Retirement For Life

College Planning Secrets with Expert Paul Compeau, CFP® - Ep 39

• Christian Cyr, CPA, CFP® • Season 2 • Episode 39

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Discover strategies for college planning that protect retirement savings while maximizing financial aid opportunities for your grandchildren. 

• College degrees still hold significant value, demonstrating a person's ability to persist toward long-term goals
• Traditional savings vehicles like 529 plans may not always be the optimal choice for every family situation
• Financial aid eligibility often depends on proper positioning of assets and income years before college begins
• School selection is crucial—finding the right campus, curriculum, and cost fit helps students graduate on time
• Even families with incomes over $300,000 may qualify for significant financial aid at certain institutions
• How you save for college can impact aid eligibility, with each $10,000 in certain savings potentially reducing aid by $500-$2,500
• The average student takes 5.8 years to complete a four-year degree, creating a potential $250,000 wealth swing
• Alternative savings strategies like IRAs, Roth IRAs, and certain insurance products may better protect financial aid eligibility
• Starting the college planning process early gives families more options and potentially better outcomes

Paul Compeau is a Certified Financial Planner, and the founding partner at BridgeWise College Planning. Using a CFO-style approach, he has helped over 500 families across the US plan how they will pay for college and save significantly, even at top-tier universities like NYU, Stanford, Michigan, and more.

Learn more about college planning strategies at BridgeWiseCP.com or by typing "Bridgewise College Planning" into Google.


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Speaker 1:

Retirement for Life, your passport to a comfortable and confident retirement. The podcast that's equal parts education and entertainment, where we break down the retirement maze with a dash of fun and a heap of wisdom from your host, Christian Sear, CPA, the passionate retirement specialist and president of Sear Financial Wealth Advisors. The independent registered investment advisor specializing in the AIM retirement system.

Speaker 2:

All right, welcome to the Retirement for Life podcast. This is Christian Sears, CPA, CFP, and today we're doing a little bit of a curve ball. So it dawned on me, Brooke, take a guess at what the average age of our listener is. Average age 56.

Speaker 2:

Well, that's pretty good. So the average age of this podcast listener is right around 61 to 62 years old, which makes a lot of sense. We've spent two years talking to people who are in retirement or near retirement. We have a niche practice where we only work with retirees primarily and we're really focusing on the things that matter most to those people. And actually I looked it up what percent of our listeners are 55 or older? What percent of our listeners are 55 or over? 48% it is 85% of our listeners are over the age of 55.

Speaker 2:

So college is an afterthought. College is an absolute afterthought. But it dawned on me the other day that our listeners do have grandchildren, right. So most of our listeners, our kids, have been through college or nearing the end of college, but they have grandkids, right, and so for us, there's been a few tenets with regard to college planning that I think are important, that I have always stuck by. But today we're going to hear from an expert, and so if you have a grandchild or have any interest in what an expert is saying about college planning, today you're going to want to pay attention to this episode.

Speaker 2:

What I've always said is the number one thing about college, just very simply. It's not a real secret. You got to save. College is not getting any cheaper. College is getting more and more expensive. In fact, a lot of work in the last five years is now starting to argue that maybe the value of college is starting to be diminished a little bit. Maybe that degree that you have maybe isn't as necessary as it was in the past. I still argue that a college degree is a very valuable thing to have, and here's why, when you are interviewing somebody for the first time, it is impossible, nearly impossible, to decide is this person I'm talking to? Are they a jerk? Are they just putting on a fake face for me? You know they have a thousand faces. Which one am I talking to? Which am I looking at? It's very hard to understand who this person is, what this person is capable of, when you're just interviewing them for the first time. And, all things being the same, a college degree can really let a person know a few things. Yes, did you study some subject matter that is of importance to your vocation? Absolutely, but really it tells me something more. I've been employing people now for over 30 years. What a college degree tells me as an employer? If you studied finance, if you studied astrology, if you studied anything. Just because you went to four years of college first doesn't mean that you have the aptitude for it, but it does show me that you were able to accomplish something. You were able to be persistent enough for at least four years to be able to accomplish a goal, and that tells me something right there, just the fact that you got through it. So I think a college degree is important, but the costs are going up and up and up. So I guess what I'm saying is saving your money for college is the first thing.

Speaker 2:

A 529, we're going to talk a lot about a 529 today with our guests 529 is the typical savings plan for college planning. I think that is the best vehicle we have to prepare ourselves for the financial burdens of college. Now, I've often said back now Brooke, do you remember one of our first? It wasn't a viral video, but do you remember? We were standing right outside here, outside of the studio, the sun was shining. There was a lawnmower going off in the middle of our shoot. The sun was in my eyes, but this was the first video that I think got more than 10,000 viewers.

Speaker 2:

And this was an older video, but it was the premise that you know, sometimes people, when they have a two-year-old child, how do we know that this person is going to need college? Are we sure that we want to put money into a 529 plan? That is truly, and there's some ways out of it. But basically, once you put money into a 529 plan, for the most part now you're committing to saving for college. And what if two-year-old Jimmy decides that he doesn't want to go to college or he doesn't need to go to college? Now you have this money sitting in a college savings plan and so it's hard to get that money out. It's hard to get that money out.

Speaker 2:

So my principle has always been, for the first 10 years or so of a child's life, I've always followed the strategy to put some money into an account, a child's account, a UTMA that you can save money for the child, but they can also use it for a first car or a first home. And the beauty about the UTMA is that you can have $10,000, $15,000, even $20,000 in this account and, generally speaking, it's tax-free. Why? Because UTMA is a child's account, right? Mom, dad, grandma or grandpa, somebody is in charge of the account, but it's the child's money ultimately eventually. So it gets taxed at the child's tax rate. Well, what tax rate is the two-year-old in? Zero right. And so it's a good way to save for college without really having to commit to going to college. So, saving money, some 529 savings plans maybe UTMA makes sense, and for grandma and grandpa, gifting money into a 529 is great.

Speaker 2:

But today, if you have a grandchild or you have someone in your life that is interested in hearing what a true expert has to say about college planning. So today I'm going to introduce you to Paul Campo. He is a CFP Certified Financial Planner, just like I am. He is the founder of Bridgewise College Planning. The name of his business says it all Bridgewise College Planning.

Speaker 2:

For over 15 years he's helped families avoid one of the most overlooked threats to retirement overpaying for college, which that's a worthwhile cause. He has worked with over 500 families to save $40,000 plus on education costs, without dipping into the retirement accounts, income producing assets or other assets that you might have. So I've asked Emma and Andrea, who are really at the heart of planning with our clients, to sit down with Paul today, and I think the interview that they gave was a great one and it's really going to help those of you who are interested in college planning or wise ways to save for maybe your grandchild's college costs. So sit back and relax as we hear. Emma and Andrea interview Paul. Here we go.

Speaker 3:

Hey Paul, How's it going today?

Speaker 5:

Doing great. Happy to be here.

Speaker 3:

We're happy to have you. We have a lot of clients asking about the topics that we're going to cover today, so I think it'll be a really good episode and really highlight some of the things that are important when we're talking about college planning and saving. But I think before we start let's just start with the basics. For some of our clients or prospects that are starting from square one Maybe they've just heard of what a 529 is they're just looking at saving for college, whether that's for their kids or grandkids. I guess can you just start with the basics?

Speaker 5:

Yeah. So there's many different places you can save for college and when we're looking at how we're going to save for college, there's a lot of different things to look at. Obviously, investment, performance and risk and all those different things with time horizon, everything like that. What a lot of people leave out is the actual college part of it. So one of the big things that we look at is financial aid and how that could affect financial aid.

Speaker 5:

So one of the things we look at is if we are going to use a 529 or any other investment tool or savings tool, how is that going to affect the financial aid? So what we found is even an extra $10,000 in savings could increase the cost of college anywhere between $500 and $2,500. So when we're looking at, you know, cost of college being, you know anywhere between $25,000 and $35,000 at most state universities and up to $90,000 or $100,000 at some private universities. If we're going to save, you know $150,000 at most state universities and up to $90,000 or $100,000 at some private universities. If we're going to save $150,000 or a quarter million dollars per kid to pay for college, we don't want how we save that money to cause us to overpay for college either.

Speaker 4:

And what do you see are some common mistakes that people make when they're planning or starting to save for college expenses. As far as maybe you know when they actually are using a 529, what they're investing in, or maybe like taxes.

Speaker 5:

Yeah, so you want tax deferral always right. That's financial planning. Basics is if we can not pay money to the government, we would love to do that. So always want tax deferral and things like that. We would love to do that, so always want tax deferral and things like that.

Speaker 5:

The big downfall for 529s is whether it's owned by the student or owned by the parent. That's going to count against them for financial aid as a parent asset. So what ends up happening is we do end up paying more, and that's where sometimes we want to do an investment analysis on the 529s. There's many 529s across the country and what we found is the vast majority of them, the risk that you're taking. You're not getting the reward you should be getting for that.

Speaker 5:

So when we look at the performance of those funds, sometimes all their options are an alternative. So if somebody has over $300,000 or $400,000 of income each year, they're probably not going to qualify for need-based financial aid, so that might not be as big of a concern. But if they're under, you know, 250 or 300,000 of income, they may be able to qualify, and that's where, depending on what school they pick, becomes the main focus of that college plan Once that student gets to that high school age is. School selection is probably more important than where you save the money as far as getting more financial aid.

Speaker 4:

Interesting.

Speaker 3:

So I guess what's the biggest secret when it comes to getting a kid through college without debt, and maybe it would be helpful for our listeners to hear you know, like a success story of one of your clients or how you typically work with clients.

Speaker 5:

Yeah, so it's different for each individual client, right? So there's some clients who have a financial profile, that have a student profile that when we bring them through our college selection process we're able to identify schools that they're going to get great financial aid. So we call those category one families. Usually they're going to have a student aid index from the financial aid forms under about $8,000 or $10,000. They're going to do great with financial aid just about anywhere. The key there is to make sure that we're hitting all the deadlines, because even one school might have six or seven different deadlines that you need to fit in order to get that financial aid. So category two families are usually middle class families. They're going to have a student aid index between 10,000 and 80,000. Those families we need to select the right school. So in our process we have a team of certified counselors through the Independent Educational Counselors Association who work with our students to help them find the right school. It needs to be a perfect campus fit, it needs to be a perfect curriculum fit and it needs to be a perfect cost fit. And if we don't get all three, that's where we hear about kids taking longer and longer. The average kid takes 5.8 years to finish four years of a bachelor's degree. Now it's because one of those three things was off. So if we can identify all three of those financial with the financial planning side, plus the academic and the cultural fit, then we can have a kid finish on time. We can have them select the right major from the get-go and that allows them to have that success that we want to see during college. So when I look at those category two families, not only can we qualify for financial aid, we can also make sure that the student is on the right path for them. So when we're working with those teenagers, what we love about that system is not only are we saving mom and dad or grandma and grandpa the 50 or 60,000 it might cost for that extra year or two of college, we're also getting the student into their working career to get the experience they need that much sooner.

Speaker 5:

And that's a big swing of wealth from a family. You know, if we think of a kid going to an extra two years of school, maybe the school only costs $35,000, that's $70,000 extra in fees that you're paying to the school. But a kid getting out of college, depending on what field they go into, might be making another $60,000, $70,000, $80,000 a year. So two years of that is 150,000. In addition to that that's a quarter million dollar swing in most cases of wealth that family doesn't have anymore. So that's why we're so passionate about working with the students and working very closely with the student to do that.

Speaker 5:

And then you have category three families.

Speaker 5:

The category three families are the wealthier families.

Speaker 5:

They have high income every single year. There's nothing they can do about it unless they quit their job right, which is an option in some cases, but usually not. And what happens is we need to make sure that they're getting the tuition discounts and things like that that they need to make college happen. So, especially when we're looking at more elite universities the schools that cost $90,000, $95,000 a year, many of them need a large number of families that can at least pay $40,000 or $50,000 or $60,000 a year, because if they charge one price for everybody, they wouldn't be able to fill their freshman class. They can charge zero for everybody. They wouldn't make any money right? They wouldn't be able to pay their teachers and everything else. A Large group in the middle and that's one of the things that we do for our families is through the negotiation process with the universities, we're able to achieve additional financial aid in a lot of cases even for higher income families, because the school would rather get 60 grand a year than get zero from that family.

Speaker 4:

Interesting. Would you say that everyone should have a 529 plan, or when would you recommend people start opening 529 plans?

Speaker 5:

Yeah, so most people.

Speaker 5:

The most common use that we see when we look at financial aid planning for 529 plans is for generation skipping.

Speaker 5:

So one of the things that you can do with 529 plans is if usually it's grandma and grandpa want to give money to the grandkids, or even great grandkids, they can fund five years worth of annual gifting all at once, so that allows them to gift quite a bit of money. If we can keep that out of the parent's name, keep that out of the student's name, we can also keep it off the financial aid formulas. The problem comes in those situations is if the grandma who owns it dies before the kids end up going to college, then it does still end up on the financial aid formulas. So when we look at the investment analysis on the 529s and we look at the way that people save there and we look at the way that people save there, we have very few clients that, after they understand how the 529 works for investment performance and how it works for financial aid and how it works for liquidity, we have very few people who choose that option when they're saving money for college.

Speaker 3:

Interesting. We sometimes recommend a custodial account when grandparents are saving for their grandkids, so like a UTMA, a minor account, and sometimes that can work better in terms of flexibility. But are there other avenues besides the 529 or just a custodian account, where it might work better for a grandparent to gift money to the kids for college?

Speaker 5:

Yeah, so we'll start with the base fact of any savings for college or any gifting from grandma and grandpa is always awesome, right? So any way that if you want to help the grandkids out with college, that is a wonderful thing to do. Education is amazing and you can do amazing things afterwards with that education. So any way you do it is better than not doing it. So there are some places that might work a little bit better than others from a tax perspective or things like that. When we look at UTMAs and UGMAs, they actually count as a student asset when we go into the financial aid formulas. So if maybe grandma and grandpa have high income, mom and dad might have middle class income and obviously the kids have almost no income, when we move those assets into a UGMA or UTMA, those are going to count as student assets. So if we have and that's at a 20% rate so in the financial aid formulas you have $10,000 in there, you're going to lose about $2,000 of financial aid for every $10,000 that's in there. So while grandma and grandpa might have the money to help out the family, mom and dad might not have as high of income, and that's where we would want to just be very careful with you If we know we're not going to qualify for financial aid. Sometimes the UTMAs or 529s and things like that can work.

Speaker 5:

Financial aid sometimes the UTMAs or 529s and things like that can work If we can qualify for financial aid once again usually about $300,000 of income if you have one student in. It might be $500,000 or $600,000 if you have two students in at some schools. So if the parents are under that income threshold then we probably wouldn't look as close at those. We'd start looking closer at things like IRAs, roth IRAs, certain types of cash value, life insurance sometimes can work.

Speaker 5:

There's a number of other places that are off of the financial aid formulas that they could still qualify for financial aid. Some families will even look at if they're looking at certain types of schools that don't count home equity against you. We may be able to pay down a mortgage, use a home equity line of credit to pay for college or home equity loan or something like that later on where it wouldn't count as an asset in the financial aid formula. So there's a lot of creative solutions out there. It just depends on where they're going to fall in the financial aid. If the student's looking at schools where they're not going to qualify for financial aid, then that's not a consideration.

Speaker 4:

Okay, and I know that everyone knows that you can use 529s for tuition, but what else can?

Speaker 5:

they be used for. That's a great question because that recently changed. So they're opening that up for, depending on the state. And this is where one of the tricky things is. Some states will allow the tax deduction to use for high school tuition and high school expenses or grade school. Even so, sometimes we can in certain states, we can use those ahead of time to get them off of the financial aid formulas. If you're going to parochial school or private school where there is tuition, sometimes we can use it for things like that in certain states. But then past that, you can use it for books, you can use it for room and board, you can use it for all the regular college expenses and then if you don't use it for college.

Speaker 5:

There's a lot of stipulations on how to do this and very rarely do you see it done successfully. But now we have the option to move it over to a Roth IRA for retirement as well. So you have to be careful. You don't want to just go and do that, because you have to play within the tax rules and everything like that to make sure you're doing that the correct way. But that is an option for some people.

Speaker 5:

What we end up doing probably eight out of 10 times is if we have money left in the 529, we just hold on to it and use it for the grandkids education. So that's usually what ends up happening, but it's very rare. I mean, the average balance in a $529,000 is less than $30,000. So it's pretty rare that you're actually going to. Most people will have enough money there to pay for college and have some leftover so, but it does happen and for those people there are a few exit options outside of just spending on the kids college. But most of the time I mean grad school might come up or med school or something like that. That's another place you can spend it.

Speaker 3:

OK, what's what's like the biggest misconception or myth around what you do when people come to you? What's like the most common thing you hear?

Speaker 5:

Yeah. So there's a big. The biggest one is that they're not going to qualify for financial aid. So they're hanging out with their friends and they say, well, my kid went to this school, or they're kids' cousins or something like that. You're people you're talking to and we make way too much income. We're not going to qualify for financial aid and nine times out of 10, they either picked the wrong school or they didn't know the process for getting financial aid well enough that they made the right moves ahead of time to get the financial aid.

Speaker 5:

So you know, if you're, for some families there's, you know, a lot of times the local state school doesn't have a ton of money to give right. So if you go to the local state school and you didn't position your income and assets correctly ahead of time and you have to start that as early as freshman and sophomore year of high school in order to get that first year of college, if you didn't go through that expertise in the planning process soon enough, then you don't qualify for financial aid. And then you tell your neighbors that hey, we didn't qualify for financial aid, you shouldn't bother either. So even to get merit financial aid, you still need to file the FAFSA. You still need to go through the process, you still need to hit the deadline. So most merit-based financial aid isn't going to be awarded at most universities if you didn't file in the FAFSA and that usually comes back, especially discretionary ones, the FAFSA, and that usually comes back especially discretionary ones. So we have to think through.

Speaker 5:

The colleges are a big, very successful business, right? And the financial aid office is the building arm of that business, right? They're the ones that decides who's paying what and how much revenue they're going to have come in that year. So when they do that, you have to be careful working with them, because part of what they're trying to figure out is how much they can charge a family like yours and don't just think of your family, think of a hundred families that are in almost the exact same financial situation. They need 40 of them to show up. They're seeing how little financial aid they can award that group to have 40 of them show up, right. So we have to be careful how we're working with the financial aid. But when they're looking at it, a lot of what they're looking to do is to make sure that the university is set, not necessarily the individual students or that individual family.

Speaker 4:

So if someone is just starting out looking into getting prepared for college, what is the best piece of advice you would give to them in getting the right pieces in place?

Speaker 5:

Yeah. So start when you first found out you were pregnant. Start as early as possible. You do need to put more money away. Work with somebody who knows what they're doing.

Speaker 5:

So, at a minimum, the first step is trying to figure out how much college is actually going to cost. So most people we call it a blueprint. Most people don't have that blueprint of how college is going to get paid for. But the first step is how much money are we going to need, year by year, semester by semester. We talk to high school families all the time that have never mapped that out for their kids. So that's the first step and then we have to figure out how we're going to pay for that right.

Speaker 5:

So working with a qualified professional, somebody who can help you with those calculations and make sure all of the variables are built in, is very important. But especially when you have a late stage college planning situation, you already have a high school student. Maybe you did set up the 529, you saved some money there, but you have two kids. We need at least a quarter million dollars to pay for college. You only have $20,000 saved. You know what I mean. Or maybe 50,000 if you did a great job. And it's not because people did anything wrong. They knew they should save more, and if they work with an advisor, their advisor probably told them to save more. But when the kids are younger I have an eight-year-old and a 10-year-old there are so many awesome things that we can do with those eight and 10-year olds. When they're younger kids, that are great things to do that sometimes, for a lot of families, are a more urgent priority than saving for college, right? So we're trying to pay off.

Speaker 5:

In a lot of cases it took my wife and I a while to pay off our student loan debt. Right, we're trying to buy a house when our kids were young, we're trying to grow our careers and do everything like that. So when that happens, we really want to make sure we're making good financial decisions along the way. But most people end up with a late stage college planning situation where they have three years, one year, sometimes only half a year to figure out how we're going to pay that first bill. So that's where you want a qualified expert on your team to look at your overall financial situation.

Speaker 5:

It's going to sound really generic, but that's what it takes is to look through all of your assets, look through all of your liabilities, how much are you putting out? How much is it? Are your car payments? How much is your house payment, how much is your all of the different things that you have going in your financial life and see if there's a more efficient way to do it. So I'll kind of give you a broad way that might work.

Speaker 5:

If you have a family, you know, maybe they make $150,000 a year. They might qualify for some financial aid and things like that At certain schools. If we can get their debt from $6,000 a month down to $4,000 a month by good financial planning without having to just kick in the bucket down the road, well then they have an extra $2,000 a month and then it's a lot easier to come up with a $30,000 college bill if we can do that and that's where most people, if you look at statistics, have never met with an actual financial planner. They might have an investment person or something like that, but meeting with a qualified financial partner like your firm, like my firm, that actually does financial planning, allows them to have that successful plan in place.

Speaker 3:

Awesome. We appreciate the holistic view here as well, incorporating all the pieces of the puzzle together so that we're not missing something or making a decision that's going to affect another part of our plan, and we appreciate the info. I think this is, you know, some new information for a lot of our clients. If someone wants to find more information, on you.

Speaker 5:

Where can they find you? B-r-i-d-g-e-w-i-s-e-c-pcom? Or just type in Bridgewise College Planning into Google. We'll come up there when you click through to that. They can take advantage of a college breakthrough readiness session making sure their student is ready for college, making sure their financials are ready for college, and we're just looking to get people on the right path. So we are a fee-based company, no-transcript breakthrough sessions. They're going to end up doing a lot of the work on their own. We'll give them some good tips and put them in the right direction For the families that we can have a major impact on. We love helping them and successfully helping them get more financial aid and having that plan in place of how they're going to pay for college.

Speaker 2:

So that was the interview with Paul Acampo, cfp and college planning expert. I want to thank Andrea and Emma for putting their time in asking the important questions. A lot of great details today that I think the average person doesn't consider when listening to a podcast about college planning. There was a lot of great insights there, so please feel free to share this with anyone who may be interested in college planning and thank you for tuning in to Retirement for Life podcast. Thanks and we'll see you guys in two weeks.

Speaker 1:

Investment advisory services provided by Sear Financial Inc. Sec registered investment advisor. All content on this podcast is for information purposes only and should not be considered advisory services provided by Sear Financial Inc. Sec registered investment advisor. All content on this podcast is for information purposes only and should not be considered investment, legal or tax advice. Material presented is believed to be from reliable sources and no representations are made by our firm as to another party's informational accuracy or completeness.

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Christian J. Cyr, CPA, CFP®

Host
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Andrea Brannon

Co-host
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Emma Bean, CFA

Co-host