College Planning

Every parent wants to give their child the best opportunities in life, and a quality education is a key part of that. However, with college costs rising rapidly, planning ahead has never been more important. Over the past 20 years, tuition and fees at public four-year institutions have more than doubled, making it essential for families to explore various options and develop a savings strategy. At Breakwater Capital Group , our Greater Boston based wealth management team works with individuals and families nationwide to develop financial plans that incorporate college savings while keeping other financial priorities on track.  This guide discusses the rising cost of college, available financial aid, and practical strategies to help Greater Boston parents prepare.

Congratulations! Your student has been accepted to college. Now, the crucial question is: How do you pay for it? This is an exciting yet challenging time for students and parents across Massachusetts. As graduating seniors eagerly anticipate their next chapter, families face the logistical, emotional, and, most importantly, financial adjustments that come with higher education. Effective planning is key to navigating these transitions successfully.

Economic Perspective –  There is $1.8 Trillion of outstanding student loan debt of which most payments begin again for borrowers this month. The average monthly payment for borrowers is $200 – $300 per month, which equates to around 5% of the U.S median annual salary. Based on these numbers at the household level Wells Fargo analysts believe that the restart will be “ a relatively contained headwind ” for the U.S. economy. Personal Finance Perspective – When economists are looking at the big numbers, in aggregate, student loan repayment restart does not look so bad. When you get down to the individual level, $200 – $300 per month can mean the difference between saving money or being “in the red” …meaning spending more than your take home pay. We all pick and choose how we spend our money. Some people spend upwards of $100 a month at Starbucks. Other people might spend extra at the gym that has the “nice towels” as a form of self-care while they sweat. Some of us just want to keep watching commercial-free streaming services. Whatever choices people make as to where they spend their hard-earned money, student loans are back and there are ways to pay them off and pay them down without ruining all our fun. Here are a few ideas on how to not let your loan payments get you down: Company benefits – See if your company offers any student loan payment relief, as this has become an increasingly popular benefit. If your company does not offer this benefit, share this list with them of 20 companies that do. Ask for a raise – Talk with your boss and let them know that your loan payments are restarting and that it is creating financial stress. Employment is still tight and giving you a raise will most likely be less expensive than hiring and training your replacement. Consider loan consolidation – More and more borrowers are managing their budgets better by extending the terms of the loans or using an Income Driven Repayment plan. Both options can take some of the burden off your monthly budget. Please note, you want to take the time to fully understand the impact of whichever option you choose. Refinance your loans – This is different from consolidating loans. If you have Federal Loans, you are often better off staying in the Federal System. That is where you could potentially qualify for forgiveness programs and potentially take advantage of new payment plans like the newly introduced SAVE plan. If your loans are already through a bank and therefore not Federal loans, it is worth looking at refinancing. There can be bonus offers, lower rates or longer terms that might make it attractive to lower your monthly bills. Whenever you refinance any debt, it is critical to weigh the pros and cons. You may get a lower payment now, but a higher number of payments to pay off the loan completely. Budget – Knowing how much you should or should not spend on discretionary items is important! I realize that sticking to a budget is not as fun as getting a raise would be, but having a sense of what money is coming in and what money is going out each month is critical to long term financial success. Plus, you might not get the raise, and living within a budget is completely in your control. Regardless of how much money you make, in most cases, you could find a way to outspend your income. Prioritize your spending – Some expenses are “essential” – rent/mortgage, electricity, food. Other expenses are discretionary like Starbucks, streaming services, going out to dinner or a show. The goal here is not to encourage you to become a hermit, but rather to be more intentional about hitting a goal like traveling to Rome, Nashville, or Bali. It is simple to overlook details when purchasing everyday items or splurging on an impulse buy. It is when these behaviors become the rule versus the exception when it can hinder your ability to achieve bucket list types of goals or saving a bit extra for a downpayment, paying down student loans or saving a bit more toward retirement. Aggressively pay off your loans – If you have multiple loans, this might be a way to get to a more manageable monthly payment. Attack the smallest outstanding balance first, so that you can eliminate that payment. This is commonly referred to as a “Debt Snowball Method.” Pay off one balance at a time, then you have more money to put toward the next smallest loan balance. This payment method can be compared with the “Debt Avalanche Method,” which is where you attack the loan with the highest interest rate first. The Avalanche method will save you more money in the long run, but it might take longer for you to feel the benefit in your monthly payment. Take advantage of the “On Ramp” (delaying making payments on federal student loans but interest still accrues). Because of some serious drawbacks to the “On Ramp,” this should only be used if the borrower is in a short-term pickle. Some of these challenges include interest accumulation (which will in turn increase the total owed on the loan) and missed payments tacked on to the end of the loan, hindering progress made toward any of the loan forgiveness programs. So, while loan repayments starting up again may not create a major headwind for the U.S. economy, it can create some headwinds for each of us as individuals. As these loans start to pop back up on your monthly ledger, put some thought into how you want to deal with them. Do not let them get in the way of other financial goals by making a plan. As discussed, your plan may include increasing income, reducing other expenditures, or restructuring your loans through loan consolidation/refinance. Weighing these options and figuring out how they fit into your financial plan can be challenging. Speaking with a financial professional who is well versed in the various options can bring peace of mind to the decision-making process. The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/

The future’s so bright, I gotta wear shades……. “If you look good, you feel good, If you feel good, you play good, If you play good, they pay good”- Deion Sanders  With college essays and applications already on the minds of the class of 2024, and the deadline for early decision only about a month away, I find myself amused by the business of higher education in America. Here locally it has been all about the University of Colorado whose quick start and charismatic coach have been all the buzz. Much like Doug Flutie’s “Hail Mary” put Boston College into the national conversation nearly 40 years ago, I wonder how many applications will pour into Boulder in the weeks ahead given the enthusiasm that has reinvigorated the Buffalo community. It’s been a long time since Kordell Stewart or Rashan Salaam wore the black and gold. A recent 60 minutes commentator described Boulder as a “hippy college campus with a store dedicated strictly to selling kites”, to one where “Prime” college apparel flies off bookstore shelves about as quickly as it can be stocked. It’s truly amazing to see how a little success and commensurate college spirit can create such camaraderie and excitement for students and alumni alike. Although I am a University of Denver alumni (Go Pioneers), and a football novice, I find myself planning Autumn Saturdays around the college football schedule this year because #IBelieve. This is all too ironic, considering my husband, a die-hard Jets fan (I know, it’s as depressing as it sounds), allows me to bring my iPad to Metlife stadium for game day when visiting family back East. All that aside, the process of selecting a college and in turn a college selecting a student, are some of the most formative moments in their lives. The experience is the start of a profound journey propelling them into their future careers and lifelong relationships, not to mention one of the most substantial financial commitments that they (and often their families) may make. Whether you are a college athlete dealing with possible NIL endorsement deals, seeking any available academic scholarship opportunities or evaluating your financial aid package, Deion’s words should resonate with all students; if you “play good” then the proverbial “they” do actually “pay good”. Putting on my financial advisor pants suit for a moment, let’s talk about how to make the right college choice from a financial perspective so you can have the career fulfillment (and compensation) that you want. College is often said to be a time to learn more about yourself and cultivate interest . While that is true, and classes ranging from “Shamanism, Healings and Rituals” to “Global Economies and Markets” offer the opportunity to do just that, it should also be a time to be realistic with yourself. If you go into undergrad having declared a major or will need to take a little time to decide, it’s totally appropriate if not imperative to consider your income potential or upward mobility that a career track may afford you. Ideally, you find a calling that you are passionate about and could see yourself mastering your craft over the span of a 30-40 year career. You may end up having 10 employers or just 1, but aspiring for the chance to “tap dance to work” to quote Carol Loomis’s biography on Warren Buffett does seems like a nice objective. Unfortunately, as Paul Tough, writer for the New York Times Magazine explains in a recent podcast on The Daily, many high-school students are soured on the idea of attending higher education as they see the cost outweighing the benefits. This is in stark comparison to opinion polls done a decade ago where 98% of parents said they expected their kids to attend college, to now only 50% of American parents expect their kids to go to college. This is a sobering statistic an The real college wage premium is irrefutable proof of the value of post-secondary education, I emphasize real, which we’ll get to in a moment. After graduation, those with a bachelor’s degree on average earn 60% more than their peers who have completed only high school. But this statistic only tells half of the story as it only takes income into consideration, not how much more debt a college student may have assumed to earn that wage. Over the last 20 years that debt load has mushroomed making what was a few year pay off proposition akin to a 30 year mortgage obligation. I often have a parallel conversation with clients about budgeting and savings and the adage still applies here… “It’s not about what you make, it’s about what you keep”. If we apply this same thinking to the cost of college and wage-earning potential, economists are now measuring what they call the “college wage premium” in how much wealth you are able to accumulate (assets – debts) over the course of your lifetime. Examining college graduates from this perspective reveals a significantly altered narrative. The true impact of the steep rise in tuition costs over the last decade becomes evident, greatly influencing the ability of students to accumulate wealth or, in many cases, rendering the college wage premium virtually nonexistent. As many younger people are buying their first homes or at least trying to, they are provided simple formulas to measure affordability. We often hear about 28% of your gross income can go to housing related expenses and 36% to total debt service which would include things like car payments or student loans. Ideally the amount of money one borrows for education would require less than 5% of their gross income to be paid off in a span of less than 10 years. Of course, everyone’s situation is unique. If your family has saved enough money to cover your cost of attendance, you won’t have the burden of paying off loans and pursuing a degree in English literature at an Ivy League school may be just fine. This choice may offer valuable networking opportunities that could potentially elevate your income potential versus that of someone who opts for a more cost-effective state school for the same degree or pursues another field altogether. Given the average price of tuition, fees, and room and board for an undergraduate degree has increased 169% between 1980 and 2020 , even if parents are footing the bill, those are funds that earlier generations have been able to plow into second homes or investment portfolios. As a result, the amount you spend for college really should be congruent with your earning potential when you graduate, not simply based on parental affordability or availability of credit. There is no easier underwriting process than for student loans where basically a pulse is sufficient enough. The most recent data shows about 50% of students are graduating with approximately $29,000 of debt, which when taken into account changes the wealth premium arithmetic materially, from 96% to 50%. Further analysis shows that science, technology, engineering and math (STEM) majors see an increase in students’ earning potential significantly with graduates making an average of $90,000 upon completion of their degree whereas arts and humanities majors earning less than half that amount with an average graduating wage of $35,500 . Students need to take advantage of networking and outside the box thinking in making sure their earnings are outpacing how much they may owe. Fortunately, there are important state and Federal programs that encourage careers in these fields and can help offset some of the earnings shortfall, but many fail to utilize these offers hiding in plain sight. As we look at the job market landscape today Georgetown University predicts that 70% of all applicants will require some level of college education by 2027 so what may have been optional before is becoming more of a necessity. As the economy becomes more technologically native with artificial intelligence playing a greater role, that level is likely to increase over time. In the aftermath of the pandemic, the job marketplace is extremely competitive and will continue to be that way for the years ahead. Seeking out the best jobs and opportunities is a global pursuit where the top students from around the world come to the US to experience their version of the American Dream. A recent WSJ article suggests we should expect labor tightness for the next 20+ years as the baby boomers age out/retire from the work force. While this may create opportunity, it’s important that students who are financing education do so with “Clear eyes, Full Hearts.” Certainly not everyone’s situation is created equally, so this is very often a group effort, involving family, friends, counselors and advisors. Let’s be sure to pick a place where success isn’t measured by the bowl game appearances but by the financial outcomes that fulfill both their wallets and their career aspirations. For those just getting started on the savings plan to those narrowing down which schools to apply to or whose financial package to accept, an advisor can help you navigate that process. And for the many who have already gone down that path with student loans on their balance sheet we can surely help with how to best tackle them head on. Breakwater Capital Group is extremely passionate about putting our clients in a position of power and planning for these important and expensive life events is critical. We engage these topics head on, and you should too so that every time you show up to life’s Folsom Field, you feel good, you play good, and you get paid good. We won’t win them all but if we are well prepared we will surely win a lot more than we lose. The views expressed represent the opinions of FIRM as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. https://adviserinfo.sec.gov/ Past performance is not a guarantee of future results.