs. Their youngest child is 13, so while he doesn't yet know what school he wants to attend, college is only five years away.
In recent years, the family has focused more on saving for college than contributing to retirement, amassing $57,000 in CDs and savings accounts with plans to continue saving $15,000 per year. They have $1.2 million in retirement accounts that they don't want to use paying the full college costs, nor do they want to borrow against their home, which is valued at $475,000.
"We'd like to help our kids as much as we can, but we need to pace ourselves so that there is still money in the college fund for our youngest son. We also expect our kids to contribute to the cost of their education — especially if they choose a more expensive option — but we also hate the idea of them amassing a large student debt," Carolyn said. "Are we doing the right thing in putting money towards the college savings fund rather than our retirement at this time?"
Brock Jolly, managing partner at The College Funding Coach, classified this as a case of "late-stage college planning."
Without much time and with no state tax advantage, a 529 plan is a less attractive option for the two oldest children. One strategy the family could consider is some form of cash-value life insurance, Mr. Jolly said.
"Life insurance is probably one of the most misunderstood financial products in the world today," he said. "However, when used appropriately, it can be a tremendous college-funding tool."
The asset would not count toward the family's Expected Family Contribution when considering financial aid, and the money grows on a tax-deferred basis and all distributions up to the policy basis are generally tax-free as long as the life insurance policy remains in force. While Carolyn and Kevin wouldn't be able to build up cash value quickly enough to use it right away, they could take out student loans to pay tuition, then accumulate enough money in the insurance policy to pay off the loans following graduation.
"Permanent life insurance — the right type and designed the right way — is the only asset that continues to grow even after withdrawals are taken," Mr. Jolly said. "If structured properly, a family can fund a life insurance policy, take out low interest rate student loans to pay for college without any impact on the ability to qualify for needs-based aid, and ultimately receive back most if not all the money that they spend on college."
As for building a college savings for their high school freshman, Mr. Jolly recommended the family begin funding a 529 plan and have the child start applying for scholarships in addition to taking advantage of an insurance policy.
Hannah is a 30-year-old single mother raising two daughters, ages eight and 11. She earns a commission-based salary that can fluctuate between $45,000 and $50,000 per year, owns a home in Northern California worth $575,000 and has a $100,000 investment portfolio.
She doesn't currently have anything saved toward college education.
With a single income and no grandparents of her kids to count on for help, Hannah worries about finding enough money for her daughters to go to school without going into debt.
"I would hate for the girls to take out student loans," she said.
The good news for Hannah is there is still plenty of time before either of her daughters attend college, so that's many years for her to contribute to a 529 plan.
Wayne Zussman, principal and senior wealth adviser at The Colony Group, recommended that Hannah consider taking a job at a college or university that offers free, or at least subsidized, education for family members. She could also get involved with local organizations that offer scholarships, such as Rotary Clubs.
Mr. Zussman also suggested the daughters start building an early resume for scholarships and financial aid by volunteering their after-school time.
"Have the children become involved in organizations that offer scholarships, such as 4-H, Girl Scouts, Junior Achievement, etc.," he said. "Although still young, there are also various school clubs such as debate teams. Make sure there is the possibility of an ROTC program in her school district."
Alex, 18, is heading to New York University in the fall on a $40,000 scholarship. He is the first among his siblings to go to a private university. His two older sisters, 25 and 26, graduated debt-free by enrolling in public universities and taking on full-time jobs.
Alex's mother, 54, works as a teacher and saved up money for each of them to help with college costs. But even with what she has saved for Alex, she will need to take out a loan to cover the cost of his room and board, which will be the main expense after applying scholarships and savings.
The estimated total cost for one year at NYU is $76,000. Housing will cost an estimated $18,000 per year.
Because this is a case where the student is just weeks away from starting college, Ken Mahoney, president of Mahoney Asset Management, said the options for earning and saving are limited.
One option to consider is asking his mother to open a 529 plan and enlist other family members, like an aunt or an uncle, to help contribute. Regardless of how much she saves, money in a 529 plan is generally not taxed by state governments when used for qualified education expenses such as tuition, fees and books.
In the meantime, Alex and his mother can research different federal and private loan options and assess their benefits and risks. Mr. Mahoney said he strongly recommends she be cautious about simply choosing the loan plan that gives her the lowest monthly payment, because she'll likely pay more in interest in the long term.
Also, while maybe not a popular choice, Alex can live off-campus with roommates and split the rent to reduce what on-campus boarding would cost.
Mr. Mahoney also recommended that Alex and his mother consider a home-equity line of credit, work-study jobs, grants or private scholarships as other ways to tackle the costs.
Alice and Dan are a young, married couple expecting their second child, a daughter, in September. They want a large family, which is why they started having children early.
Dan is 27 and earns $85,000 a year working as an engineer for Lockheed Martin in Upstate New York. Alice, 26, mostly stays at home with their first child, Neil, who is 20 months old.
"I do think a lot about how family size will affect the monetary size of any gifts we are able to give our children," Alice said.
Currently, they have a mortgage, 401(k) and two sedans.
While they have a 529 college savings account for their son Neil, they don't have a set amount they deposit every month. Currently they have $1,200 saved.
Given that they are planning to have a large family, Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com, said the couple should start saving for their son's college education, as well as any future children, now. Time is their greatest asset.
While Alice and Dan can't open a 529 plan in their daughter's name until after she is born and has a Social Security number, they can open one by listing one of themselves as both account owner and beneficiary. The beneficiary name can be changed to their daughter's later on.
While the $1,200 they have saved for Neil is a good start, Alice and Dan should immediately increase the amount they're saving per month for him. At the current rate, they will barely have enough to cover one year's room and board.
One easy idea from Mr. Kantrowitz is for the couple to shift the money they were spending on diapers to his 529 plan once Neil is potty-trained.
And if someone throws a baby shower for their future daughter, the couple can ask friends and family to contribute to a college-savings plan for her.
Such contributions also can be made in the future in lieu of holiday and birthday presents.
If Alice and Dan remain in New York until their children are college age, they also can apply for New York's Excelsior scholarship, which provides free tuition at SUNY and CUNY colleges for families making up to $110,000 a year. (The income threshold will increase to $125,000 by the time their children enroll in college.)
Mr. Kantrowitz said the family could also consider moving to Pennsylvania to take advantage of the lower taxes there, and contributing what they save toward a college plan.