The last article focused on step two of the college funding process. It reviewed the types of student loans and broke them down into federal and private loans, as well as the subcategories of student and parent loans. Today, we continue by discussing student loans and the student loan crisis. Will there be a crisis or is it already here? What trends are taking place with student loans?

Funding College with Student Loans

Seven out of ten families will use some form of student loans to help pay for college. Many families accept this statistic as a normal part of sending a student to school. Some families see the current debt load of $1.4 trillion and focus on creating a lower or no-debt funding plan. The goal for later families is to help control early expense risk (increasing needed cash flow to duties that do not normally exist). With few or no student loans, young workers can save for retirement, a house, a baby, or other goals.

Problems do exist for students who have student loans and no degree. A worker with a college degree earns more over a lifetime than does a person without one. Imagine how much further behind a college drop will be when student loan payments enter the equation. Not only will this person earn less, but his or her expenses will increase.

Government Limiting Risk

As strange as it sounds, we can thank the government in some way for helping limit the expense risk that students face – specifically, those students who did not earn degrees. You may recall from the post Different Types of Student Loans that the federal government limits how much a student can borrow based on his or her year. Freshmen can borrow $5500, sophomores can borrow $6500, and juniors and seniors can borrow $7500. The caps limit risk by not letting underclassmen take out too much in federal student loans.

These limits make sense when one considers the high number of students who drop out of school. In risk management, this would be an example of risk reduction. The student’s risk of default does not go away but rather is limited to the lower amount of the Stafford loan. In terms of other types of student loans, this trend moves in the opposite direction. A quick review of the data below shows the point.

Notice the 25% growth in Parent PLUS loans and the almost doubling of the nonfederal loans? These are the loans that start getting families in trouble, which begs the question: How does this happen after more than a decade? After sitting by some of the families and helping them fill out their FAFSA forms this fall, I have no doubt that the process of going to college creates large amounts of stress for the student and the parent. Many feel that completing the FAFSA is not only harder but more stressful than completing their tax return.

When families receive their acceptance letters and aid packages, the sense of relief overcomes them and they pay little attention to the financial aid package. As consumers, we must keep in mind that these non-friendly loans become collateralized with Mom and Dad’s names or assets. Bankruptcy does not necessarily dismiss the debt, either.

Here we sit, in $1.4 trillion of student loan debt.

Student Loan Crisis

When do you call something a crisis? Is it after we push the ball off the cliff, or just before the tipping point of going over the cliff? Experts disagree on the answer, and some contend that a crisis does not exist. However, we cannot dispute the data. The following graph shows a different story (1.)

Nearly one-third of the federal education loan portfolio is in deferment, forbearance, or default. Not all delayed payments under these programs are negative. A student may qualify for a deferment for several reasons, like active duty, military service related to a war, a military operation, a national emergency, or enrollment in an approved rehabilitation training program for the disabled (2.). Other scenarios may qualify a person for deferment.

Simply looking at the default rate should make us uncomfortable. Mortgage delinquencies during the great recession topped out at 10.53% (3.). We are sitting at nearly the same rate on student loans. The public keeps sloughing off the concern. Major ramifications will likely result if the default rate continues increasing, which may drag on for some time. As mentioned before, student loans typically cannot be written off in a bankruptcy. Banks wrote off the bad mortgages from the Great Recession. For capital markets to work efficiently, this write-off process should be short. The markets then quickly adjusted to reprice the mortgage. The default of a student loan has the potential to go on for years or maybe decades as long as the borrower remains alive. Markets cannot be efficient with the current state of affairs, and inevitably delays the likely result of not recovering the principal amount of the loan.

Possible Crisis Scenarios

You know from my other posts that student loans have a negative effect on the individual. For example, when families have student loans, they save less for retirement and delay having children. Blow this effect up nationally and imagine how things change. The question to answer is: How do student loans with extended defaults affect spending and economic patterns?

What if it was easier to declare bankruptcy on student loans?

Perhaps the financial markets would be able to absorb the disruption more quickly than forcing a delay and extended process for dismissing the debt. Of course, the normal and negative side effects would accompany the dismissal. The family/individual would be able to move forward more quickly. Today, the issue is politicized, with no progress made in terms of reform or in the ability to dismiss the debt. The courts still use a standard – called the Brunner test – established in 1987 (4.).

Even debt holders using income-based-repayment plans face some economic challenges. By dragging out payments over 20 or 25 years, the worker pays more interest, which is not going toward other desired outcomes that contribute to current or future economic output. To put it another way, more dollars are spent on the past than on the present or future.

The current system has produced no significant changes. As mentioned before, debt has increased at a ridiculous rate. A rising interest rate environment creates a squeamish outlook for students who take out future loans and for those who hold variable rate loans.

Perhaps a different form of “forgiveness” should be reviewed, or we should let the markets help decide the fate of delinquent loans.

Next Step:

If your student is college bound, take the first step and create a college funding budget. Consider it the rudder on a ship; it will provide direction and prevent your student from facing the student loan crisis problems that this post has outlined. Second, create a smart lending strategy. This means knowing the rough starting salary of your career. The student should not graduate with more in debt than his or her first year’s salary. Shop for a school that meets the needs of your student socially, academically, and financially.

For those in school, take the time now to estimate the debt you will have accumulated upon graduation. Will you be eating ramen noodles or living the way you expect? If the former, make changes now to limit the damage. Take on a shift at a local business or at school. Do not borrow money for spring break trips. Take more credit hours or go to summer school so that you do not extend your academic career by another year or two.

Before your student heads off to college, make sure you know how much you can afford by using the free College Funding Snapshot Report.

Have questions? Call me at 317-805-0840 or email me at


  1. Trends in Higher Education Series. PowerPoint. 30, October 2017.


In the last blog post, The Current Reality of Paying for College, we discussed the nature of college funding, the misalignment between the financial services industry and parents, and how we parent. Specifically, we examined the details behind the Student Loan Bubble and compared default rates to the mortgage delinquencies of 2008. The numbers show that the student loan bubble is already here. For those with current student loans, a new mindset must lead the way in creating innovations that minimize interest paid over the loan’s lifetime. Families with college-bound students must focus on how they save for, shop for, and save on the cost of college. This blog post reviews the first of three steps in saving and shopping for college, as well as the cost involved.

Before we dive into the specifics, we must ask a question.

How do families currently approach college funding?

A new trend worth noting shows that an all-time-high number of parents are saving for college: 72 percent according to a recent Fidelity survey (1.) Seventy-six percent of the respondents are very or somewhat familiar with the popular 529 account. The survey discusses three knowledge gaps: 1) how much a family should be saving and the future cost of college; 2) understanding the fundamentals of 529 accounts; and 3) how saving for college affects financial aid eligibility (1.)

The last point of the study deserves clarification. The study mentions having grandparents help save for college but doesn’t describe how to do this. If money is gifted to parents who then put the funds into a 529, then yes, there is minimal impact on the FAFSA funding formula. However, if grandparents put the funds directly into the 529, then pay the school from the account, major implications may affect financial aid during the student’s following school year. Up to 50 percent of the money distributed from the grandparents’ 529s may be taken away in need-based aid. This is where working with a fee-only financial planner may help.

Increased savings will benefit college-bound students. However, as noted in the three gaps from the Fidelity survey, understanding the cost of college is important. Financial aid trends in grants, loans, and tax credits play another important role in financing higher education.

College Funding Sources: Loans

The following bar chart highlights the difference in federally subsidized loans on the funding percent from the 96-97 school year to the 16-17 school year (2.). This funding source was cut by more than 50 percent. By comparison, notice the large increases in federal unsubsidized, Parent PLUS, Grad PLUS, and nonfederal loans.

The increases are worth noting because of the large financial strain they put on students and parents. In my other blog post, you can see the result of this strain. As further proof of the difficulty in servicing these large increases in student loan debt, take a look at the following chart (2) showing deferment, forbearance, and default. Keep in mind that filing bankruptcy on student loans is difficult.


Is easy access to money partially to blame for this increase in student loan debt? It seems that little regard is given to students’ ability to service the debt beyond graduation. This comment does not dismiss consumer responsibility but rather acknowledges the behavioral aspect of shopping for college from a consumer point of view.

How we shop matters.

How we shop matters to the point that financial institutions limit how much we can borrow. Imagine going to the Ferrari dealership as a fresh college grad making $45,000 a year and applying for a car loan. What would a bank tell a young couple trying to buy $1,000,000 on an income of $75,000? Of course, the bank will say no. In fact, the bank will pre-approve you for an amount so you know the maximum price range in which you can shop.

Wise and informed consumers will have a much lower self-imposed limit and will shop around for the best bargain. Why do lenders limit the amount you can borrow? The lender must limit the risk associated with your total debt load, which makes credit scores, income, and assets part of a standard review before one borrows money for a major buy. These debts can typically be claimed as part of a bankruptcy.

Student loans have much lower standards for borrowing money. Over their undergrad years, all students qualify for up to $27,000 in Stafford loans with no questions asked and no credit check. Parent PLUS loans do require a credit check but there is no total limit on the loans. Private loans vary, but I meet people coming out of college with hundreds of thousands in student loan debt. Can you blame the student loan lender for these low standards? As mentioned earlier, it affects the student and, likely, the parent.

As consumers, we must treat the college shopping experience the same way a bank imposes limits on how much one can borrow for a home. Also, we do not buy the first home we see. Instead, we look for homes that meet our needs at a great price. Valuing the education from one institution may be similar to the way in which we value both market aspects and personal preference in pricing a home.

College Funding Sources

There are five broad personal funding sources: parent resources, parent loans, student resources, student loans, and other help. Scholarships and grants may pay for college, but the family does not have control over whether the money is awarded.

Parent resources include both income and assets collected for college. Here are a few examples: 529s in the parents’ name, taxable brokerage accounts, Roth IRAs in which the money was saved specifically for college, monthly cash flow (kids do not live with parents for free and may cost $250-$300/month), tax credits (for example, the Annual American Opportunity Tax Credit), 529 state tax credit, and public matching programs like Upromise or the Hancock County Promise in Indiana.

Parent loans typically include Parent PLUS and private student loans as the two most common ways for parents to borrow money to pay for college. A third possibility includes taking out a home equity loan. If you are a parent over the age of 62, a reverse mortgage may be another avenue to examine. (Please consult with your financial advisor to review how these may or may not fit your needs.)

Student resources include income and assets similarly to parents’ assets. Many of the same types of accounts apply but with a few differences. Taxable accounts are referred to as UTMA or UGMA accounts, and the parents typically decide about the funds. If monthly cash flow exists, it likely comes from a part-time job. Parents usually claim the tax credits while the child attends college (normally, the child remains a dependent for an undergrad degree). Do not forget that these assets weigh heavily in determining the expected family contribution (how much the government thinks you can pay for college).

Student loans start with Stafford loans, then move into private loans. When a student enters the private loan market, usually a co-signer must be on the loan. Make sure all parties understand the loan’s covenants. Students often get in trouble because they do not understand how the debt works after graduation or if they drop out of school.

The last category covers all other sources of funding. Grandparents gifting money to mom, dad, or grandchild and 529s saved in the grandparent’s name are the two most common funding vehicles in this category. Families must be aware of how this category may affect any financial aid the student receives.

A good college funding budget would look similar to the example below.

One final important detail must be addressed. Notice the First Year Salary and Student Loans sections. These numbers should help set the maximum student loan debt a graduate should accumulate after leaving college. For every $10,000 in student loan debt, you should expect roughly a $100 payment for 10 years. Because not all majors produce the same level of income, the student should accumulate the appropriate level of debt.

Next Steps:

  1. Gather your tax return, W2s, and asset statements.
  2. If you do it yourself, work with your student to create a college funding budget.
  3. Work with an advisor? Schedule a meeting with you, the student, and the advisor to walk through this college funding worksheet.
  4. If you need help, contact me at or call 317-805-8040 to schedule a time for us to walk through your college funding budget.







A great college funding plan considers the different types of student loans and has three steps. The first step sets up your resources and budget. The last blog post focused on this topic. We reviewed how to create a college funding budget and compared it to the pre-approval process of buying a home. Also, the post explored the different funding categories. Loans made up two of those categories – one for parents and one for students. The second step in your college funding plan creates a smart lending strategy so the student or parent does not create a future financial burden. The last step is to shop for college. We will study this topic in later posts.

Today, we focus on the second step by examining the different types of student loans. As mentioned in other works, there are two major categories of student loans: federal loans and private loans. Each category may break down further into student or parent loans. Student loans refer to debt that is in only the student’s name. Parent loans may be in the student’s name but the parent acts as a co-signer, or the loan may be in only the parent’s name.


Stafford loans are the most common type of federal student loan. These loans will be either subsidized or unsubsidized. Among the loans, three differences exist: 1. The government pays the interest on subsidized loans while the student attends college. 2. The eligible amounts for subsidized loans are lower than those for unsubsidized. 3. A student must qualify for the subsidized loan, while every undergrad student is eligible for the unsubsidized loan. The student qualifies for subsidized loans by demonstrating financial need. To put it in a simple math formula (1.):

Cost of Attendance – Expected Family Contribution = Demonstrated Need

As you saw in my other post about expected family contribution, calculating this number is anything but easy. However, from the formula above, you get the basic of idea of how to qualify for subsidized Stafford loans. The government manages the amount it will cover in loan interest by limiting the amount of the subsidized loan. Depending on the amounts, a student may borrow the following under a subsidized loan: $3,500 for freshmen, $4,500 for sophomores, and $5,500 for juniors and seniors.

As mentioned earlier, every student qualifies for unsubsidized loans. The dollar amount a student may borrow depends on the grade level: $5,500 for freshmen, $6,500 for sophomores, and $7,500 for juniors and seniors. With this type of loan, the interest starts accumulating at the loan’s origination.

The two types of loans may be used together but the amount borrowed in any one year should not exceed the higher limit of the unsubsidized loan. If a student qualifies for subsidized loans, this will be used to the maximum first; then an unsubsidized loan will be added to the amount and not exceed the limit. Interest rates are fixed for the life of the loan and reset for new loans every year.

Perkins loans are another type of student loan that may be used. They are low-interest loans for grad and undergrad students who demonstrate exceptional financial need. The school is the lender and payments are made to the school or its service provider. Not all schools participate in the Perkins loan program, and funds may be limited (2.) Students with a high need should check with the school’s financial aid department for participation details. This loan program is not as popular as Stafford loans.

Parent PLUS

Parents may help students pay for college using a Parent PLUS loan. Parents of PLUS loans may acquire loans for dependent undergraduate loans (3.) These loans are not accessible to other students, namely graduate and independent students. Divorced parents may both acquire loans, but the total between them cannot exceed the loan limits (3.)

The total amount that parents may borrow for any one year follows the formula below:

Full annual cost of attendance – other financial aid the student received = Potential PLUS loan

Parent PLUS loans require no debt-to-income ratios and are not dependent on the borrower’s credit score (3.) As a result, the interest rates on these loans are rather steep. The current interest rate for the 2017-2018 academic year is seven percent with a 4.264% origination fee, making the real first-year rate for the loan 11.264%. As you can see, this high rate can quickly put families in trouble. Now just imagine the problems faced by families that take out these loans year after year.

Repayment of the loans typically starts 60 days after the loans are fully dispersed (3.) However, loans after July 1, 2008, can be deferred while the student attends school at least half-time (3.) The standard repayment applies to a 10-year repayment schedule. Income-based repayment schedules typically cannot be used with Parent PLUS loans, but they are eligible for student loan forgiveness (3.) PLUS loan consolidation cannot be done with other federal loans in the student’s name.

To apply for PLUS loans, parents fill out the FAFSA, then request the loan through You can also contact the financial aid department of the student’s college or university.

Private Loans

Private student loans vary greatly in terms, payment provisions, and features. For the most part, private loans lack many of the common features of federal loans, like fixed interest rates and income-based repayment plans, and are not subsidized (if you qualify). Most private student loans are issued by banks, credit unions, state agencies, or even the schools themselves.

Many private loans require repayment while the student attends college. Some of these loans require an established credit history or a co-signer (often the parent). Student loans commonly use variable rates. If interest rates rise, the loans become more expensive. Additionally, the loan may not be consolidated into a Direct Consolidation Loan and it may not have forbearance or deferment options.

In general, private loans do not compete with the flexibility or features of most federal loans. However, private loans constitute one of the fastest growing types of loans. See the graph below.


As noted above, the federal government limits the amount a student may borrow in Stafford loans. The price of tuition continues to rise year after year. As a result, programs like Parent PLUS and private student loans experience large growth.


Many graduates to wonder how they will pay back their complicate and confusing student loans. As we saw, student loans divided into federal and private loans and further split into parent and student-only loans. Federal loans give the borrower attractive terms as compared to private loans in general.

Student loans are the focus of the second step in creating a smart college funding plan. The student and family should know how much they can afford if the college budget is established up front, thus reducing the number of surprises upon graduation.

Coming Up

The next post discusses paying back student loans. It starts with a smart lending strategy.




Navigate The Stock Market Volatility


Stock Market Volatility

1. with the recent price swings you be getting a little scared of the markets and wonder if another 2008 is upon us.
2. we do not know for sure but let’s review a few a things.
– The large point drop in the DOW of nearly 1600 points was large at 6.26% but not the largest in percentage terms
on 8/24/15 the dow saw a 1089 point drop or 6.6%
– 5/6/2010 saw the flash crash with the DOW Dropping over 9%.
POINT: it is not the down days that define the success of an investor. It is staying in for the good days. I.e. remove the top 10-20 days and things really do start looking bad, but you need to stay invested.
– On average we see in an intra-year drop from peak to trough of 13.8%.

2. It is your stock/Bond/Cash ratio that best explains your return and volatility over time at over 90%.
– If you were extremely nervous perhaps we need to have a conversation about your capacity for risk and risk perception.
– It may be time to change your longer-term allocation.

3. We use a disciplined approach to match your portfolio to your goals. Accomplishing your goals is really what this is all about any.
– Matching your investment portfolio to your goals.
– How to use a bucketing methodology.

We use an academic approach to factor-based investing
The premiums:
1. Stocks outperform bonds over time.
2. Small-cap stocks outperform large-cap stocks over time.
3. Value stocks outperform growth stocks over time.
4. Profitable stocks outperform stocks with low profits over time.

529 Accounts and Tax Reform

In this video, we talk about the recent tax reform, 529 accounts, and how it may not be as great over the short term as people hope.

1. Provision of the tax from allowing families to withdraw $10,000 for private tuition.
2. Tax treatment of 529 on the federal and state level.
3. States playing catch-up to the tax reform.

As always, check out for more information or email me at


Planning for College and Your Expected Family Contribution

Planning for college gives families the opportunity to send young adults into the world on the best footing. Not only do these young work warriors learn technical skills to follow a career with a livable income, they also learn social skills by interacting with a new set of people. When not carried out properly, students and parents often see the end of academic careers with debt and no diploma. Creating a better understanding of how college funding works and the choices that are available help parents in the process of saving for, shopping for, and saving on the cost of college. This post will act as an introduction to saving on the cost of college, with a review of the family’s expected contribution.

First, let’s take a step back and look at the landscape as it exists today.

Google “student loan debt” and a barrage of articles and statistics fill your search results. As most families with college-bound students know, total student loan debt is well over $1 trillion. In fact, the most recent numbers show total student loan debt at $1.4 trillion (1.). In 33 out of the last 35 years, the cost of college has risen faster than the pace of inflation (as of October 2016) (2.)

The result has been an inflation rate of roughly 5% for the past 10 years. Compare this to the cost of college in Singapore over approximately the same time frame and you will see an inflation rate of 3.22% (3.) – more in line with what one would expect. Free tuition may also be available in countries such as Germany, which originally abolished tuition fees in 1971 (although it made a comeback from 2006-2014) (4.). Still, a free university education is not always as glamorous as it seems. For example, in Sweden, the government provides tuition to students, but students loans do pile up, with 85% of Swedish students graduating with debt (4.), though that debt does not compare to the growth or amount of debt US students incur.

Take a look at the cost of college and the median US household income.

Notice the growth rate of college costs and lack of growth in median family income.

Part of the American Dream is slipping farther away from parents wanting to see their children do better and from students wanting to experience a respectable standard of living. The math is simple; when the rate of change for college costs increases faster than incomes rise, more borrowing takes place, totaling $1.4 trillion.

New Trends

I hope we start waking up to the current realities and start looking at the picture with a different set of assumptions and planning techniques. The students who recently graduated or who will be graduating soon must start looking at student loans in the same way Boomers have started looking at Social Security to maximize lifetime income. However, instead of looking for ways to increase lifetime income, graduates and parents with student loans must find ways to reduce lifetime expenses.
Students in high school or middle school, and their parents, should closely examine ways to fund college. Start with the basics. (Click here for a timeline associated with the last two years of high school.)

First step

We must look at the larger, more basic formula for college as outlined below.

Cost of Attendance – Expected Family Contribution = Student Financial Need

Most families have this basic formula down. If you have a high school student, how many conversations have you had with him or her about the cost of in-state versus out-of-state tuition and public versus private university costs? Most families try to keep the cost of attendance down without focusing on other aid that may make more expensive universities competitive, in terms of cost, with public in-state institutions.
For example, if private university tuition is $50,000 and a public school costs $25,000, the easy choice (on the surface) is a public university. However, when private schools see that a student has significant financial needs, those schools will likely offer more scholarships, grants, discounts, and money to the student (assuming the college is seeking the student’s attendance).
Only 11% of private school students pay full price for their education (6.). Private universities spend $0.42 of every tuition dollar and revenue on scholarships and grants (6.). Recent years have shown record scholarships and grants issued from private universities.
In the end, the net cost to parents and students matter not the sticker price.

Learning how the formula works for a family’s expected contribution should be the second step.

What is the Expected Family Contribution, or EFC?

It seems easy to not worry about how to pay for college until the bill comes.

In simple terms, this number is the amount of money the government feels your family can reasonably contribute to funding a college education. The formula, while more complicated, is listed below:

(Parent Income + Parent Assets)/# of Children in College + Student Income + Student Assets = EFC

Parent Income – Between 0-47% of total income may be expected minus all taxes and allowances.

Parent Assets – Up to 5.6% of qualifying assets may be counted, such as brokerage accounts, college savings, and savings accounts. Assets such as the family home, retirement plans, and an asset protection allowance do not affect the EFC calculation.

Number of Children in College – If you have more than one child in college, your Student Financial Need changes because assets will cover multiple individuals.

Student Income – 50% of income over the protection allowance counts toward the family’s EFC.

Student Assets – 20% of all assets, including custodial accounts and savings accounts. As with parents’ assets, the EFC calculation ignores family homes and retirement plans. As mentioned before, students also get an income protection allowance.
(Stay tuned for another blog post discussing income protection allowances.)

Now what?

As you can see from the formula, simplicity quickly gets lost and families start ignoring the EFC part of the college funding formula. Here are the next steps for parents and students.


1. Starting when your child is in middle school, project your income through high school and college to better understand cash flow and to examine ideal accounts to save college funds.
2. If you own a small business for which your student works, create a plan early for the student’s income to avoid a higher EFC.
3. Create a plan for the gifting of assets to the student while he or she is in college, or a few years before college. Remember that up to 20% of a child’s assets count for the EFC and that only 5.64% may be expected for a parent’s qualified assets. If Grandma and Grandpa gift stock to the kids, you may want to rethink this for a while, or Grandma and Grandpa may want to gift the stock to Mom and Dad instead. (Watch out for the annual gift exclusion amount. Talk to your tax advisor for specifics about your situation.)


1. If you work, project your income over the next few years before and while you’re in college. You may end up working more your sophomore year versus your junior and senior years. This accomplishes two items: A.) It gives you a longer timeframe for your money to compound, and B.) Because prior-year tax returns are used, a lower income will be reported on the FAFSA.
2. Be careful about receiving gifted assets. See #3 under “parents.”
3. As you plan for college, closely examine whether you will be a better candidate for merit-based or needs-based scholarships and grants.

As always, if you have any questions, use the “contact us” page to let us know what is on your mind or contact us at 317-805-0840.


1. “U.S. Student Loan Debt Statistics for 2017.” Student Loan Hero. N.p., 11 July 2017. Web. 01 Aug. 2017.
2. Clark, Kim. “College Costs Hit Record High in 2016 | Money.” Time. Time, 26 Oct. 2016. Web. 01 Aug. 2017. <>.
3. “College Access and Affordability: USA vs. the World.” Value Colleges. N.p., 01 Nov. 2016. Web. 01 Aug. 2017. <>.
4. Mithcell, Michael, and Michael Leachman. “Years of Cuts Threaten to Put College Out of Reach for More Students.” Center on Budget and Policy Priorities. N.p., 29 July 2015. Web. 01 Aug. 2017. <>.

The Current Reality of Paying for College

We want the best for our children, and we seek to lead them towards lives that are better than our

Pay for college is complicated and gets many families into trouble.

own. Culturally, we accept the pursuit of the “American Dream.” We measure success in terms of a house and white picket fence, a steady nine-to-five job, and a sizeable bank account. As parents, how do we put our children in a position to achieve this dream? What if our children want something other than this dream?

These questions lead me back to the current reality. To help our kids prepare for this next exciting phase of their lives, what should we as parents be doing now? For most families, “college” is the answer. However, the reality of achieving it remains a challenge. It’s like watching a crowd pay to stand in line for a box of goods and the promise of a great future, but not knowing how long the line is or what the box contains.

The American Dream

We hear about the goods in the box being the American dream – buying a home with a white picket fence, having two children, working at a nine-to-five job, and having a sizeable bank account. These traits are measures of success. The American Dream tells us that a pension awaits us when we reach the age of 65, and that our children will get college degrees, putting them on track to have better lives than ours. Yet somehow, in some way, the dream feels out of reach.

Consider Generation X. They bear the once-shared responsibility of creating a retirement pension while caring for elderly parents and helping pay the inflated cost of college – all on stagnant wages. The financial planning community tells this generation, “Save more, work more, save for your retirement first. Kids can borrow money for college; you cannot borrow for retirement.”

What is the result? A lack of retirement savings, student loan debt that both parents and children will be working to pay off for decades, and high levels of stress and anxiety. Where can we start building momentum that helps parents and acts as a springboard for our children and communities? College planning. Here, we can start with one of Gen X’s biggest concerns. First, we must gain perspective on the current landscape.

Student Loan Bubble

One of the most disturbing clocks is the student loan clock (found at Take a moment to venture over there and wait for a few seconds. It likely feels similar to watching the national debt clock. Consider the growth in student loan debt over time with just federal student loans outstanding (3.)

Or how about the increase in parent plus loans versus federal loans to undergraduates(4.)

Several studies have shown that parents tap into their retirement accounts to help pay for college. Even as parents sacrifice their own retirement over time, we sit with $1.4 trillion of student loan debt, on which one generally cannot file for bankruptcy. Experts state that the student loan bubble is coming.

Is it coming or is it already here? In a recent article, Forbes noted that the percentage of borrowers not paying on their federal student loans within three years of graduating college has increased to 11.5% (1.). Compare this to the mortgage delinquencies from the great recession, which topped out at 11.53% in the first quarter of 2010 (2.). How can the bubble be on the way? It is already here.

For several reasons, we should not be surprised by the lack of conversation on this topic:

– The Department of Education does not penalize universities until their student loan default rates exceed 40% in one year or 30% over three years. Remember how terrible things were during the Great Recession? Universities would need to become three to four times worse in terms of their default rates before the school has skin in the game.

– Think about the fact that you cannot easily declare bankruptcy to eliminate student loans. Why would the student loan industry care much about defaults? The interest will continue accruing; it only becomes a question of when they will collect. The longer it goes, the more compensation they will receive. The interest does not stop piling up.

– Let us not forget the standard advice of the financial planning industry: Prioritize saving for your retirement. “Kids can borrow money for college, but you cannot borrow money for retirement.” Think about how we pay for advice. Most advisors or financial salespeople receive compensation from commissions and/or the assets they manage. The larger this pool of assets, the more money they make. Why wouldn’t they prefer that you and your child take out student loans instead of paying for college from accumulated assets? While this does not apply to all financial professionals, based on my experience it is most often the case. This is not always a prudent financial move. In 2015, Mark Kantrowitz wrote an article that discusses situations in which putting your retirement first does not work best.

New Mindset

Does the world seem bleak, as though all is lost? There are new and developing trends. We must

Families need a new way to pay for college and pay off existing student loans.

understand both sides of the student loan issue.

The first is students who have already graduated and are working to pay off their loans. These individuals must look and plan for their student loans using the same mindset Boomers have toward Social Security planning. As you look back on retirement income planning, not much thought was given to maximizing Social Security to increase lifetime income. However, as Boomers aged, they explored the rules and started developing strategies like file and suspend, or restricted claim to help increase lifetime income. These strategies were innovating. They became so popular that Congress had to change the rules on Social Security. In a comparative way, new planning tactics must be developed for current holders of student loans. People like Heather Jarvis and younger financial planners are leading the way.

The flip side involves preventing student loans from being an issue. This means that as college education consumers, we must change the way we save for, shop for, and save on higher education. Most of the time, financial services will tell you to save for college (provided you have taken care of your retirement first), but it will not tell you how to save on the cost of college. Those individuals who talk about how to save on the cost focus on getting scholarships. However, there are other ways, like smart shopping, making the schools compete for your student’s attendance, and using the tax code to create “tax scholarships.”

Next Step with College Funding

– If you face the first scenario, study the innovators who specialize in student loans. If you are a do-it-yourselfer, check out Heather Jarvis’ site: For those who are delegates or validators, check out the screening tool on the XY Planning Network and look for advisors who specialize in student loans.

– If you are a parent of a high school student seeking some level of education beyond high school, look for advisors who specialize in the financing of college funding, not just the filing of the FAFSA or CSS and finding scholarships. I’m talking about using the tax code to create “scholarships,” having universities compete for your attendance, coordinating contributions from family members to avoid negative impacts on aid, helping coordinate distributions from accounts, developing a smart borrowing plan, and helping families explore ways to cover any college funding shortfall. To see what this process can look like, follow this blog over the next few months.

– Check out my other college funding articles.

Give me a call at 317-805-0840 or email me at to discuss you will pay for you student’s higher education.


  1. Friedman, Zack. “Student Loan Defaults Rise – What To Do Now.” Forbes, Forbes Magazine, 6 Oct. 2017,
  2. “Delinquency Rate on Single-Family Residential Mortgages, Booked in Domestic Offices, All Commercial Banks.” FRED, St. Louis Federal Reserve, 27 Nov. 2017,
  3. Eisenhart, Maddie. “Student Debt Is Going to Be A Huge Problem for Millennial Marriages | A Practical Wedding.” A Practical Wedding: We’re Your Wedding Planner. Wedding Ideas for Brides, Bridesmaids, Grooms, and More, 17 May 2016,
  4. Mitchell, Josh. “The U.S. Makes It Easy for Parents to Get College Loans-Repaying Them Is Another Story.” The Wall Street Journal, Dow Jones & Company, 24 Apr. 2017,

Important Dates for College Planning

College affects the daily lives of Gen X parents, either through children who have just graduated from college with student loan debt or through children who will soon be attending college. As their careers become settled and they earn higher incomes, parents with toddlers also focus on college. The idea of funding college moves up their list of goals.

As an industry, financial planning still has room to improve in terms of college planning. While financial services communicate the dates for retirement planning, the opposite seems true for college planning. Here, we discuss many of the dates and explain a few of the ideas associated with college planning.

FAFSA and Associated Timeline

FAFSA is an acronym for Free Application for Federal Student Aid. Parents and students complete this form every year to determine eligibility for financial aid. From the information listed on this form, an Expected Family Contribution is established to help fund the student’s education. For this article, students and parents should know that to file for the 2017-2018 academic year, the FAFSA must be filled out by June 30, 2018. However, the earlier you file, the better your chance of qualifying for grant, scholarship, and work-study money (1). Ideally, you would have filed on October 1, 2016, for the 2017-2018 school year.

Families should complete the FAFSA as close to October 1 of their senior year of high school.

States and colleges have their own deadlines for the FASFA filing (1). You can find the date by visiting (2). The dates will not necessarily agree with the federal deadline already discussed. For example, Indiana’s deadline for the 2017-2018 academic year was midnight on March 10, 2017

When checking your desired university’s deadline, make sure you define the deadline. Is it submission of the FASFA or the date when it has been processed (2)?

As you can see, the FAFSA-related dates complicate the situation. The simplest action is to file your FAFSA form as close to October 1 when the application opens for the academic year in the following calendar year. In other words, for the 2018-2019 academic year, file the FAFSA on October 1, 2017. Many states and universities give out money on a first-come, first-served basis.

College Application Deadlines

While families stress about the financial aid they may receive, it is easy for them to forget about the college application deadline. As with the FAFSA, a few deadlines may apply to you. The result of not applying on time may lead the university to not even look at your application (3).

First, understand that the college application can be an early application or regular application. Colleges divide early application into early action or single choice early action. For purposes of this article, send an early application to the university during the first semester of the student’s senior year of high school, typically October to mid-November (3, 4). Early acceptance announcements may occur from November to early February (5).

Universities typically accept regular applications between January 1 and February 1. Students who plan to fill out a regular application should have letters of recommendation and essays completed by mid-November. Students should receive acceptance letters by mid-March or April (4).

SAT and ACT Tests

The ACT and SAT tests cause strike fear in many high school students. A high score means getting into the student’s dream college … or so many think. Many colleges now take a holistic approach to admissions and look at civic engagement, secondary student activities, and work experience as factors influencing admissions. However, the ACT and SAT are still important factors in the admissions process.

As a best practice, students should take one or both tests a couple times starting their junior year of high school. Students can take test several times throughout the year. The best time to take the tests will depend on your needs; typically, a study time of at least 40 hours is recommended for ACT and SAT preparation (6). Depending on class load, extracurricular activities, and scheduling, a student may take one to four months to prepare. Some do not recommend starting too early because the student may forget some of the material.

For general planning purposes, start with two months of lead time for test preparation and then adjust your schedule as the date gets closer.

Parents and College Planning

For parents, college planning will involve time spent reviewing and analyzing assets, as well as cash flow for account contributions.

College Savings Accounts

Parents typically save money in one of three types of accounts for college.

Custodial account- Money placed in this account is the child’s  asset(s). A custodian, typically a parent, oversees and invests the money. Contributors do not face deadlines for but funds will be considered higher on the list for college funding. The account also has a greater effect on funding expectations versus, say, a 529. The upside to a custodial account remains the flexibility with which the funds may be taken out. The money must be used for the benefit of the student. On a side note, some states require that the money is turned over to the child (i.e., the custodian is removed) once the child reaches the age of majority – a situation some parents do not favor. No tax advantage may be realized in funding these types of accounts.

Coverdell Educational Savings Account- This type of account is also known as the Educational Savings Account, or ESA. It focuses mainly on college with a cap on the contribution limit of $2000 each year until the student reaches the age of 18. The contributions are not tax-deductible but grow tax-free as long as the money is used for qualified expenses. Contributions can be made until the due date of the contributors’ return (April 15) without extensions (7). Income limits apply to the account. Individuals may contribute if their modified adjusted gross income is below $110,000 ($220,000 for married filing jointly) (7).

529 College Savings Account- The most popular college savings account is the 529. The deadline for most 529 contributions is December 31. However, seven states allow contributions up to mid- to late April for the previous tax year. These seven states are Georgia, Iowa, Mississippi, Oklahoma, Oregon, South Carolina, and Wisconsin (8). Many states offer a deduction or credit for account contributions. Please see your advisor for details related to your specific state.

Tax Returns

As we know, April 15 remains a dreaded date for most Americans, as tax returns are normally due. The date does adjust every once in a while, when April 15 falls on a weekend and to accommodate Emancipation Day (normally on April 16), which celebrates the end of slavery in Washington, D.C.

Some parents do not complete their taxes on time and file an extension. When this happens, the taxpayer must complete the filing by October 15. Filing an extension affects the FAFSA. Parents need to send a copy of the 4868 (extension form) with the FAFSA. Often, the university wants copies of W-2’s and a signed draft of your tax return. The institution may offer a temporary extension on the financial aid award until the FAFSA has been updated and completed.

 Shifting Income

Strategic planning for recognizing income or shifting it from one year to another may have an effect on your capacity to receive aid. In the same way, parents may look at shifting income for other reasons; many of the same tactics apply.

Gifting appreciated stock is one example which shifts income from a parent in a high tax bracket to a child (who sells the security) in a lower tax bracket at a young age. Parents need to gauge how this income shift affects financial aid. The focus should be on the income allowance and trying not to exceed it.

Understand that your income from this year will not affect aid for two years. For example, in the new changes on the FAFSA filing, the form asks for the “prior prior year’s” tax information. A 2015 tax return will become the basis for the 2017-2018 academic year.

Avoid recognizing large amounts of income through retirement account distributions or exercising stock options or capital gains. Offset capital gains with losses.

All the activities listed above normally have a deadline of December 31 at the close of the tax year. Please see your tax advisor for specifics about your situation.

If you have questions or would like to talk more about your student’s college funding, use the “contact us” section to let us know what you would like to discuss and when you are available.


  1. Nykiel, Teddy. “When Is My FAFSA Deadline.” NerdWallet. N.p., 13 Sept. 2016. Web. 19 June 2017. <>.
  2. “Student Aid Deadlines.” Student Aid Deadlines – FAFSA on the Web – Federal Student Aid. N.p., n.d. Web. 19 June 2017. <>.
  3. Services, University Language. “College Application Deadlines at US Colleges and Universities.” The Campus Commons. N.p., n.d. Web. 19 June 2017. <>.
  4. Services, University Language. “Early Application: Applying to US universities early or regular decision.” The Campus Commons. N.p., n.d. Web. 19 June 2017. <>.
  5. Blank
  6. Zhang, Dr. Fred. “SAT / ACT Prep Online Guides and Tips.” How long before the SAT should you study and prep?: 3 Factors that Affect the Hours. N.p., n.d. Web. 19 June 2017. <>.
  7. “Coverdell ESA Contribution Limits & Deadlines.” 2016 and 2017 Coverdell (ESA) contribution limits and deadlines. N.p., n.d. Web. 19 June 2017. <>.
  8. Flynn, Kathryn. “7 States Where You Can Still Claim a Prior-year 529 Plan Tax Deduction.” N.p., 21 Feb. 2017. Web. 19 June 2017. <>.
  9. “Office of Student Financial Aid.” IRS Tax Transcript FAQ | Office of Student Financial Aid – University of Wisconsin–Madison. N.p., n.d. Web. 19 June 2017. <>.


The traditional investing world is shrinking as younger workers face the hurdle of saving for retirement, servicing student loans, buying homes, and starting families. The shrinking isn’t in the

Understand how crowdfunding works

number of available choices (like mutual funds or exchange traded funds) but in the number of publicly traded stocks. The number of publicly traded companies decreased roughly 46 percent from the middle of 1996 to the middle of 2016 (1).  Crowdfunding may change how we invest.

Let’s look at one of the broadest domestic indices, the Wilshire 5000. In August 2016, the index had 3,607 stocks, while in 1998 it had 7,562 (2). Ironically, the number of public companies outside the United States has risen by roughly 8,700 since 1996 (2). The lower number of public stocks today can be attributed to the fact that large companies are merging or failing to meet listing requirements, and fewer companies want to go public (2).


As the Wilshire example shows, this is happening now. Consequently, on the larger company side, equities like Apple play a more important role in the markets. Remember when Apple was not a major player for the top position in the S&P 500? Today, the stock occupies roughly 3.5 percent of the S&P 500 and over 11 percent of the NASDAQ 100. An article from CNBC discusses how this may negatively affect the popular trend of passively investing in index-based instruments (3):

“Some have gone a step further, arguing that passive investing leads already-overvalued stocks to become even more overvalued, as new money is allocated on the basis of existing (relative) sizes.”

For active mutual fund managers, a shrinking pool may mean holding onto well-known names longer than they would have otherwise. This point demonstrates the influence on mutual managers and investors as the number of stocks decreases. Less flexibility exists for mutual fund managers because money is leaving the arena and there are fewer stocks in which to invest.

This movement plays out like a game of musical chairs, in which the companies are the chair and the investors (including the fund managers) are trying to grab a seat. In our case, the number of investors does not decrease as the number of chairs becomes smaller. We end with people sitting on each other’s laps.

What is an investor to do?

You should continue with a normal course of saving and investing regularly, but you will need to make a few adjustments.

  1. Pay attention to your holdings. Know what you own and how to use it in your portfolio.
  2. Notice where you save money. How much goes into your 401k versus IRAs or Roth IRAs? Do not forget about your emergency savings. IRAs at large firms like Schwab, Vanguard, or TD Ameritrade typically have more investment choices than does a 401k. The point is to make sure you have the flexibility to access the best investments.
  3. Be ready to change as the financial markets change. Two movements are taking place that may change our investing landscape. The first is socially responsible investing, which has captured much press recently. The second change stems from crowdfund investing or the private equity movement.

What is private equity?

Private equity covers many types of investments, though its main characteristic involves not listing on a public exchange like the New York Stock Exchange or the NASDAQ. Private equity typically involves an investment in a non-listed business. Profit, management, and other traditional metrics matter, as they do with a listed business, but you do not have the reporting requirements of listed companies.

Some analysts propose that investing in private equity forces people to become “real investors” because of the lack of liquidity and the longtime horizon needed for the investment to provide returns. Private equity may also include bonds or other forms of debt.

Most closely associated with private equity is the venture capital firm, or VC. VC firms invest mostly in small companies or startups they believe have growth potential.  The institutions receiving the money typically do not have access to enough traditional funding through banks, public markets, and other places. Most of the investments are high risk. Consequently the terms of VC funding do not follow a traditional path.

A new and growing way to access private equity involves raising money through crowdfunding.

What is crowdfund investing?

Think Kiva, Kickstarter, and Go Fund Me; these are popular examples of crowdfunding. It is like a public version of Shark Tank. People put their ideas out there and potential investors can pass,

Understand how crowdfunding works

invest, or sometimes become actively involved in the presented opportunity. One of the key features of crowdfunding is that it allows securities to bypass federal securities laws (4).

Crowdfunding sprang into action with the JOBS Act of 2012, signed by President Barack Obama. The idea behind the act had the “SEC to write rules and issue studies on capital formation, disclosure, and registration requirements” (5). It opened the door for more participants to fund companies or investments that were previously available only to accredited investors.

Who are accredited and non-accredited investors?

In simple terms, accredited investors are high-net-worth or high-income individuals who have access to private investments that do not have to be registered with the Securities & Exchange Commission (SEC). To become an accredited investor, one must meet one of the following criteria:

– Have a net worth greater than $1 million. This value cannot include the value of one’s personal house.

– Have an income of greater than $300,000 for couples (or $200,000 for individuals) for the two previous years. Also, the couple (or individual) should expect to meet the criteria in the current year.

A non-accredited investor does not meet the needs listed above. As we can imagine, accredited investors make up a small percentage of the population. This is where the JOBS Act enters the picture with crowdfunding.

What are the rules for crowdfund investing?

In a press release dated October 30, 2015, the SEC outlined four areas for rules and regulations for crowdfunding, which include (6):

  1. Capital limits on funds raised by the company.
  2. Disclosure requirements on issues of specific information for the security offered.
  3. Investment limits on the amount investors buy.
  4. Framework for broker-deals and funding portals that engage in crowdfunding.

A brief summary of each area

Capital Raising Limits– Companies may not raise more than $1 million through crowdfunding in a 12-month period. Some companies, such as non-US companies and Exchange Act reporting companies, will not be eligible for crowdfunding campaigns.

Disclosure Requirements (as taken from the October 30, 2015 press release)-

  • The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
  • A discussion of the company’s financial condition;
  • Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor. A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements unless financial statements of the company are available that an independent auditor has audited;
  • A description of the business and the use of proceeds from the offering;
  • Information about officers and directors as well as owners of 20 percent or more of the company; and
  • Certain related-party transactions.

In addition, companies relying on the crowdfunding exemption must file an annual report with the Commission and provide it to investors.

Investor Limits– Investors are divided into two groups: income or net worth below $100,000, and those above $100,000.

  • Permit individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
  • If either their annual income or net worth is less than $100,000, the greater of:
  • $2,000 or
  • Five percent of the lesser of their annual income or net worth.
  • If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.

Broker-Deal and Portal Framework– Some funding platforms should register with the Commission a new Form Funding Portal and be registered with FINRA. Additional requirements taken from the same press release are as listed below:

  • Provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered, the information a company must provide to investors, resale restrictions, and investment limits;
  • Take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with Regulation Crowdfunding and that the company has established means to keep accurate records of securities holders;
  • Make publicly available on its platform the information a company is required to disclose throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;
  • Provide communication channels to permit discussions about offerings on the platform;
  • Provide disclosure to investors about the compensation the intermediary receives;
  • Accept an investment commitment from an investor only after that investor has opened an account;
  • Have a reasonable basis for believing an investor complies with the investment limitations;
  • Give investors notices once they have made investment commitments and confirmations upon or before completion of a transaction;
  • Comply with maintenance and transmission of funds requirements; and
  • Comply with the completion, cancellation, and reconfirmation of offerings requirements.

The rules would also prohibit intermediaries from engaging in certain activities, such as:

  • Providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;
  • Having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and
  • Compensating any person for providing the intermediary with the personally identifiable information of any investor or potential investor.

Could crowdfunding change the way we invest?

One of the most noteworthy trends in crowdfunding right now focuses on impact investing and socially responsible investing. As we look forward, though, crowdfunding may solve the problem posed earlier about the declining number of publicly traded securities.

Perhaps we will see a trajectory in packaged products similar to the ETF or mutual fund for the smaller investor. This would create economies of scale while providing diversification and reducing business risk.

Where do I look for crowdfund investing opportunities?

Here is a link for portals regulated by FINRA:

Next steps:

  1. Educate yourself on crowdfund investing. As with other risky investments, the potential to lose money exists. Make sure you have the capacity to lose the money. If not, crowdfund investing is likely not suitable for you.
  2. What are you looking for as an investment? Is it to have an impact locally or “own a dream business” like a brewery without the stress of running it?
  3. Talk to a knowledge advisor on the topic. Be careful when engaging in this conversation, as many “advisors” are really salespeople. Ask how the advisor receives compensation. If the advisor receives commissions, he/she is a salesperson.

Check out this related article on investment performance.