How to Pay for College, From 529 Hacks to $12,000 Tokyo Tuition

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**SPEAKER_2** (0:08)
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Carol Massar** (0:14)
Well, check this out, Emily. I don't know what your college costs. I know what my daughter's college cost. Cost of a four-year degree, though, in the US has climbed roughly 40 percent in 20 years, and at some schools, elite schools, cost of attendance alone is closing in on about $100,000 a year. So we're talking about a full four-year tab at nearly half a million dollars.

**Tim Stenovec** (0:34)
And that's just one student. Imagine a family that has, you know, a couple kids that they have to get through college.

**Carol Massar** (0:40)
Yeah, and figuring it out. Even families earning as much as $300,000 a year can struggle to keep up. And while financial aid can lower costs for some students, and we hear that from a lot of schools, the reality is many families can fall into an uncomfortable gray area and that is too rich to qualify, too middle class to cover skyrocketing bills. It's a really tough spot to be. A lot of folks and families, though, who can use 529 plans, and that's what we want to talk a little bit more about. Ann Garcia is a certified financial planner. She's a wealth advisor at The Mather Group. She joins us from Portland, Oregon. I'm just back from Portland, my first trip there, and it is beautiful. I'm just going to put that out there. And good to have you here with Emily and me.
529s, a lot of folks in our audience know what they are, but for those who might not, what do we need to know some of the basics about them? Because they've been around for a while.

**Ann Garcia** (1:27)
They have been around for a while, and they've gotten better and better over time is one of the pieces of good news. A 529 is a tax-advantaged college savings fund, although given how over the years the rules have changed to allow lots and lots of different uses for them, I like to think of them as a launch fund for your kid. It's a fund, it's money that can be used for a four-year college, two-year college, K-12 expenses, apprenticeship and other such programs. So there are lots and lots of ways to use a 529 The big piece of it is it's a tax-advantaged education savings account.

**Tim Stenovec** (2:05)
You work with a lot of clients. What are the biggest misconceptions about how this education fund works?

**Ann Garcia** (2:12)
There's so many, I think the biggest one is that they're not very flexible, and in fact, they are very, very flexible. Like I said, they can be used for four-year colleges. They can be used for two-year colleges. They can be used for almost any post-high school savings, educational expense, tuition, fees, room and board, books, you name it, just about any piece of the college experience. They're also a lot easier than people think. There's so many different choices out there, and that's primarily because 529s initially were state-run programs. So there's a lot of confusion about, well, if I open one in my state, what happens if my kid goes to college in another state, or what happens if I moved? The good news is any 529 can be used at any college.
Another big one is, if I save, it's going to cost me in financial aid. For most, the impact of a 529 on your financial aid package tends to be pretty negligible. And as a general rule, the more savings you have, the more choices you'll have when it comes time for your kid to go to college.

**Tim Stenovec** (3:22)
Carol and I started this segment talking about how putting a full, like four-year university, the TAB is nearly half a million dollars, and that's just for one family. The cost is just skyrocketing here. Are you seeing clients now, they're asking for the 529 more, or are there also a subset of people that are just completely rethinking higher education because of the financial strain?

**Ann Garcia** (3:49)
Well, I think there's two important prices to be cognizant of when it comes to college. Yes, the list price of college has gone through the roof. There are multiple colleges that are over $100,000 a year. But the reality is most people don't pay full price. In fact, about 90% of students have some form of scholarship or financial aid. And in fact, there's a recent study that just came out of college business officers that showed that the average tuition discount rate for the previous school year was over 57%, which means that for every $1,000 of tuition that's billed, only $430 actually gets paid. The rest of it is discounted away in the form of scholarships and grants. So people who see the headline prices, yeah, it is discouraging.