How COVID19 is Affecting College Planning

Over the last month or so, the Coronavirus outbreak has reshaped our world. As we come to terms with our new normal, there are still many financial planning considerations that need to be addressed within this new context. One of those topics for individuals with children is College Planning. While Universities across the nation have either shut down intermittently or shifted to online coursework, the question is how this change will impact your plan. While there are College Planning related legislative changes that have been enacted to soften the blow of this market downturn, a large factor to consider is the timeline of when funds are needed. This post will explain the coronavirus effects on College Planning by period of time until college begins. 

Time Until College: 10+ Years 

Families with children who have just started saving are in a great position. With a 10-plus year time horizon until the funds are need, it’s important to consider how much time is available for recovery of any losses. Just think of how much ground the stock market has made in the last 10 years. Rather than being worried about the account’s performance, this time should be considered an opportunity to build account balances at a point when equities are relatively cheap considering where the market was two months ago. What’s important at this stage is consistent contributions and not hitting a homerun. For more information about consistent contributions and how they help you achieve your planning goals, check out Jeff DeHaan’s recent blog post here. 

Time Until College: 4 – 10 Years 

Students and families in this stage are slightly closer to their liquidation event (beginning college) while also having the luxury of not being directly on the cusp. Corrections hurt regardless of your time horizon and unfortunately, they are a natural part of the risk/reward relationship. Investors at this stage should have been reducing the risk of the accounts periodically as the beginning of college approaches so as a result, the account should contain less equity and be more stable during times of volatility. Action items at this point in time could mean reassessing your contributions and making a corrective action while still having time as an advantage. Possible solutions to a diminished portfolio balance could be increasing investment risk or contributions. 

Time Until College: 0 – 4 Years 

For families with College right around the corner, this downturn probably feels like a curveball. As if the College process wasn’t already taxing enough without a drop in market returns. Properly positioned accounts should have been gradually reducing risk as withdrawal time grows near meaning that these accounts should have taken comparatively smaller losses. However, if this wasn’t the case there are still planning opportunities that exist in this late stage. Among the options are sequencing of when to use the assets. Choosing to use 529 invested assets in the later years of college will add additional years for investments to have the opportunity to recover. Also, because of the vast impact that COVID-19 has had on the world the CARES act has waived Loan and Pell Grant Limits. Doing so allows significantly affected families the opportunity to apply for additional government support, helping to make up for lost portfolio value. There are also many other creative strategies that exist in order to meet circumstantial needs. Each situation has its own circumstances and a Financial Advisor will be able to help work through them.  

Time Until College: Now  

Students already in College may have different challenges to work through. A great place to start is to assess the spending plan that was previously put in place and reassessing whether certain expenses could be reduced or covered through current cashflow. Doing so will prevent the unneeded use of financial assets during a period of time where asset balances are depressed. Also, although parental-dependent students will not receive a government stimulus check, independent students earning under the income limit in 2018 are still eligible to receive all or part of the $1,200. Students with jobs/work-study programs who were laid off or furloughed as a result of COVID-19 may be also eligible for additional compensation from the Government. As a result of campuses closing residence halls there have been reports of Universities refunding portions of Room & Board. If the refunded dollars originally were paid from a 529 College Savings Account, a fund rollover back into the account will need to be done in order to avoid the 10% penalty and gains taxes that would result from an unapproved withdrawal. With everything occurring in the world it’s comforting to see that the U.S. Government didn’t neglect the next generation and is assisting them in this tough time.  

Time Until College: Graduated 

Whether your Graduation Ceremony was canceled this May or you graduated 10 years ago, one thing many students have in common is Student Loans. They are costly but a necessary evil for many people to fund the investment in higher education. While the Government is not forgiving them at this time, they are assisting Federal Loan holders by suspending the accumulation of interest at this time. Doing so can be seen as lessening the financial burden or an opportunity to pay loans off quicker. An individual's view relies entirely on their current financial health. While interest on private loans continues to accumulate, a federal loan interest rate freeze is assistance that many need.  

Planning for College like many other financial goals is hard. There’s no denying that. However nothing worth having comes easy. As the world continues to change and new facts come to light, it’s important to position for the best possible outcome. Regardless of your stage in College Planning, be sure to assess your asset allocation to make sure you’re correctly positioned for your stage in the process. If there are still questions that stand unanswered, feel free to reach me at austin.baron@ccpwealth.com or follow this link to Clearwater Capital’s COVID-19 Resource Center where we’re posting content to bring clarity during this complex time. 

Best, 

Austin Baron