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The "Real" Business College Planners Are In

The Real Business of a College Finance Consultant

Last fall, I did a workshop in Oyster Bay.

About 30 minutes (and 27 lame, self-amusing jokes) into the presentation, I turned to the topic of assets.

Specifically, how some types of savings “count” against you more than others, and some don’t count against you at all.

I mentioned annuities, which are exempt under the Federal financial aid rules.  A gentleman raised his hand.

“I am about to sell my mutual funds and buy an annuity for financial aid reasons,” he said.

“What colleges is your son or daughter thinking about applying to?” I asked.

He listed somewhere in the neighborhood of 11-12.

“Ah,” I said.  “Most of those schools require an additional form, the CSS Profile.  Your issue is that the only person you’d benefit is your insurance agent – because those colleges will count your type of annuity as an asset -it’s not exempt.” I said.

In other words, the insurance agent suggested that he buy an annuity (a seven figure amount, by the way) in order to improve his eligibility for grants and scholarships.  But this strategy would not work for nine of the 11 or 12 colleges under consideration.

Many so-called “college planners are really insurance or other financial professionals, meaning they have licenses to offer financial products.  They get into the college planning business to get leads to sell financial products.

I know several of them who do a good job.  They are open and up front about their background, and genuinely focus  on the clients’ needs first.  And I used to have more of my share of licenses, stemming from the days I served as in-house counsel to a publicly traded broker-dealer in Miami.

But a few of them are a little deceptive, in my opinion.  In effect, their “pitch” is:  “Hey, you could qualify for more grants and scholarships if you move money around, like buying an annuity.  By the way, I sell annuities! (Hey, what a weird coincidence!)”

(Again, I’m not indicting every college planner with a license.)

I’m not even saying annuities are bad.  But they do not work across the board as a financial aid shelter.

Nor are they appropriate investment vehicles for every family, even if the stars align and they could improve their financial aid eligibility.

If you feel any kind of pressure to buy a financial product for college planning purposes, be cautious.

Your correspondent,

– Andy Lockwood

P.S. Here’s an example.  If you have $100,000 of “includable” assets, you could reduce your eligibility by $5,640 per year (your Estimated Family Contribution increases by an amount equal to 5.64% the value of parent assets – this is an oversimplification).

So if you buy an annuity, you could improve your eligibility by $5,640, because you have, in effect, wiped those assets off of your financial aid balance sheet, legally.

To be clear, this does NOT mean that you’ll receive an extra $5,640 in cash from each college, per year.

For the rest of the story, go here.